6310 Class notes

1 This manual was prepared by Dr. Neil N. Eldin, PhD, PE for the purpose of student training©

Contract Administration CNST 6310

____________________________________________________ Prepared by: Dr. Neil N. Eldin, PhD, PE, CPC Director Construction Management Program

Nothing Will Work...Unless You Do!!


Introduction

Contract administration is a primary function for project managers. A comprehensive understanding of contract administration requires the understanding of the following:

1. Contract classifications 2. Contract formation 3. Contract Ending 4. Contractual Relationship 5. Significant Issues in Contract Administration 6. Contract Documents

The following modules describe each of the above six aspects of contract administration.


Module 1 You must complete the reading materials scheduled (see syllabus) before you start this module Upon completion of this module and the reading assignments you should be able to answer the following questions:

1. How contracts are described and classified? 2. What are the main characteristics of each type of contract? 3. What are the main differences among the different types? 4. What are the advantages and disadvantages of each type? 5. How do you determine the proper type of contract for a certain project?

Please utilize other sources (web searches, references, and other textbooks) if you feel the course modules and textbook did not satisfy your curiosity in the subject matters. You may also contact your instructor to discuss your questions further.


Module 1

CONTRACT CLASSIFICATIONS

What are the bases on which we group/classify/describe contacts? There are five bases common to classifying contracts. Contracts can be classified based on:

1. 2. 3. 4. 5. The following provides more elaboration to further explain each classification … 1. Based on method of payment

There are 3 methods of payment common in the construction industry: - - - The owner will select one of these methods as the basis for paying (compensating) the contractor for its efforts. Therefore, a lump sum contract informs us that the contractor’s compensation is an agreed up amount (lump sum/fixed price) for the work specified in the contract. A cost plus contract on the other hand informs us that the contractor will be paid its costs…plus additional amount to cover fees/profit to compensate the contractor for the work performed. A unit price contract informs us that the contractor is paid according to an agreed upon unit price list for each item included in the scope of work.

2. Based on arrangement of project delivery There are several methods to deliver a project in the construction industry:

- - - -


The owner will select one of these methods to deliver the project. Therefore, a Design/Bid/Build contract informs us that the owner decided to complete the project design before it sends it to bidders and the winning bidder will build the project. A Design/Build contract informs us that the owner decided to award the project to a contractor that is in charge of designing and simultaneously building the project. In other words, eliminate the bidding efforts and time. A turn key contract informs us that the owner decided to not be involved in the project design, construction, or interim financing. An example of such is a buying a house on the market…you pay the check and get the key. A construction management contract informs us that the owner decided to hire a third party to oversee the project design and/or construction for a fee.

3. Based on method of selection and award

There are two methods of selecting the contractor. This can happen through: - -

The owner will chose one of these methods to select the contractor. Therefore, a negotiated contract informs us that the owner negotiated the price with one or more contractors and selected the contractor upon the completion of such negotiation. On the other hand, a competitively bid contract informs us that the owner decided to let more than one contractor compete for the lowest price and the owner will select the lowest bidder.

4. Based on number of primes Projects may have more than one general contractor working on site simultaneously. Therefore, it is common to describe a contract as: - - The owner makes that choice depending on the size and nature of the project and the capabilities of the available contractors. Therefore, a single prime contract informs us that the owner intends to let only one general contractor to building the project. On the other hand, a multi-prime contract informs us that the owner decided to let more than one general contractor to building the project.


5. Based on legal description Legal descriptions of contracts can reveal significant information that may affect the execution of the contract and the liability of each party. The following are common legal descriptions that should be clear in the minds of project management teams.

- Entire:

- Severable:

- Voidable:

- Sub-contract:

- Expressed contract:

- Implied contract:

- Bilateral:

- Unilateral:

- Joint:


- Several:

- Executed:

- Executory:

- Quasi/constructive:

It should be apparent now that to fully describe a contract one needs to have more than one description attached to the contract. For example, one may describe a contract as: a fixed-price, design-bid-build, competitively bid, single prime, entire contract. Similarly, one may describe a contract as: a cost plus, design-bid, negotiated, multi-prime, joint contract. As one can see there are endless combinations of the above contract descriptions.


Which contract type is the best? All the above types of contracts are equally good when selected for the right project. To determine the proper type of a contract for a specific project one should consider the characteristics of the project and the owner risk attitude. For example, when time to market is the highest priority the design-build delivery method should be the choice since it will reduce the bidding time (e.g., 3-9 months) and will allow fast tracking of design and construction activities. When the project activities are repetitive and quantities cannot be accurately determined the unit price payment method is advantageous since the owner only pays for the quantities in place, not the in accurate estimated quantities. If the owner is a risk-taker the cost-plus is advantageous because it puts the owner in control of the contingency allowances and control of change management. If the owner is risk-aversion, a fixed-price payment method is advantageous because it places the entire financial risk on the contractor instead of the owner. Do all contracts have to be in writing to be enforced in a court of law?

