Guidelines For A Successful Construction Project
                           Table of Contents

  Clicking on an entry in t...
Table of Contents

D. Successful Project Execution
  1. Environmental Health & Safety
      a. Project Safety and Health.....
A.1
Guideline on General Contractor-Subcontractor Relations
                                                              ...
A.1 Guideline on General Contractor-Subcontractor Relations

     sub-subs’ bids, should provide a convenient plan        ...
A.1 Guideline on General Contractor-Subcontractor Relations

distributed to all such parties on the project. The purposes ...
A.1 Guideline on General Contractor-Subcontractor Relations

by the safety requirements established by the general con-   ...
A.2
                        Guideline on Owner’s Ability to Pay
Delays or defaults by owners in meeting contractual pay-  ...
A.2 Guideline on Owner’s Ability to Pay

In the case of governmental bodies, statements that neces-        governments whi...
A.3
                     Guideline on Contractor’s Payment
                  Rights, Obligations, and Responsibilities
1. ...
A.3 Guideline on Contractors Payment Rights, Obligations and Responsibilities

  tract before actions allowed by the contr...
A.4
                         Guideline on Design Responsibility
All owners, architects and other design professionals are ...
A.5
                     Guideline on Liaison Committees:
                Starting or Expanding an Existing Program
The AG...
B.1
                           Guideline on Bidding Procedures
Most construction projects in the United States are com-   ...
B.1 Guideline on Bidding Procedures

The scope letter should contain any information the prime         underway, undermine...
B.2
                   Guideline on Project Scheduling, Delays,
                           and Liquidated Damages
Proper p...
B.2 Guideline on Project Scheduling, Delays and Liquidated Damages

ment on change orders and potential litigation (see D....
B.3
           Guideline on “Scope” Bidding for Private Work
So-called "scope" bidding has proliferated in recent years
in...
B.3 Guideline on “Scope” Bidding for Private Work

  b. All material necessary for equipment to function in a          b. ...
B.4
                 Guideline on Bid Shopping & Bid Peddling
Bid shopping and bid peddling are abhorrent business        ...
B.5
         Guideline on Exchanging Documents and Data in
                         Electronic Form
The advent of alternat...
B.5 Guideline on Exchanging Documents and Data in Electronic Form

  • Document transmission standards, such as accept-   ...
B.6
           Guideline on Volatile Price Adjustment Clauses
Volatility of construction material and equipment costs is  ...
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  1. 1. Guidelines For A Successful Construction Project Table of Contents Clicking on an entry in the Table of Contents will take you directly to that Guideline. In a Guideline, clicking on a How to use this PDF: reference to another Guideline will take you to the referenced document. Mission Statement The Associated General Contractors of America, the American Subcontractors Association, and the Associated Specialty Contractors have agreed to work together to develop, maintain and promote Guidelines for a Successful Construction Project. The Guidelines represent the joint efforts and approval of these organizations who will continue to address industry concerns as the need arises. A. Introduction & Overview 1. General Contractor-Subcontractor Relations .................................................................................................................1 2. Owner’s Ability to Pay ..................................................................................................................................................5 3. Contractor’s Payment Rights, Obligations, and Responsibilities..................................................................................7 4. Design Responsibility ....................................................................................................................................................9 5. Liaison Committees .....................................................................................................................................................10 B. Bidding Processes 1. Bidding Procedures ......................................................................................................................................................11 2. Project Scheduling, Delays, and Liquidated Damages ...............................................................................................13 3. "Scope" Bidding for Private Work...............................................................................................................................15 4. Bid Shopping & Bid Peddling .....................................................................................................................................17 5. Exchanging Documents and Data in Electronic Form ................................................................................................18 6. Volatile Price Adjustment Clauses ...............................................................................................................................20 7. Building Information Management .............................................................................................................................21 C. Preconstruction Planning 1. Preconstruction Conferences .......................................................................................................................................23 2. Partnering .....................................................................................................................................................................26 3. Sequenced Project Schedules.......................................................................................................................................29 4. Site Logistics ...............................................................................................................................................................31 5. Surety Bonding ............................................................................................................................................................35 Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American Subcontractors Association, Inc./Associated Specialty Contractors. i
  2. 2. Table of Contents D. Successful Project Execution 1. Environmental Health & Safety a. Project Safety and Health........................................................................................................................................37 b. Unforeseen Environmental Problems in Construction ...........................................................................................38 2. Coordination a. Communication .......................................................................................................................................................40 b. Project Meetings .....................................................................................................................................................42 3. Contract Administration a. Avoidance and Resolution of Construction Disputes .............................................................................................43 b. Benefits to the Owner of Effective Allocation, Delegation, and Performance of General Conditions Responsibilities ......................................................................................................................................................45 c. Consequential Damages ..........................................................................................................................................46 d. Procedures for Change Orders................................................................................................................................49 e. Charges for Non-contracted Construction Services................................................................................................51 f. Prompt Payment ......................................................................................................................................................52 g. Payment for Stored Materials and Equipment........................................................................................................53 h. Purchase of Materials or Equipment by Owner .....................................................................................................54 i. Overtime, Construction Costs and Productivity......................................................................................................55 j. (Reserved) ................................................................................................................................................................58 k. Retainage.................................................................................................................................................................59 l. Terminations and Suspensions.................................................................................................................................60 4. Quality Assurance/Quality Control a. Total Quality