Although contracts do not have to be written it is prudent to do so. However, many states require certain types of contracts to be in writing. The Statue of fraud is the law that enforces the written requirement of the following contracts:

1. 2. 3. 4. 5.



1. What are the elements that make a contract enforceable at a court of law? 2. What does each of the contract element mean…in detail?



Module 2

Contract Formation

Definition: A contract is an agreement to do or not to do certain thing…

For any contract to be enforceable in a court of law it must have the following 4 elements of legally enforceable contracts:

1. 2. 3. 4.

1. Capacity to contract

The parties must be legally competent. This means that each party is able and does not fall in certain legal status as explained below:

a. Ability-

b. Legal Status- certain people are protected by the law because of their age, mental capacity, etc. For example, a minor can walk out of a contract without any penalties. Similarly, a mentally handicapped and intoxicated person can be excused of his/her obligations on the basis of the lack of proper judgment. An owner can nullify a contract with a felon upon the discovery of this information. However, if the owner accepts this fact and did not nullify the contract, then the contract is enforceable in a court of law. Similarly, an owner can nullify a contract with a foreign corporation upon the discovery of this information. A foreign corporation does not mean originating overseas…it means an incorporation that does not have a license in the State where the work is executed, or an incorporation that is working outside of its charter (scope of work as specified in its legal paper).


2. Legal subject matter

The parties must be contracting on matters that are legal and the scope of work should satisfy the following:

a. b. c. d.

3. Mutual consent The parties must show evidence of meeting of the minds. Usually, an offer and acceptance is enough evidence of the mutual consent. However, a counter offer is not acceptance and only the offeree can accept the offer…not some one else. It should be noted that during pure negotiation efforts either party should not present all the ingredients (i.e., price, schedule, and scope of work) for a binding acceptance. Otherwise, the negotiation could end a lot sooner than desired.

The following elaborates on such mutual understanding of the agreement:

- - - -


4. Consideration

Consideration is defined as something of value that each party furnishes to the other. Courts do not get in evaluating fair and adequate considerations unless the case involves fraud. Otherwise, courts view it as a risk taken, willingly. However, courts differentiate between “Valuable Consideration” and “Good Consideration”. Examples of valuable consideration include: promises, money, property, waiving of legal right. Good consideration is specific to blood relatives.



1. Is the owner entitled to strict? Is that feasible? How does the court settle entitlement vs. feasibility?

2. What are the definitions and differences between substantial completion and final completion? 3. What are the benefits of termination clauses? 4. What types of termination are common in construction documents? 5. What options are available to the non-breaching party? Which ones you should be avoiding? 6. What are the various damages allowed by courts for parties to a construction contract?



Module 3 Ending a contract The two conditions for ending a contract are:

1. 2.

These terms are explained below. Performance of Contracts

Once the work/service under the contract is fully completed/performed, the contract automatically ends. However, a less obvious question has to do with the owner’s rights. The question is: Is the owner entitled to strict compliance with the terms of the contract?

Certainly, the owner is entitled to strict compliance. However, the construction industry is unique in differentiating between strict compliance and substantial compliance, which may appear contradicting. The substantial compliance is based on the fact that it is unrealistic in construction contracts to conform to every minor detail. This notion gave birth to the doctrine of “substantial completion”. This doctrine decrees that the construction contractor is deemed to have fulfilled its obligations by reaching substantial completion. The substantial completion is defined as the completion stage at which the owner can have beneficial occupancy of the project. On this basis any work items that does not result in denying the owner from using the constructed facility for its intended use may not be enforceable at a court of law. Examples of such items could include trim work, touch up, decorative items, superficial defects, and alike. In addition, noncompliance that results in major economical loss to the contractor may not be enforceable at a court of law unless it jeopardizes public safety. For example, courts will not enforce strict compliance if the contractor placed 5.5 inches of asphalt instead of the specified 6 inches. The rational would be that ½ inch could not be placed by itself (not enough materials to withstand the placing operations) and digging up the 5.5 inch layer and placing a new 6 inch layer will be financially devastating to the contractor. The deviation form the strict compliance is not without a cost to the contractor, nevertheless. The remedy that would be enforceable by courts would be to withhold sufficient funds to compensate the owner for the noncompliance. The funds would be determined based on:

1. 2.


Termination of Contracts Contracts include termination clauses to impose some order and predictability of the conditions that could lead to premature ending of a contract. The benefits of termination clauses include: 1. 2. 3. There are two types of terminations to a contract: 1. Termination for convenience: It is a contractual right given to the owner to end the contract at no fault of the contractor. This right is usually exercised when owner faces financial problems or the need for the project is eliminated. This termination entitles the contractor for a notice before termination, and full compensation for work completed prior termination, any penalties incurred by the contractor for canceling orders and subcontracts. 2. Termination for default: It is a contractual right given to the owner to end the contract because of contractor’s breach (violation) of contract terms. This termination entitles the owner to withholding all money due to contractor, ceasing contractor’s materials and equipment on site, and holding contractor liable for increased costs. However, owners have to be careful in declaring contractor’s breach. Courts distinguish between “Material” and “Immaterial” breach.

A “Material Breach” is a major violation of terms and conditions of contract and it entitles the owner for termination of the contract and suing the contractor for damages. Examples of that include contractor’s failure to show up week after week, significantly falling behind planned progress, consistently failing to pay workers/subs/suppliers, persistent failure to adhere to plans and specs, and alike. An “Immaterial Breach” is a small violation of terms and conditions of contract. This breach does not entitle the owner for termination of the contract but it entitles the owner for resulting damages. Examples of that include contractor’s failure to clean up at the end of the day, falling behind planned progress only by a few %, poor quality reports, and alike. Utmost caution should be exercised when making this judgment call (material vs. immaterial breach). Case study Silliman Company vs Ippolito & Sons Inc.(467 A.2d 1249 CONN.APP.1983) Prime refused to pay sub until work is complete. Sub stopped. Prime claimed refusal to work is a material breach. Appellate Court ruled holding progress payment was a material breach. Sub was not liable for breach.


Case study Burras Canal Const & Design Co. (470 N.E. 2d 1362 IND.APP. 1984) Owner was dissatisfied with workmanship…considered that a material breach justifying changes in payment terms. Court disagreed because work was complex and decreed that contractor was entitled to notice and time to correct. Defective workmanship is material breach only if contractor fails to correct in reasonable time.

What are the options available for the non-breaching party? The non-breaching party has three choices:

1. 2. 3.

Excuse of a breach If a party repeatedly overlooks a breach it runs the risk of waiving that contract requirement. For example, if an owner consistently ignores the slow progress it may be ruled that the owner has waived the right to enforce project schedule. However, a savvy owner can repeatedly excuse a breach without waiving the right to enforce it. This can be done by declaring it as a one-time excuse. This should be documented in writing and stating clearly that this is one limited breach only excused for this time and should not be interpreted as owner’s intention to waive this right. Rescission of a contract Rescission is a trap for the unwary party. It often results out of the frustration of the non-breaching party by communicating statements similar to: “If you do not do ……..…., then consider the contract null and void”. The non-breaching party looses the right to sue for damages because there is no contract in place any more, by that party’s choice. A party must have an executory (i.e., on going) contract to be able to sue the other party. Termination for default and suing for damages The proper remedy for a non-breaching party is to terminate for default and seek damages. Ramifications for default termination are severe. Therefore, courts entitle the contractor to a written notice and time to cure default. Clauses that list the defaults that are considered material breach and therefore justify termination are always stated in the General Conditions documents of the contract. Although most of the termination clauses protect the owner, the contractor also has the right to terminate the contract and sue the owner for damages. However, this is limited to basically one of two conditions: 1) owner withholding payment unjustifiably, or 2) owner stopping work at no fault of the contractor for more than a specified time period (usually 30 consecutive days).


Case study Albert Saggese, Inc. vs Town of Hempstead (474 NY S.2d 542 N.Y.A.D. 1984) Contractor was terminated for poor work appealed on basis of entitlement to hearing prior to termination. Supreme Court of NY ruled not entitled to administrative or adversary hearing before termination when termination is supported by enough facts.

What are the bases for evaluating damages for breach of contracts?

Courts recognize three types of damages:

1. 2. 3.

Compensatory Damages To compensate for loses incurred by the non-breaching party and place it back in the same economical position prior to the breach. Depending on the nature of the breach these damages are calculated based on either: 1) Cost of Completion or 2) Fair Market Value. If the breach is due to lack of performance, “Cost of Completion” will be the basis for the damages. For example, if the remaining balance of the contract is $30,000 (original contract price $100K less paid to contractor $70K) and the cost to complete the work is $40K, the compensatory damages will be (i.e., contractor owes the owner) $10K. If the breach is due to defective (sub-quality) work, “Fair Market Value” will be the basis for the damages. For example, if the delivered project lost $50K of its anticipated market value due to looks/function/useful life/etc, the compensatory damages will be (i.e., contractor owes the owner) $50K.

Liquidated damages: These damages are unique to construction contracts. They compensate the owner for losses due to late completion of the project caused by contractor. Liquidated damages (LD) are always stated as $/day for every day past the contract completion date. For these damages to be enforceable by a court of law they have to meet two conditions:

1. 2.

It is important to realize that LDs are not a penalty or an element of intimidation to contractor. They are not enforceable if presented as a penalty. The reason for this “no-penalty” stance is that Construction Law does not allow punitive damages in construction contracts, unlike civil and


criminal laws. LDs have to be included in the contract prior to contract execution and by the consent of the two parties. The owner can recover no more/no less than the stated amount per day. LDs cannot be forced on the contractor by the owner after the contract execution. Once stated in a contact the owner cannot waive the LDs and sue for actual damages. However, having LDs does not stop owners from suing for other damages not related to delays (e.g., defective work, non-compliance, etc…). Although liquidated damages may sound like unwanted/undesirable feature in contracts, they have many advantages:

1. 2. 3.