Management......................................................................................................................................62 b. Project Inspections ..................................................................................................................................................65 5. Project Closeout a. Project Closeout ......................................................................................................................................................67 b. Punch List Procedures ............................................................................................................................................69 c. Warranty for a Construction Project .......................................................................................................................70 E. Appendix - Forms 1. Subbid Proposal ...........................................................................................................................................................71 2. Subcontractor’s Application for Payment....................................................................................................................73 3. Work Authorization Form ............................................................................................................................................74 4. Change Proposal/Order Form ......................................................................................................................................75 Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American Subcontractors Association, Inc./Associated Specialty Contractors. ii
  3. 3. A.1 Guideline on General Contractor-Subcontractor Relations culture. Keeping everyone on a project working together in a harmonious fashion, without unduly delaying or Preamble The primary objectives of every general contractor and damaging others, is a highly complex task requiring the subcontractor are to successfully deliver to the owner the utmost coordination, cooperation, communication, and specified project safely, on time, at the contract price and sometimes, compromise. As difficult as it may be, this is achieve a reasonable profit in return for performance of what makes a project profitable and the construction its work. Regardless of personal pride, business philoso- industry rewarding (see D.2.a.Communication and phy, contractual authority or years of experience, no gen- D.2.b.Project Meetings). eral contractor can deliver a project successfully without the cooperation of competent subcontractors. Each general contractor and subcontractor on a project should be regarded with equal respect. Each is an expert Similarly, no subcontractor, regardless of skill and experi- in its own field. Ethical conduct, regardless of contractual ence in its specialty, can perform its work successfully "rights" or ability to make another firm suffer, is essential without the corresponding measure of cooperation and for harmony. The golden rule, "Do unto others as you leadership of a competent general contractor. would have others do unto you," is still the best guideline Both seek a business relationship on which they can in dealing with other individuals and businesses. depend. Usually, each wants to continue to do business Contractors should also assist architects, engineers and with the other on future projects as well as those at hand. owners by advising them, when requested, on relative Skill, integrity, fairness, trust, respect, and responsibility costs of alternates while plans are being prepared so as to will make the contractual relationship—now and in the reduce the number of alternates. future—possible, profitable and pleasant. The following guidelines, developed by the Associated General Contractors of America, the American Subcontractors Association, and the Associated Specialty Contract Documents A written contract document usually establishes the Contractors, provide suggestions for mutually profitable framework for the relationship between the general con- and ethical general contractor-subcontractor relations. tractor and the subcontractor. To foster cooperation, the These are arranged in the chronological order of the con- subcontract should be fair to both parties and non-adver- struction process. sarial. Experienced participants in the construction indus- try know that no architect/engineer can prepare a perfect set of documents, and that no general contractor or sub- Pre-bid phase contractor can perform perfectly. Likewise, contract docu- 1. The general contractor should issue bid invitations to ments cannot detail every industry practice or anticipate subcontractors, in sufficient time for subcontractors every crisis or situation that will arise at the site. to review the project documents and prepare respon- Mistakes will occur and miscommunications will arise. sible and responsive bids (see B.1. Bidding Most general contractors and subcontractors solve their Procedures). problems without resorting to litigation. Errors and omis- 2. The general contractor should make the project sions, when discovered and made known in a timely fash- financing information available to subcontractors ion, can generally be overcome with minimal damage to before the deadline for subbids (see A.2. Owner’s all concerned. Mistakes that are admitted and corrected Ability to Pay). immediately are the least costly mistakes. 3. The general contractor should furnish any special bid proposal forms required and make necessary bidding documents reasonably available to subcon- Project Culture, Trust, and Teamwork Key to successful construction relationships is mutual tractor bidders. General contractors receiving sub- trust which must be nurtured to develop a positive project contractor bids, as well as subcontractors receiving Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American Subcontractors Association, Inc./Associated Specialty Contractors. 1
  4. 4. A.1 Guideline on General Contractor-Subcontractor Relations sub-subs’ bids, should provide a convenient plan petition by any method is a breach of faith and a room or make documents available via the Internet betrayal of principles. Any false or malicious word for subcontractors’ use in preparing estimates. or act that would harm, or is intended to harm, the reputation of a competitor is unethical. 4. The general contractor should promptly make bul- letin and addenda information available to bidding 5. The amount of a bid should not be altered after the subcontractors. opening, nor should alterations be requested, except when a substantial change is made in the work (see 5. Each subcontractor should deliver to the general B.1 Bidding Procedures). contractor, at least 24 hours before the bid hour, a written bid without dollar amount, setting forth its proposed scope, alternates, unit prices, addenda Award of contract and/or bulletins to be included. The scope should 1. Upon execution of the general contract, the general reference specification divisions or sections and contractor should promptly award subcontracts at specifically identify any omissions or additions. the bid amounts to responsible subcontractors whose 6. Proposals should not be invited, accepted, or consid- bids were used in the preparation of the general con- ered from any subcontractor or supplier known to be tractor’s bid. Subcontract terms should be the same unqualified to perform the proposed work or render as those in the owner-contractor agreement as relat- the specified service, or from one who, for some ed to the subcontractor’s work. The interests of all reason, has no genuine possibility of being awarded parties in the construction process are well served a contract. by each being fully aware of its responsibilities and rights. All parties should pursue a full understanding of their contract obligations; those included by ref- erence as well as express terms. Likewise, a full Bid period 1. The subcontractor should submit its finalized bid understanding of surety bond obligations, if any, and dollar amount and any necessary clarifications to the rights of claims against such bonds should be pur- general contractor at least four hours before the gen- sued. eral contractor bid hour. The general contractor 2. The general contractor should establish a progress should establish for all bidders a cutoff time for payment procedure and schedule which is approved receiving subcontractor bids, make it known, and by the owner and issue copies to the subcontractors adhere to it. upon request. The general contractor should prompt- 2. Subcontractors should not quote on unapproved sub- ly coordinate with the owner’s payment approval stitutions, except as an alternate. authority to assure that the procedure and schedule will be followed (see D.3.f. Prompt Payment). 3. The bid amount of one competitor should not be divulged to another before the award of the subcon- 3. The general contractor should issue each subcontrac- tract or order, nor should it be used by the general tor a timely written "notice to proceed" for the sub- contractor to secure a lower proposal from another contractor’s work and promptly notify the subcon- bidder on that project (see B.4 Bid Shopping & Bid tractor of any changes in such date. Peddling). If a bid is so low in comparison with other bids as to suggest clearly an error, the general contractor should notify the subcontractor immedi- Pre-construction conference ately that its bid appears to be out of line. The sub- The general contractor should arrange for and conduct a contractor should either withdraw or stand on its preconstruction conference as soon as the schedule has bid, but not modify it. been prepared (see C.1. Pre-construction Conferences for more detail beyond the summary outlined below). A 4. Fair and bona fide competition is a fundamental responsible representative(s) of each subcontractor, major service the industry brings to its customers. Any act supplier, the architect/engineer and owner’s representative or scheme to restrict or suppress free and fair com- should attend. Detailed minutes should be recorded and Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American Subcontractors Association, Inc./Associated Specialty Contractors. 2