Case study Aetna Casualty & Surety Co. vs B-M Sanitary Water District (500 F. SUPP. 193, 1980) Contract called for liquidated damages $/day contract was completed 1138 day behind schedule delays were caused by both owner & contractor. Contractor argued that owner could not assess L.D.’s against contractor since owner contributed to them. US District Court ruled apportionment of delay. Contractor was liable for delays caused by contractor.

Actual damages - It is a misconception to think that if there are no LD clauses in a contract then the contractor

cannot be held liable for scheduling delays. Without LDs owners can sue for actual damages based on delays. Such actual damages could be even higher than reasonable LDs. In calculating recoverable actual damages a basic rule is to consider only foreseeable loses at the time of contract execution. For example, the contractor has a good idea about the intended use of the completed project. This makes contractor liable for lost revenue resulting from inability of timely use of the facility. Typical foreseeable loses include: cost of completion, increased costs of construction loan, lost rent due to delays, extended supervision, etc. However, contractor is not liable for unforeseeable losses such as: lose of credibility in the business community, business prospects, etc.



1. What are the common contractual relationships in construction contracts? 2. What is the role of each party? 3. How the parties are obligated to each other contractually?



Module 4

CONTRACTUAL RELATIONSHIP It is important to understand the relationships among the parties under the contract arrangements commonly used to deliver construction project. These arrangements include:

1. 2. 3. 4.

Design-Bid-Build

Design-Bid-Build Arrangement - (Traditional Contractual Relationship) In this delivery system the owner contracts directly with a designer (Architect/Engineer) to produce the project design documents. The designer starts with preliminary design (mainly conceptual drawings and very minimum key specifications). Upon the owner’s approval the designer moves to detail design (production of working drawings and specifications). The designer may/may not be


given a contract to supervise the installation of its design. In either case, the designer is always kept during construction for assistance in understanding/interpreting the design. Upon reaching certain percentage of completion in the design phase, the owner presents a conceptual estimate with a feasibility study to a lending institution to secure the construction loan (short-term loan) and the mortgage (long-term loan) for the project. Upon the completion of the design documents, the owner sends the documents to bidders and receives sealed bids. The owner evaluates the bids and contract with a Prime/General Contractor (GC). The GC seeks construction bonds from a Bonding Company (Surety) and name the owner as beneficiary on those bonds. The owner does not have a direct contract with the Surety; rather the owner is named as beneficiary. GCs usually self perform 0-20% of the total scope of work; the rest is performed by the subcontractors. Therefore, the GC involves a large number of subs and suppliers to perform the work and complete the project. The GC’s functions are primarily:

1. Serves as one point of responsibility to the owner 2. Interpretation of documents for subs 3. Coordinating the work and the schedule to ensure timely completion of the project 4. Fully responsible for the jobsite safety

Subcontractors are mainly the specialty trades (e.g., Mechanical, Electrical, Fire, Glazing, Painters, etc). Subcontractors may subcontract parts of their scope to other subs and suppliers (known as lower tiers of subs and suppliers). The owner does not have contracts with the GC’s subs and suppliers. However, the owner always has the right execute work with his own forces and to engage others (other GCs, subs and suppliers) to work directly for the owner on the same project.

Design-Build

Copy the diagram displayed on screen in this space Design -Build Arrangement

In this delivery system the owner contracts directly with one firm that has both design and construction capabilities (E-C firm). Under this arrangement the E-C firm acts as the designer and the GC in the same time. The main advantage is to shorten the duration of the project by: 1.


eliminating the bidding time and efforts, 2) starting construction before completing the design (fast-track), and 3) engaging construction experts in the design as it is produced for feedback on constructability and improvement ideas. This delivery system also eliminates the possible adversary relationship (pointing fingers attitude) that frequently develops between the designer and the contractor as omission/errors are being discovered or rework/changes being requested. In its role as the GC, the E-C firm goes through the same process and bare the same responsibilities explained in the Design-Bid-Build (traditional delivery system) arrangement above regarding surety, subs, and suppliers. The owner has the same relationships with the lender and the surety.

CM Agency

Copy the diagram displayed on screen in this space CM-Agency Arrangement

In this delivery system the owner contracts directly with a CM firm that has relevant expertise and supervision capabilities to oversee the design and/or the construction activities. The CM may/may not be involved in the selection of the designer and/or the GC. In either case under this arrangement, the CM firm acts as the owner’s consultant or representative. As such, there are no direct contracts between the CM firm and any of the other parties. Under CM agency arrangement, the owner has the same relationships with the designer, lender, GC and the surety as described in the traditional delivery system.