  5. 5. A.1 Guideline on General Contractor-Subcontractor Relations distributed to all such parties on the project. The purposes to permit subcontractors’ work to proceed in a rea- of the meeting are: sonable and logical sequence and manner. 1. To introduce members of the team to one another 2. A network diagram showing the critical path and and establish the project communication procedure clearly showing when each subcontractor is to start (see D.2.a. Communication); and complete the various portions of its work is a valuable tool. The general contractor and each sub- 2. To review the job schedule prepared by the general contractor should be sure to understand the particu- contractor and ascertain that a reasonable time has lar schedule used. been allowed for performing the work of each trade (see B.2. Project Scheduling, Delays, and 3. Conflicts in the project schedule should be discussed Liquidated Damages); when they arise. Resolution frequently necessitates compromise. 3. To coordinate the submission of shop drawings and samples; 4. The schedule should be continuously monitored, updated and issued to all project participants on a 4. To set up change order procedures (see D.3.d. periodic basis (weekly or monthly depending on Procedures for Change Orders); project size and complexity) 5. To list all initial questions that will require an 5. When a schedule change is made, each subcontractor answer from the architect/engineer or owner’s agent; affected should be notified immediately. 6. To ascertain whether there are likely to be any labor 6. Dates for delivery and installation of heavy equip- or material problems which could seriously impede ment should appear on the project schedule. Access progress of the project; for such equipment installation should be main- 7. To establish how non-contracted services for tained accordingly. cleanup, temporary facilities, etc., will be authorized and charged (see D.3.e. Charges for Non-contracted Construction Services); Shop drawings and samples The subcontractor should plan and schedule shop draw- 8. To describe temporary facilities for the project and ings and sample submissions in a logical sequence with establish parameters for their use (see D.3.e. input from suppliers involved and coordinated with the Charges for Non-contracted Construction Services general contractor. The sequence must: and C.4. Site Logistics); 1. Allow for the project’s established approval process 9. To explain punch list procedures (see D.5.b. Punch turnaround time. List Procedures). 2. Prioritize subcontractor submittals to obtain approval Scheduling for the longest lead time deliveries first. 3. Comply with the project schedule. A workable project schedule is absolutely essential for a successful project (see B.2 Project Scheduling, Delays, and Liquidated Damages). It should be prepared by the Building codes general contractor with input from major subcontractors Strict compliance with all local and national building and suppliers. Failures to meet schedule requirements codes should be observed and maintained. hurt all members of the team. Effective scheduling incor- porates the following concepts: 1. The general contractor should only require a subcon- Safety tractor on site when the project is ready for that sub- Precautionary measures should be introduced and contractor’s work. The general contractor should observed to ensure safety and protection of the public and strive to coordinate the project in such a manner as those engaged in the industry. Subcontractors must abide Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American Subcontractors Association, Inc./Associated Specialty Contractors. 3
  6. 6. A.1 Guideline on General Contractor-Subcontractor Relations by the safety requirements established by the general con- completion of the work. Any manipulation of retentions tractor as well as those of their own safety programs and for any other purpose, such as a credit device, is an applicable jurisdictions. improper use of others’ money. Any adjustment of the retained percentage in the general contract made during the course of construction should be equally, proportion- ately, and promptly applied to the subcontract interest. A Payments Prime contractors should make payment promptly and in subcontractor that has completed its work properly should just proportion to work done by subcontractors and sup- not be penalized by having final payment withheld pliers, and any changes in retained percentages should because some other contractor has not completed its con- likewise be passed along in proper proportion (see D.3.f. tract. Prompt Payment). In like manner, it is expected that the subcontractor will Project closeout pay promptly for all its labor and material as far as exe- All parties must work throughout the project with an eye cuted, and should submit evidence of this fact to the gen- towards the final completion and acceptance by the eral contractor if requested (see D.3.f. Prompt Payment). owner. As a result, Project Closeout procedures must be integrated into all phases of the work beginning at con- Retainage tract award (see D.5.a. Project Closeout). Percentage retentions by the owner with respect to the general contractor and by the general contractor with respect to subcontractors are for the purpose of assuring Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American Subcontractors Association, Inc./Associated Specialty Contractors. 4
  7. 7. A.2 Guideline on Owner’s Ability to Pay Delays or defaults by owners in meeting contractual pay- struction requires that the owner have a sufficient com- ment obligations to contractors are a continuing cause of mitment from a lending institution or other source of con- litigation, liens, long delays in completion of construc- struction capital. This includes funding to make all tion, abandonment of contracts, and bankruptcy of con- progress payments and final payment promptly as provid- tractors and subcontractors. Qualified contractors often ed for in the contract documents, as well as to pay for are unwilling to bid on projects for owners whose finan- changes and any damages for which the contractors are cial capacity and credit rating are not widely known. This entitled to reimbursement. results in reduced competition and the possibility of high- It is not advisable for construction contracts to be execut- er bids to the detriment of the owners. ed unless all necessary funds to pay for the construction The problem has been partially addressed in standard have been placed on deposit, or unless all of those who contract documents. For example, ConsensusDOCS 200 bid on the project have full knowledge of deficiencies in Standard Form of Agreement and General Conditions funding before preparing bids or signing contracts. It is Between Owner and Contractor (2007 edition) states in improper for any payment delay of even one day to occur sections 4.2 and 11.5.2.1: because of administrative lapses or because release of funds is deliberately delayed while waiting for certificates Prior to commencement of the Work and thereafter at of deposit or investments to mature. Such actions pass on the written request of the Contractor, the Owner shall to contractors the responsibility of financing the project, provide the Contractor with evidence of Project which should normally not be a contractor obligation. A financing. Evidence of such financing shall be a con- means of avoiding these difficulties might be for pay- dition precedent to the Contractor’s commencing or ments to be issued to prime contractors by the lending continuing the Work. The Contractor shall be notified institution or a title company from loan commitments. In prior to any material change in Project financing. addition, when a project is constructed with borrowed In addition, upon seven (7) days’ written notice to funds then the loan should be tied to the contract the Owner, the Contractor may terminate the retainage provisions, so that there is an obligation by the Agreement if the Owner: lender, as well as by the owner to pay retainage (see D.3.f. Prompt Payment). .1 fails to furnish reasonable evidence prusuant to Paragraph 4.2 that sufficient funds are available In order to obtain the most competitive bids, owners and committed for Project financing… should furnish current written information needed by gen- eral contractors and subcontractors to enforce lien and Even though these clauses alert owners to the need to bond rights. The following procedure is suggested to own- provide such "reasonable evidence" before construction ers and to architects and engineers for recommendation to can commence and during the course of the project, they owners at the time bidding documents are being prepared: may not completely reassure contractors who are consid- ering bidding the work and investing many thousands of • Invitations for bids should contain clear statements dollars in the process of preparing their bids. that the owner has made sufficient financial arrange- Furthermore, the requirement of "reasonable evidence" ments for the completion of the project and adminis- may be vague and cause misunderstandings. trative arrangements for timely disbursement of every payment, including change orders and claims. The owner may have made financial arrangements to ful- fill its obligation, but that does not necessarily mean that • Bidders should be invited to make inquiry about procedures have been established to assure that contrac- these arrangements so that they may satisfy them- tors will, in fact, receive timely payments and will not be selves about financial details. forced to borrow working capital with interest to pay their • Inquiries from contractors who have been invited to ongoing expenses on the project. A trouble-free arrange- bid the project should be answered quickly and can- ment from the beginning to the completion of the con- didly by the owner and/or the construction lender. Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American Subcontractors Association, Inc./Associated Specialty Contractors. 5
  8. 8. A.2 Guideline on Owner’s Ability to Pay In the case of governmental bodies, statements that neces- governments which have defaulted or approached default sary funds have been appropriated for the financing of the on obligations. Because of the reputation of many gov- project by legislative bodies having appropriation authori- ernmental bodies of delaying payments due to procedural ty or that necessary bonds have been sold and funds are red tape, it is especially important that bidders on public on deposit will serve the same important purpose. Bidders works have clear assurances that such delays will not who once felt confident in bidding to governmental bod- occur. ies may have lost such confidence due to a number of Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American Subcontractors Association, Inc./Associated Specialty Contractors. 6
  9. 9. A.3 Guideline on Contractor’s Payment Rights, Obligations, and Responsibilities 1. One of the most important aspects of the construction It is your responsibility to understand the adequacy process is timely and complete payment for work and source of the money for each project. You have accomplished. a right to this information upon request. In most cases, there will be a financial arrangement in place: 2. At times, contractors fail to do adequate due diligence e.g. loan, line of credit or owner supplied funds. It is in determining the terms and conditions for payment. appropriate for you to assure yourself that enough In addition, many contractors do not understand their money and/or credit is in place and that you under- rights to determine whether or not an owner, under stand the terms under which the money/credit can contract with a general or prime contractor, has the be accessed (see A.2. Owner’s Ability to Pay). ability to fund the construction project. It is your responsibility to understand the billing 3. The responsibility of the contractors and subcontractors process of the owner, contractor, and lender. Each of is to: their specific requirements could lead to significant • Understand the payment terms and conditions of delays in actual payment. Ensure that your payment their contracts. forms are submitted in a timely manner, as pre- scribed by contract, and that each requisition is • Confirm the owner’s ability to pay for services pro- complete. Changes, revisions, or incorrect billing vided. forms may delay payment in some cases until the 4. The following is a checklist to assist you in under- next billing cycle (see D.3.f. Prompt Payment). standing your payment entitlements and obligations. You must understand your obligations as required It is imperative that all parties review the contract by the contract. If you are not in complete compli- or subcontract before entering into such agreements. ance with your contract, it may affect your ability to collect on the work that you have completed. It is your responsibility to review the specific pay- ment terms and obligations spelled out in the con- It is your right to obtain any information deemed tract with the owner and/or your subcontract with a appropriate to your work on the project. This prime contractor. includes any financial conditions, terms, and the ability to change or modify those terms and condi- It is your responsibility, if a general contractor, to tions. It is important that your contract spell out if research the owner’s ability to pay for the project any of the financial conditions change for the proj- and to convey such information promptly upon ect, you are to be notified in advance. request to all members of your construction team at the outset and during the course of the project, Understand your bond rights, if any, and appli- including: cable lien laws. Avoid the premature waiver of any bond or lien rights and file all required bond and • Total Financing Amount intent to lien notices promptly. • Current Contract Amount Understand the conditions of your contract as to • Pending Amount of Change Orders and Extras when you are entitled to stop work, if necessary, for lack of payment. It is important that you retain • Contingency Funds Available the contractual right on each project to stop work, or It is your responsibility, if a subcontractor, to to terminate, in the event of nonpayment for proper- research the owner’s ability to pay for the project ly performed work and the general contractor’s ability to pay those with Understand, however, that you must have com- whom it has contracts for goods or services. plied with all terms and conditions of your con- Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American Subcontractors Association, Inc./Associated Specialty Contractors. 7
  10. 10. A.3 Guideline on Contractors Payment Rights, Obligations and Responsibilities tract before actions allowed by the contract provisions requirements of each individual project and the can be exercised. owner’s ability to pay. It is not only your right but also a prerequisite for your success in the construction 5. The person most responsible for prompt and com- industry. plete payment is you. Protect yourself and your company. Understand and research the payment Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American 8Subcontractors Association, Inc./Associated Specialty Contractors. 8
  11. 11. A.4 Guideline on Design Responsibility All owners, architects and other design professionals are prices, frequent change orders, and lost time usually urged to uniformly accept responsibility for design-relat- result when design documents lack clarity or fail to ed plans and specifications applying to construction proj- adequately integrate the work of individual trades. ects. This design responsibility includes drafting complete Attempts to shift design responsibility to the con- specifications for inclusion in project bidding documents, tractor impose an unquantifiable risk on the contrac- initiating or approving all design-related additions, dele- tor that may increase the owner's cost without tions and changes to project specifications and accepting shielding the owner against liability to others. ultimate responsibility for the safety and utility of all 6. Specification divisions for each trade must be clear project design elements. For design-build projects, the and complete. Phrases such as "intended results," responsibility for the plans and specifications must be "including but not limited to" and "reasonably infer- extended to the design-build entity in order to ensure able" create bidding uncertainties, result frequently project success. in claims and lessen the owner's chances that the Delegation of professional services which constitute the project will meet its expectations (see also B.3. practice of architecture or engineering, should ordinarily "Scope" Bidding for Private Work). be limited to manufactured products such as curtain walls 7. Review of design drawings and documents by the and elevators, and then only subject to constraints includ- contractor should be for the purpose of facilitating ing the following: construction and not impose on the contractor a duty 1. The owner and architect must specify all perform- to discover errors, omissions or inconsistencies. It ance and design criteria that these professional serv- should be recognized by all concerned that the con- ices must satisfy. tractor's review is made in its capacity as a contrac- tor and not as a design professional. 2. All such services must be specifically required in the contract documents and not be in violation of any 8. Review and approval of contractor submittals by the applicable law. designer is another area that can create distress for the project team. Some designers will "approve" a 3. The architect, or other owner designated design pro- submittal with an approval stamp that contains lan- fessional, must approve all design-related work per- guage absolving the designer of responsibility for formed by others and coordinate the overall design any mistakes in the review process. During contract integration, safety of the public, compliance with negotiations and initial meetings between the owner, codes and other legal or owner requirements as con- designer, and construction team, this issue should be tracted. With respect to other than the manufactured frankly discussed. products themselves, the architect or other owner designated design professional shall accept and Long experience demonstrates that a clear division of retain sole responsibility for overall design. responsibility between the architect, as designer, and the contractor, as builder, offers an effective way to achieve 4. Contractors and subcontractors must not be held fast, safe, and economical construction results. responsible for the adequacy of the performance or design criteria indicated by the contract documents. 5. The use of inappropriate or unclear specifications ordinarily increases costs to the owner. Higher bid Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American Subcontractors Association, Inc./Associated Specialty Contractors. 9