CM at Risk

Copy the diagram displayed on screen in this space CM-at-Risk Arrangement

In this delivery system the owner contracts directly with a CM firm that has relevant expertise and supervision capabilities to oversee the design and/or the construction activities, and is also willing to accept the risk for delivering the project on time and within budget. In this arrangement the CM firm is not expected to self-perform any of the work; but rather be seriously responsible for ensuring the deliverables of the other parties. Therefore, the CM firm has direct contracts with all parties involved in the project delivery (i.e., designer, GC, subs, suppliers, etc). Under CM at risk arrangement, the owner has the same relationships with the lender and the surety as described in the traditional delivery system. Turnkey Arrangement

Copy the diagram displayed on screen in this space Turnkey Arrangement

In this delivery system the owner contracts directly with a firm that is willing to assume all the risk for designing, financing, and delivering the project. In this arrangement the owner has no direct contracts


with any entity but the turnkey firm. The turnkey firm may assume the responsibilities of the owner, CM, and/or the GC as explained in the traditional contractual arrangement. The clearest example of this project delivery method is the purchase of a home. The buyer sees the end product (the house), pays the price, and turns the key to open the door. Of course such a delivery system is not as simple when it comes to larger and more involved projects. However, the general picture presented holds true for any application.



1. What are the common challenges in contract administration? 2. What are the controversial issues related to invoicing, billing, and payments between GCs and

subs/suppliers, and owners and GCs? 3. What are the disputed issues related to progress payments and final payments? 4. What are the differences between payment to subs and payments to suppliers? 5. What is the mechanism by which subs can get direct access to owner’s money? 6. What is the legal instrument that protects GCs from unreliable subs? 7. What are the legal instruments that forces GCs obligations on subs?



Module 5

SIGNIFICANT ISSUES IN CONTRACT ADMINISTRATION What are some of the most common challenging issues in contract administration? 1. 2. 3. 4. 5. 6. 7. 8. 9. 10 11. 12. The above is not an exhaustive list of the challenging issues facing project managers; but rather a sample of the many challenges inherent in contract administration. The following briefly elaborates on each issue:

1. Communication and Coordination Problems Coordinating the timely flow of information among the large number of independent entities on a construction site is a continuing challenge. Although progress/communication meetings are common practice the amount of information, the interdependencies, and the necessary relentless efforts to follow up on the large number of action items can easily become overwhelming. The task of devising and implementing protocols and procedures for meetings, minutes distribution, information dissemination, listing/advertising/sharing action items, follow-ups on action items, balanced focus on immediate needs and not-so-immediate needs, and similar items should be taken seriously early in the project initiation time.


2. Payment Process The process of invoicing and receipt of payments involves many hands. The process starts by the GC preparing and submitting an invoice to the owner, the owner’s rep verifies the payments and may adjust the amount with justification, retainage is deducted form the invoiced amount, the owner submit the approved amount to its bank, the bank issue a check to the GC, the GC collects the amounts, the GC determines the distribution of that amount among the subs and suppliers that contributed to the work included in the invoice, the GC issues checks for each entity, the checks are received and cashed by each entity. Normally, such a process takes between 30-60 days if there are no disputes or problems detected. Determining what work items were covered by the paid amount and % of whose work got paid or deducted is not always easy to untangle. See Appendix 22- for Payment Applications examples.

However, the following sections provide some insight on the more controversial issues than just the distribution of the payments received from owners. These issues include: 1. 2. 3. 4.

3. Payment Obligations to Subs and Suppliers The basic legal precondition to entitlement to payment is substantial compliance with contract requirements. The sub has to finish work as per plans and specs to be entitled to payments. However, this entitlement gets legally controversial when the contract between the GC and a sub makes payment contingent on receipt of payment from owner for the work completed by the sub. Clauses such as: “Contractor shall pay sub within 10 days from the date contractors receives payment from owner for work performed by sub” can create problems. GCs argue such clauses are fair and reasonable since GCs depend on the flow of contract funds from the owner to the subs. Subs argue that they have no contractual relationship with owner; have no leverage to force the owner to release funds, and they counted on GCs line of credit to perform the work. Therefore, GCs must bear the risk for funds disruptions and should be prepared to pay the subs upon completion of their work. Courts tend to agree more with subs and force GCs to pay subs within a reasonable time after payment is due. Courts do not allow indefinite payment delay even if the amount due will never be paid by the owner. The only exception to this court position is when the contract between the GC and a sub makes payment by owner a “Condition Precedent” to payment obligations to the sub. With such legal verbiage a sub may not get paid due to issues other than its own performance.

Case study Grossman Steel Corp. vs Samson Window Corp. (426 N.E. 2nd 177, NY 1980)


Contractor awarded a subcontract with: “Retainage will be paid to sub as and when contractor receives such payment from owner L in same proportions”. Owner failed to release payment to contractor. Contractor refused to pay sub relaying on contract language. Appellate Supreme Court ruled in favor of sub. Contract language was not explicit enough to make payment by owner “condition precedent”.

4. Progress Payment, Final Payment and Retainage

Subs usually receive a single payment for their work if the time of executing their work is short (less than a month). For long times, subs receive progress payment based on their work % complete. The process of invoicing and payment follows a procedure similar to the process between the GC and the owner. However, there are controversial issues regarding final payment and release of retainage. GCs like to keep retainage until final payment is received from owners. GCs argue that final inspection may show problems in sub’s work and the GC needs protection against that. Withholding the final payment and retainage also helps the GCs cash-flow during construction. Subs argue that the GCs could carefully inspect their work upon completion to ensure work quality and completion. They also argue that it is a major hardship especially for early subs that would be forced to wait months/years for the balance of their contracts. In addition, what guarantee does a sub have against others causing harm to its work after the sub is gone. Courts enforce either side of the arguments as long as it is clearly stated in the contract.

5. Payments to Suppliers It should be noted that payments to suppliers is a different matter than payments to subs. Suppliers provide goods while subs provide services. Payments to suppliers therefore are governed by a different set of laws (the Uniform Commercial Code-UCC). The UCC is a statute adopted in every state to govern sales of goods. The UCC establishes the rules for offers, counter-offers, contract formation, implied warranty and disclaimers of warranties. The set of rules imposed by the UCC differ greatly from construction contract rules. The UCC does not apply to construction contracts because construction contracts cover sale of services; not sale of goods. Under the UCC, a payment is due within 30 days and retainage is not applicable. The GC has the right to inspect the goods/materials before accepting the goods. Once accepted, the GC is obligated to pay. Problems observed after acceptance are covered only by implied and expressed warranties of such goods. For purchasing off-the-self items, suppliers provide buyers with price list. Purchase orders (POs) are placed to procure such materials using price lists. Contractors usually receive trade discount (5-10%) for being repeated customers. Sellers may have boilerplate terms printed on the back of the sale receipts or invoices. That is usually the extent of the documentation involving the terms and conditions of the transaction. Purchase of equipment and customized products is a lot more involved process. The process starts with a Purchase Requisition (specifications for the equipment/product and a request for price). The supplier/vendor/fabricator responds with a price. The contractor negotiates a price and issue a PO. The PO contains terms and conditions that the contractor seeks to impose on the supplier. When the supplier furnishes the product, its invoice usually contains different terms that supplier seeks to impose on the contractor. Each requests the other to acknowledge its terms and conditions. Each claims that the terms and conditions on its form take precedence in case of


conflict. This creates confusion as to the provisions that were really intended to govern the purchase.

6. Remedies for Unpaid Subs and Suppliers (Lien Laws)

The best remedy for an unpaid sub or supplier is to recover by the payment bond of the GC or to place a lien against the owner’s property. Lien statutes (mechanics & materials liens) were enacted to allow parties providing labor or material to obtain security interest in the owner’s property. The rational is labor and material has improved the value of owner’s property, and therefore the providers should look to the property as the security for their eventual payments. A fully perfected lien (i.e., a lien that satisfied all the required steps by the statute) is like a mortgage on a property. It must be paid before a clear title to ownership is provided to the project owner.

7. Maintaining Proper Chain of Command

Authority must be given fully to the GC on site. Tremendous confusion occurs if owner’s rep deals directly with subs. The confusion is caused by the fact that the sub does not know whether the work discussed with the sub is a part of the GC’s scope or is an additional scope. If the work discussed with the sub is not a part of the GC’s scope, then the question becomes: is the owner contracting directly with the sub on the additional scope? If the work discussed with the sub is a part of the GC’s scope, then the question becomes: is that part of the work assigned by the GC to this sub? These questions create confusion regarding the scope, change orders, responsibility for payments (contractor vs. owner). Once this confusion takes place, the GC could not be held responsible because the GC was kept out of the loop. Owner’s reps should also refrain from interpretation of documents, comments on shop drawings issues, feedback on material samples and other submittals.

Case study Thatcher Corp. vs Bihlman - (473 N.E. 2nd 1022 Ind Appl 1985) On a dike project contractor subcontracted a part of the scope. Because of differing site conditions owner’s engineer issued directives to sub after completion, subbed requested additional $$$$$ from contractor. Court of appeal of Ind. ruled: contractor is not liable because it was bypassed by owner’s engineer.

8. Lack of Contract Formality

Lack of contract formality- During competitive bidding, contractors obtain quotations from subs orally, over the phone, by fax, etc. All these methods lack the ingredients of an enforceable contract (price, schedule, and scope). In addition, quotations are usually given at the last minute because of: 1) time constraints and 2) fear of “bid shopping”. Bid shopping is a term describes the exercise in which a GC is pitting bidders against one another to get each to lower its price. Of course during the bidding time no subcontracts are executed. Subcontracts are executed later only after the contractor is awarded the contract. This can create problems because the contractor committed itself in a binding offer on the basis of the subs’ quotations.