  12. 12. A.5 Guideline on Liaison Committees: Starting or Expanding an Existing Program The AGC-ASA-ASC Guidelines for a Successful (see A.1. Contractor-Subcontractor Relations) and Construction Project are available online at other contents of the Guidelines. www.constructionguidelines.org. The guidelines may be a. Go over carefully the materials contained in the used as a framework for local industry discussions. They Guidelines for a Successful Construction Project may be distributed by individual contractors to their cus- so that all committee members are familiar with tomers as a vehicle for bringing about a better under- the material. Discuss each item thoroughly. standing of the complexity of the industry. Architects, consulting engineers and members of construction users’ b. Go over the list of the prearranged meeting items. groups should receive personally delivered copies. Get the information your group needs and keep the discussion on a high plane—don’t be argu- Starting a construction industry liaison committee mentative. In those areas of the country where some form of an c. Based on the meeting comments, and where prac- industry liaison committee now exists, much has been tical, plan to initiate those actions that represen- done to jointly develop solutions to many of the vexing— tatives feel are necessary or helpful. but unnecessary—problems that may occur in the work- d. If a controversy exists, find out the reasons and ing relationship between general contractors and subcon- seek a mutually acceptable solution. A start tractors. towards a reasonable approach to common prob- Use and implementation of the Guidelines, adapting them lems is a significant accomplishment. where required to fit local needs, will strengthen and III. Take action with respect to holding future meetings improve the efforts of existing committees. Where such of the entire industry liaison committee and of the an effort has not yet begun, the Guidelines can be invalu- subcommittees or task forces which can carry out able in initiating a productive and ongoing program. All many of the committee’s programs between full local leaders of AGC, ASA and ASC have access to the committee meetings. Guidelines and related documents. a. It would be advisable, for subsequent meetings of the full committee, for the chairperson to be alternated among the members, so that all groups How to get going I. To gain maximum support and strength from your have an equal role. Make a full written report of chapter members, establish an industry liaison com- committee discussions and agreements and dis- mittee within your chapter, including the chapter tribute them promptly to all committee represen- manager or executive director. Members of this tatives. committee may then serve as members of an indus- b. In the interest of continuity, it is quite helpful to try liaison committee. Take the initiative to organize have permanent members from all organiza- an informal industry liaison committee. tions—rather than rotating membership. II. At the first industry liaison committee meeting, plan c. Make distribution of copies of the Guidelines to a meeting of the members of all of the local con- local architects, consulting engineers and owners struction association chapters and members of spon- a priority objective of the industry liaison com- soring organizations not having chapters. Organize a mittee. thorough and frank discussion of the Guideline on Better General Contractor-Subcontractor Relations Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American Subcontractors Association, Inc./Associated Specialty Contractors. 10
  13. 13. B.1 Guideline on Bidding Procedures Most construction projects in the United States are com- plan deposit system and/or to purchase partial or complete petitively bid. However, bidding procedures from one sets directly from a printer or the architect. geographic region to another frequently vary widely. This Recent developments in the use of "electronic plan rooms" variety has become an increasing industry problem as have increased the availability of project information to owners, design professionals, contractors and subcontrac- multiple users. Owners and general contractors are encour- tors more frequently move from construction market to aged to investigate and implement web-based plan access to construction market. maximize plan availability while minimizing cost. As a result, there is a need to establish more uniform guidelines for bidding competitively-priced projects in order to reduce confusion, increase fair competition and Plan Deposits lower construction costs. Some key concepts for bidding In order for an owner to receive the best possible price on a are summarized below: construction project, it is important that all bidders on the project (prime contractors and subcontractors) have access to the most accurate and complete plans and specifications. It is in the interest of owners to provide sufficient sets of Advertisement for Bids Owners should advertise the availability and distribution drawings and specifications to permit all interested con- of bidding documents as far in advance as possible, but tractors, subcontractors and material suppliers to prepare no later than 30 days prior to bid document issue. An accurate bids. A fee for the use of such plans, when added advertisement should contain a short description of the to the contractors’ other estimating costs, can be a factor project, including bid date, time, approximate contract limiting both quantity and quality of the bids on the project amount, approximate size, project location, licensing since only successful bidders can recover these costs. requirements, plus bid and performance and payment Deposits, not exceeding reproduction costs for the plans, bond requirements. It also should state the date of docu- are reasonable. There should be a provision, however, for ment availability, location of documents, and deposit and prompt refunds in full to anyone who pays the deposits and refund information. The advertisement should be circulat- who submits a bid or sub-bid on the project and returns the ed to both individual prime and major subcontractor and plans within 30 days after bid opening (if its bid was material supplier prospect bidders, placed in construction unsuccessful) or who returns plans promptly after examin- publications and posted in plan rooms. ing them and making a decision not to prepare a bid. Further, it is reasonable to charge reproduction costs for plans to those material suppliers or bidders on smaller Bid Documents Bid documents should be complete before they are issued. subcontracts who wish a set of plans for their own exclu- For small or simple projects, at least two weeks should be sive personal use, yet for whom plan room or borrowed allowed for bid preparation. If a project is large and/or com- sets of plans would normally be adequate for careful bid plex, four to six weeks or even more may be necessary. preparation. Bid documents should be made available to a sufficient With these facts in mind, and in order to promote the best, number of bidders to foster competition. Thus, the owner most careful and complete bidding on all projects, an ade- should furnish each local plan room with at least four com- quate number of plans to permit careful preparation of bids plete sets of bidding documents. In addition, the owner should be provided to interested parties at no cost to bid- should provide each prime bidder with at least four sets of ders who return such plans within 30 days after bidding. bidding documents for its use and the use of its subcontrac- tors and suppliers. Major subcontractors also should be provided, by the prime bidders, with a copy of the bid doc- Scope Letters uments. Any prospective bidder should be afforded the Each sub bidder should submit a written scope letter to opportunity to obtain complete sets of documents through a the prime bidder at least 24 hours before the bid time. Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American Subcontractors Association, Inc./Associated Specialty Contractors. 11
  14. 14. B.1 Guideline on Bidding Procedures The scope letter should contain any information the prime underway, undermines the entire system of competitive bidder needs to evaluate the sub bidder’s bid, including bidding and is an open invitation to abuse. its proposed scope, alternates, unit prices, addenda, Use of the following procedures is recommended when a and/or bulletins to be included. The scope letter should bid error is discovered: reference specific divisions or sections and specifically identify any omissions or additions. Each sub bidder When an apparent low bidder discovers an error in should submit its final bid dollar amount and any neces- its bid price, it shall have the following options: sary clarifications to the prime bidder at least four hours before the prime bidder’s bid hour. The prime bidder 1. The low bidder may, at its option, confirm its should establish a cutoff time for receiving sub bids, original bid price; or make it known, and adhere to it. 2. The low bidder may withdraw the bid, without penalty or forfeiture of bid security if it estab- lishes that a valid computational or transcribing error resulted in an unintentionally low bid, but Ethics In Bidding The bid amount of one competitor should not be divulged shall not be allowed to re-bid the job under any to another prior to bid time, nor should it be used by the circumstances. prime bidder to secure a lower bid proposal from another bidder on that project. A subcontract bidder or supplier The owner shall then have the option of awarding also should not request information from the prime bidder the contract to the second low bidder or of re-solic- regarding any sub bid prior to the award of the subcontract iting bids for the project. In the event the project is (see B.4. Bid Shopping and Bid Peddling for more details). re-bid, the former low bidder shall not be allowed to bid for the contract. Unless required by statute, no Owners should publicly open and read aloud the bids. adjustment in bid price should be allowed a bidder Construction contracts should be awarded to those as a result of an error in its bid. responsible and responsive bidders, at all levels of the project, which submit the low bids for their portions of If a subcontractor bid is so low in comparison with other the work prior to bid time. Bids should not be held longer bids as to suggest clearly an error, the general contractor than 60 days without an award being made. should notify the subcontractor immediately that its bid appears to be out of line. The subcontractor should either withdraw or confirm its bid, but not modify it. The American Society of Professional Estimators has pre- Bid Errors and Adjustments If, after bids are opened, a low bidder claims it has made pared even more detailed Bidding Procedures for a material error in the preparation of its bid and can sup- Competitively Bid Construction Projects. It is available port such a claim with satisfactory evidence, it should be online at http://www.aspenational.com/ permitted to withdraw its bid, without forfeiting its bid RecommendedBiddingProcedures.htm security. Under no circumstances should a bidder be Other references include: allowed to adjust its bid price as a result of an error in its bid. If the owner opts to re-solicit bids for the project, the Recommended Guide for Competitive Bidding erring contractor should not be allowed to bid for the con- Procedures and Contract Awards for Building tract, unless precluded by local, state, or federal law. Construction published by AGC and the American Institute of Architects: Some construction owners allow a low bidder who can http://www.agc.org/contracts demonstrate an error in its bid to upwardly adjust its bid http://www.aia.org/documents/ price to the extent of the error. The low bidder will be awarded the contract at the adjusted price so long as that Recommended Competitive Bidding Procedures price, as adjusted, is still below that of the second low Construction Projects published by the Engineers bidder. Joint Contract Documents Committee: http://www.asce.org Allowing a low bidder to adjust its price under any condi- tions, other than change orders issued after the contract is Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American Subcontractors Association, Inc./Associated Specialty Contractors. 12
  15. 15. B.2 Guideline on Project Scheduling, Delays, and Liquidated Damages Proper project scheduling and avoidance of delays are ise for inclusion in the information stream in electing to critically important. When the owner has decided to "go" or "not go" with the project. If a major subcontractor include liquidated damages in the contract, or reserves the bypasses this step, it assumes the risk involved in not right to pursue un-liquidated, consequential damages, completing the project on schedule. then the owner’s design team must become involved with the pre-bid scheduling process, including the following: Schedule Documentation and Communication • Review critical lead-time items: e.g., steel, mechani- Documentation of schedule and a communication plan cal equipment, electrical distribution equipment, etc. must be comprehensive. Every tier of contractor, subcon- • Determine in advance (within the time constraints tractor and supplier must have access to complete plans, available) that the major equipment and supplies can specifications, and the project schedule to be fully be purchased and delivered (within the time con- informed of risks involved in non-performance. straints available). Any subsequent variation to the projected schedule must • Determine in advance that responsible marketplace be communicated up and down the project ladder. participants can deliver this type of project within Without this communication, significant risk in project specified time constraints. expansion or contraction is assumed by those who do not communicate (see D.2.a.Communication). • Consult with knowledgeable and experienced con- struction contractors about all aspects of the pro- posed construction project and schedule. Team Responsibilities Only after all of the above elements have been undertak- The design team accepts an enormous responsibility for en should the request for proposal (RFP) or invitation for drawing review, submittal review, change order approval, bid (IFB) process go forward. To expect the construction and the impacts of tardy review and return. Contractors industry to meet the owner’s requirements without owner must assume the responsibility for timely submission and implementation of the above action items allocates unrea- its impact on the project schedule, but the design team sonable risks to the construction contractor and adversely must provide its review in time to meet schedule guide- impacts project costs. lines. The entire construction team must understand that each member is responsible for its performance in the project schedule. Any hitch or stumble affects the entire process Contractor Review The contractor review of the construction documents and and creates risk for claims by downstream contractors. schedule must be a realistic assessment of the project to Project expansion and contraction are two of the risks provide critique and direction for the owner and design involved. team before the contractor completes the pricing process. This review is essentially a marketing opportunity for the contractor that is honest and up-front with the owner, and Project Closeout comes prepared with the documentation necessary to back Project closeout and delaying the processing of change up its assessment. orders until the end of the project, create risk in complet- When the construction contractor bypasses this step, the ing and finalizing a construction project. It is unreason- contractor assumes the risk of accepting a project that has able to assume lower-tier contractors must wait for their no chance of meeting the project schedule. payment while the paperwork for changes they were directed to complete is delayed. While the owner may be In addition, the major subcontractors and suppliers must using the building, the construction contractor incurs an accept their responsibility to review their areas of expert- increased financial burden, possible claims for non-pay- Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American Subcontractors Association, Inc./Associated Specialty Contractors. 13
  16. 16. B.2 Guideline on Project Scheduling, Delays and Liquidated Damages ment on change orders and potential litigation (see D.5.a. While utilizing the partnering process is a good start, a Closeout, D.3.c. Consequential Damages, and D.3.k. quality project is the goal, and success for the entire proj- Retainage). ect team must be the vision to strive for, including the on- time, on-budget successful completion of the owner’s Team Relationships project (see C.2. Partnering). Utilizing project relationships to the detriment of a team member of one project in the hope of winning a future project is irresponsible. This practice should be discour- aged by any team member, including the design profes- sionals and prime or lower-tier contractors. Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American Subcontractors Association, Inc./Associated Specialty Contractors. 14