The doctrine of “Promissory Estoppel” protects contractors from the harm of key subs backing out. The essence of the doctrine is that if a party relies to its detriment on the promise of another party, the other party must be held responsible to its promise to avoid harm to the first party. As a result, a sub will be forced to honor its price or pay the resulting extra cost if it backs out of an offer. This is not based on breach of contract, since there was no contract formed at the time of the offer (price


quotations). However, the problem in enforcing this doctrine is to prove reasonable reliance on the sub’s price. The sub may have not submitted an “unequivocal” bid/price by making it conditional on some contingencies. To lock in prices received from subs a prudent contractor should promptly send a written notification to the subs confirming receipt of price, informing that the price is used in the bid, and stating reliance on the price. However, a prudent contractor should not promise execution of subcontract at this time. The contractor is still not obligated to the subs. See Appendix 20- for examples of sub-bids and subcontracts.

Case study Preload Technology vs AB&J Construction Inc. (696 F.2d 1080, 5th Cir. 1983) Contractor received an oral quotation from sub in preparation of bid. Later, contractor requested written breakdown. Contractor was awarded the contract, sub refused to enter contract because of changes in workload. Contractor sued for increased $$$$$ in subcontracting this portion. The U.S. Court of Appeal ruled: Sub was liable under the doctrine “Promissory Estoppel” because contractor had reasonably relied on sub’s price.


9. Use of Filed Sub-bids

On public contracts, a system has been established by statutes in many States to award subcontracts. This came as a response to the political influence of subs and trade organizations demanding more direct access to public works funds. In this system, subs submit sub-bids directly to the awarding authority (public owner). The awarding authority send the list of sub-bids to interested GCs. Contractors must use these sub-bidders for work they do not intend to self perform. An exception to this rule is acceptable if the GC proves that it cannot work harmoniously with a particular sub. Interestingly, “filed sub-bids” don’t address the general conditions under which subcontracts will be executed.

Case study Robin Hope Inc., vs J.A. Sullivean Corp. -(413 N.E. 2nd 1134, MASS. App. 1980) Contractor prepared a bid for public school project using filed subbids as a statutory requirement. For metal windows, contractor listed itself instead as the lowest bidder. Sub sued based on loss profit expected & court agreed. Only if contractor customarily furnish this type of work with its own qualified personnel, contractor could refuse to award subcontract to lowest filed sub-bidder.

10. Imposing Contractor’s Obligations on Subs and Suppliers Contractors attempt to make subs and suppliers assume the same obligations that they assume with

the owner. Contractors can accomplish this with the following legal instruments:

a. b. c.

Flow-Down Clauses These are clauses stating that the sub agrees to adhere and be bound to contractor by all provisions of prime contract dated ……. and executed by contractor and owner. Although, this does not expand sub’s scope of work it however imposes the administrative requirements of the general contract on the sub. Examples of such administrative requirements include notice for differing site conditions, request for the time extension, change order (CO) requests and procedure, submittals, etc. Subs should be very careful in such situation and carefully read the conditions of the prime contract.

Case study Sime Const. Co. vs Washington Public Supply (621 P2d. 1299, WASH.APP. 1980) Subcontract contained flow-down clause stating that conditions of prime contract were incorporated in subcontract by reference. Sub was delayed due to late drawings. Sub claimed delay damages. It was denied based on failure to give written notice within 15 days as per the terms of the prime contract. Court enforced the flow-down clause and denied sub’s claim on same basis. However, Federal courts (for federal projects) took a different stand. They did not expand the obligations to the administrative requirements. They limited obligations to the sub scope of work.


Warranties Contractors have to carefully see that warranty on subs’ works do not expire before contractor’s warranty expires. Contractor’s warranty usually last for one year and begins at the project final acceptance. Problems are more likely to occur when a contractor is forced to use certain subs or suppliers due to proprietary spec or law requirements. Generally, suppliers do not extend the same warranty as committed by the contractor. Suppliers often use standard disclaimer clauses which are enforceable by the UCC. The best a contractor can do is not to acknowledge the supplier’s terms and to create uncertainty regarding what terms really govern the sale to have a chance to recover.

Construction bonds Key subs should be bonded as protection for contractor against non-performance. However, it should be realized that bond premiums for subs are additional expenses to the contractor and will affect its price/bid. Therefore, it is usually limited to key subs only. Subs’ bonds work the same way as bonds between the contractor and owner. The contractor is named obligee in this case. Suppliers are rarely bonded. See Appendix 21- for examples of subcontract bonds.

11. Scheduling Issues

There are many challenges related to construction schedules concerning the incorporation of subs’ schedules into the GC’s master schedule. These challenges include:

a. Dividing work among subs - The GC is solely responsible for dividing work among subs to ensure no omission or overlap. Owners and subs have no obligation in this matter. Contractor must NOT solely rely on specifications divisions in assigning work to subs because that may lead in overlap or omission of scope. For example, wiring of equipment is in Division 15-Mechanical. Therefore, the electrical sub will not be obligated to perform this work if its scope is limited to Divesion16-Electrical. Also, the mechanical sub may not include the wiring, as it limits its scope to the mechanical part of Divsion15. Such omissions can cause costly claims, confusion, interruption of work, and liability to perform due to trade jurisdiction/turf.