  17. 17. B.3 Guideline on “Scope” Bidding for Private Work So-called "scope" bidding has proliferated in recent years in relation to traditional competitive bidding. On the one Background hand, the concept has introduced flexibility in contract This guideline applies to projects where the architect and administration that is useful and desirable. However, the engineer are responsible for design but plans and specifi- concept has also introduced an uncertainty and an cations do not cover every item necessary for a complete extreme risk to contractors and subcontractors by imply- project. It is recognized that, in practically all areas of ing responsibility and liability for added work under the plans and specifications, every single item of construction "scope" concept which the contractor and subcontractor material and technique cannot be delineated. It is reason- could not have deduced was required from the informa- able to require the providing contractor, as part of its tion given on the scope documents. Note that the con- work, to include those items which are part of its trade cerns in this guideline may not be applicable to Design- and which are installed as part of the work without spe- Build delivery methods. cific instructions being required to demand that activity (see B.1. Bidding Procedures "Scope Letters"). Concept Overview On the other hand, demands upon the contractor to cover a multitude of changes and additions on the basis that The "scope" document may appear in the form of a stamp they come within the definition of the "scope," are on the plans or specifications that has many variations, unwarranted and should be rejected. Design and design with infinite interpretations. One example is: changes for a project should be the sole responsibility of the architect and/or engineer unless, as a part of the con- Scope Document tract obligations, the contractor assumes that responsibili- ty. In that case, the full responsibility for design, installa- “This document indicates the general scope of the tion and performance should be specific (see A.4. Design project in terms of architectural design, the dimen- Responsibility). sions of the building, the major architectural parts and the type of structural, mechanical, and electri- cal systems. This document does not necessarily Guideline Details indicate or describe all work required for full per- 1. Performance specifications or scope criteria should not formance and completion of the Contract be used in the award of competitively bid contracts for Documents. On the basis of the general scope indi- public buildings. Scope and performance criteria do not cated or described, the contractor shall furnish all generate the best competitive bidding among contrac- items required for the proper execution and com- tors nor do they provide the awarding authority with pletion of work. Decisions of the architect, as to sufficient means for accurate and fair comparison of the work included within the scope of this docu- proposals received. ment, shall be final and binding on the contractor and the owner.” 2. Where "scope" plans and specifications are a part of the project documents, each contractor should provide Note that the above example is not a recommendation, the following: but is presented for information to those not familiar with "scope" projects. a. All material and equipment of standard quality, whether specified or not, and within the limitations Because of the inherent risk presented by such a contract of the architectural, structural, mechanical and elec- document, owner-users, architects, engineers, contractors trical drawings and specifications, to cause the and subcontractors should be aware of the problems asso- installation to function in accordance with the inten- ciated with "Scope Bidding." The obligations and limita- tion and objective of the finished project. The origi- tions of the various groups within the construction indus- nal intention should be specifically set forth in the try are outlined below. documents. Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American Subcontractors Association, Inc./Associated Specialty Contractors. 15
  18. 18. B.3 Guideline on “Scope” Bidding for Private Work b. All material necessary for equipment to function in a b. Changes in location of equipment, materials and normal and acceptable peculiar or particular type facilities due to alterations in architectural concept manner, unless that equipment is of a manufacture and design. which requires singular, unique or special installa- c. Changes in sizes, capacities and locations of compo- tion devices or techniques. In that case, it should be nents of the installation due to modifications of the the obligation of the architect/engineer to specify building or its components. those requirements. d. Determination of capacities and sizes, unless made a c. All work required to cause its operations to fit and part of bidding and contract requirements, and the coordinate with others, causing the other trades no furnishing of equipment to satisfy those capacities. added cost, subject to the limitations of the structure as shown on plans. e. Basic design changes to meet applicable codes and ordinances, including but not limited to, added d. All work required to comply with governing codes stairs, exits, added sprinklers, fire protection or with respect to its activity, except for design criteria changes from specified or indicated items. involving capacities and basic design. By following this guideline in preparing project docu- e. When not indicated in the plans and specifications, ments, and in making architectural and engineering deci- the sizing of interconnecting facilities, such as pip- sions and interpretations, many disputes arising from the ing, ducts and wiring, between pieces of equipment word "scope" may be avoided. in order to utilize the specified capacities of the equipment. 3. The contractor should not be required to provide the following: a. Material or equipment not specified to be furnished, unless required for normal functioning of the system or to comply with the original stated intent. Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American Subcontractors Association, Inc./Associated Specialty Contractors. 16
  19. 19. B.4 Guideline on Bid Shopping & Bid Peddling Bid shopping and bid peddling are abhorrent business Proprietary information includes the price, the design or practices that threaten the integrity of the competitive bid- novel technique, or an innovative approach used in ding system that serves the construction industry and the preparing a proposal. economy so well. The preparation of bids, proposals, submissions or The bid amount of one competitor should not be divulged design-build documents is the result of professional con- to another before the award of the subcontract or order, sideration which is the intellectual property of the prepar- nor should it be used by the contractor to secure a lower er, and so any such information should be considered pro- proposal from another bidder on that project (bid shop- prietary. ping). Neither should the subcontractor or supplier It is unethical to disclose to others, any information that request information from the contractor regarding any is provided with an expectation that such information will subbid in order to submit a lower proposal on that project be kept confidential. (bid peddling). An important, but often unrecognized, business asset of the construction contractor is its proprietary information. Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American Subcontractors Association, Inc./Associated Specialty Contractors. 17
  20. 20. B.5 Guideline on Exchanging Documents and Data in Electronic Form The advent of alternative project delivery methods requir- a practice counterintuitive to facilitating and expediting ing greater project communication levels, utilization of document and data exchange, and out-of-step with pres- new and emerging technologies such as project collabora- ent industry communication and collaboration needs. tion software, and frequent owner insistence on shorter Moreover, in many instances where design professionals project schedules, have increased the likelihood that proj- do forward documents in electronic form to contractors, ect team members, especially contractors and specialty such documents often are accompanied by statements dis- contractors, will be expected to receive and exchange claiming accuracy and completeness or exculpating or contract documents or other project information and data limiting the design professional’s liability. Such language in electronic form. Important notices, submittals, plan requires a conscious decision on the part of contractors changes, and other crucial documents are frequently and specialty contractors to decide whether they are will- transmitted by means other than the U.S. mails or private ing to accept such documents in electronic form, thereby mail carriers, such as by posting to project-specific web increasing their potential liability, or if they would be bet- sites or FTP (“file transfer protocol”) sites. Often, the par- ter served by waiting for the “hard copies.” A more bal- ties neither have discussed any issues relating to the anced approach would permit a standard of reasonable exchange in advance, such as costs, safeguards and main- use of electronic documents and data by project parties. tenance responsibilities, nor, in turn, addressed such To that end, parameters governing electronic document issues in their project agreements. Without careful consid- exchange would be described and agreed on in a written eration of such issues, project parties exchanging elec- protocol incorporated in or attached to the parties’ con- tronic documents and data risk misunderstandings, struction agreement. Key to the successful exchange pro- delays, additional costs and even increased liability. tocol is an agreement that clearly defines ownership, Current industry standardized forms neither address these management, and security responsibilities of the informa- issues in any detail, nor permit contractors and subcon- tion transfer. Such a protocol, at a minimum, should tractors to make use of electronic documents or data that address in detail the following points: are provided to them without considerable risk of liabili- • Identification of one party to manage the exchange ty. For example, EJCDC C-700, Standard General process, including responsibility for providing and Conditions of the Construction Contract, 2002 Edition, coordinating notifications. Subparagraph 3.06 – Electronic Data, in part states: • Identification of an individual or individuals within “A. Copies of data furnished by Owner or Engineer each firm or company responsible for compliance to Contractor or Contractor to Owner or Engineer with document exchange protocols. that may be relied upon are limited to the printed copies (also known as hard copies). Files in elec- • The definition of documents to be accepted in elec- tronic media format of text, data, graphics, or other tronic form and/or transmitted electronically, includ- types are furnished only for the convenience of the ing a specific listing of such documents for the proj- receiving party. Any conclusion or information ect (e.g., drawings, shop drawings, change orders, obtained or derived from such electronic files will requests for information, etc.). be at the user’s sole risk. If there is a discrepancy between the electronic files and the hard copies, the • The parties’ listing of, and responsibilities for com- hard copies govern” pliance with, equipment, software and services impacting the transmission, receipt and/or utilization In the above provision, all risks are assumed by the recip- of electronic documents and data (including any ient of the electronic information, which in most cases is prohibitions on or cautions as to utilization of differ- the contractor. In effect, the provision establishes a prac- ent operating systems or translation programs and any tice where the contractor may receive electronic informa- equipment and software upgrading expectations). tion but may rely on it solely at his or her own detriment, Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American Subcontractors Association, Inc./Associated Specialty Contractors. 18
  21. 21. B.5 Guideline on Exchanging Documents and Data in Electronic Form • Document transmission standards, such as accept- • Contractual reporting requirements for known or able formats, transmission methods and verification observed errors or omissions in contract documents procedures. should be reviewed to ascertain if they are adequate and consistent given the potentially increased pace • Identification of third-party providers, if any, with of electronic document exchanges. copies of governing agreements/licenses. • Confidentiality provisions should be reviewed for • Methods for maintaining version control of electronic consistency with similar requirements in exchange documents, including a depository of record copies of agreements. transmitted and received electronic documents. Rapid advances in technologies and the uniqueness of • Specific privacy and security requirements. each project will require parties to continually review and • Storage and retrieval requirements for electronic assess the adequacy of their electronic document documents and data. exchange protocols and agreements. Although such agree- ments cannot prevent errors in every instance, they do • Reciprocal indemnity obligations for violations of give the parties assurance that they may reasonably rely the exchange agreement. on documents and data transmitted electronically to per- • Applicable insurance requirements, if any. form their project services, so long as they comply with clearly established protocols. With appropriate protections During bid preparation, the parties should review their in place, project participants may reap the productivity respective construction documents relative to any gains and time savings offered by emerging project tech- exchange agreements. Among the subjects for careful nologies. review are the following: • They should assess whether provisions governing ownership of documents are consistent with the pro- visions of the exchange agreement, and that require- ments for similar agreements and protocols are in place with lower-tiered subcontractors and suppliers. • The parties should review contract provisions in the design and construction agreements that address the line and flow of communications among the project parties to assess if such provisions need modifica- tion in appropriate, limited circumstances to permit direct communications among parties not in contrac- tual privity, such as the principal design professional and a specialty contractor performing a portion of the design. In such circumstances, contemporaneous notification of such communications or exchanges should be given to the parties otherwise in the line of communications. Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American Subcontractors Association, Inc./Associated Specialty Contractors. 19
  22. 22. B.6 Guideline on Volatile Price Adjustment Clauses Volatility of construction material and equipment costs is ance, and (ii) contingencies that would otherwise be greater now and in recent years than has previously been included in the contract price can be identified and cov- the case. The combination of raw material and natural ered separately in the contract. Price adjustments based resource scarcity, burgeoning infrastructure, commodity on established prices should normally be restricted to and construction demand in the Far East and elsewhere, industry-wide contingencies. Price adjustments based on and unpredictability of world political stability (and ship- labor and material costs should be limited to contingen- ping infrastructure too) argues for ever greater vigilance cies beyond the contractor’s control. in commodity purchasing and price commitments in pro- The Federal Acquisition Regulation, ConsensusDOCS curement planning for fixed-price construction contracts. and the American Institute of Architects’ contract docu- With volatility emerging as the norm in the 21st Century, ments all have prescribed methods to address these chal- fair contract risk allocation will more frequently require lenges. an equitable cost adjustment clause in fixed-price con- Note: Contracting parties should scrupulously avoid any struction contracts, as the most specific way to adequately claims for costs not actually incurred, as False Claims Act address an otherwise uncontrollable and unforeseeable provisions are strictly enforced and sanctions for viola- risk factor. tions are severe. Cost adjustment escalation clauses set the basic parame- Note: As a private-sector form document, such percent- ters for the foreseeable range of price fluctuation by a set age limits an adjustment must be left to the negotiations baseline—either actual costs, catalog prices, or common among the contacting parties. price indexes. Shared risk of volatility beyond that range is then allocated between the contracting parties. The Actual costs, catalog prices or common published indexes shared risk approach to either exceptional increases or can all be used to set the baseline for cost adjustment decreases in price can help eliminate bid contingencies, clauses. ENR publishes a series on common construction avoid defaults and delays mid-project, for the benefit of material cost indexes. (Go to: www.enr.com). Also, all parties and the project as a whole. The U.S. Department of Labor’s Bureau of Labor Statistics publishes a very comprehensive set of Force majeure and contract impossibility defenses are not Construction Material producer price Indexes along with adequate to address the problem. Volatile price adjust- a comprehensive guide on the subject, Escalation and ment clauses operate in the same way as common unfore- Producer Price Indexes: A Guide for Contracting Parties. seen site conditions clauses, by allocating uncontrollable (Go to: www.bls.gov/ppi.home). and unknown risk equitably, rather than putting all the risk on just one party, subjecting the owner and the proj- Influential public and private contracting policy docu- ect to price contingencies based on that unbalanced risk. ments have been responsive to these trends and risks. Cost adjustment clauses address material cost volatility and unavailability in a way that is much more specific For further reference: than a standard force majeure clause. Force majeure ConsensusDOCS – www.consensusdocs.org clauses (superior force, acts of God,) and contract impos- sibility defenses are limited to very extraordinary extrane- American Institute of Architects Supplementary ous events, often are subject to very narrow interpretation Conditions – www.aia.org by courts, and may be limited to time extension remedies FAR Contract Clause (Part 52-216-4) only. Fixed-price contracts with [an] economic price adjust- ment should be used, when: (i) there is serious doubt concerning the stability of market or labor conditions that will exist during an extended period of contract perform- Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America/American Subcontractors Association, Inc./Associated Specialty Contractors. 20

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