Case study Lamb plumbing & Heating vs Anderson Inc. - (296 N.W. 3rd 859, MN 1980) Contractor awarded 2 subcontracts. Both referenced certain division. Responsibility of a gate valve was not clear. Sub A performed and sued. Supreme Court ruled sub must be paid for valve. Contractor responsibility is to clearly divide work.

b. Coordinating schedules among sub - The GC is solely responsible for determining and coordinating

schedules among sub to ensure proper sequence and minimum overall time for completion. Owners and subs have no obligation in this matter. Wrong scheduling dates may not only harm a sub, but also delay the entire project. Ideally, each sub should be given its schedule (start – finish dates) and a copy of the overall schedule. Unfortunately, such start-finish dates are usually omitted because the contractor fears that subs may claim delay damages if these dates are not met. Usually, subcontracts state that the sub agrees to work at the direction of the general contractor and that certain amount of delays and disruptions should be expected. These clauses are generally enforceable by courts, but since the subcontract does not contain specific dates the contractor cannot hold subs responsible for delays. However to protect themselves, GCs often include statements in the subcontracts stating that the sub shall be liable to the extent that its slow performance results in subjecting the GC to liquidated damages. Such clauses are enforceable, but the GC has to prove that sub caused late completion of the project. If it is proven courts will pass the LDs to the sub.



1. What are the documents that make the bidding documents? 2. What are the documents that make the construction contracts? 3. What is the purpose, function, and content (details) of each document? 4. How do the above documents relate/govern to each other?



Module 6

CONSTRUCTION COCUMENTS The enclosed Figure summaries the construction documents and groups them according to the common practice. As can be seen in the Figure:

- The Project Manual consists of the Bidding Requirements documents, Contract Forms, Contract Conditions, and Specifications.

- The Bidding Documents consist of the Project Manual, Drawings, and Addenda - The Contract Documents consist of the Project Manual (less the Bidding Requirements

documents), Drawings, Addenda, and the Contract Modification instruments.

Each of these documents is discussed in the following sections.


BIDDING REQUIREMENTS The bidding requirements block (as seen in the previous Figure) is made of the e following documents:

1. Invitation to bid 2. Instruction to bidders 3. Pre-bid information 4. Bid form 5. Bid bond

Each of these documents is discussed individually in the following sections.

Invitation to Bid

Purpose of Invitation 1. For owners to solicit bids 2. For bidders to decide whether they have:

a. b. c. d.

Methods of Invitation

Open Invitation - Open to all responsible bidders

Responsible means having financial ability, experience, and required resources - In the private sector, both prequalification (i.e., before bidding) and post-qualification (i.e., after

bidding) are common. - In the public sector, only pre-qualification is acceptable to avoid possible disputes with the

apparent lowest bidder that is missing other requirements. - The invitation is usually posted as an advertisement in newspapers, national journals (e.g., ENR,

Dodge report, AGC Daily News, etc), regional journals (e.g., construction news). - State laws dictate: where, how many times, how long each ad should run.

Closed Invitation - Only open to selected bidders - Selection could be based on personal contacts in the form of a letter - More frequently, invitation is sent to all names on the prequalified bidders list. This list contains

the names of bidders that were prequalified already by the owner and proven to have the necessary credentials to bid work with the owner. To be included on such a list, a bidder needs to complete certain documentations. Appendix 1 provides an example of a form used for prequalifying bidders.


Whether the invitation is composed in the form of a letter or an advertisement it should contain the following 10 points: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10 Appendix 2 provides an example of a letter format of a complete invitation to bid. Appendix 3 provides examples of public advertisement.


Instructions to Bidders Purpose - - - This document must be closely coordinated with the Invitation to Bid and the General Conditions documents since items mentioned in the Invitation are detailed further in the Instructions and item mentioned in the Instructions are detailed further in the General Conditions. Many professional and trade organizations have developed preprinted documents to be used as Instructions to Bidders. The American Institute of Architects (AIA) is a good source for many of the preprinted documents suitable for building type projects (Appendix 4: AIA Doc. A701 instruction to bidders). In addition, other organizations such as the Engineer’s Joint Contract Document Committee (EJCDC) is a good source for many of the preprinted documents suitable for non-building type projects (Appendix 5: Doc #1910-12 Guide to the Preparation of Instruction to Bidders).

Contents of Instructions to Bidders The document addresses the following issues:

1. Bidding Documents issues such as who can obtain a copy, no partial sets, deposit amount to obtain a copy, how documents should be returned, and the amount of refunds when returned

2. Examination of documents issues such as location to examine documents, time limits on examination, and arrangements for examination

3. Issues related to interpretation of documents during bidding such as who is authorized to receive requests for interpretations, where to send requests, how requests should be sent, deadline for sending requests, time limit on replies

4. Substitutions issues such as are they allowed, procedures for request, time limits on receiving and responding to a request


5. Type of bid issues such as lump sum/unit price/cost plus/entire/segregated/etc 6. Preparation of bid issues such as the necessary # of copies, signatures required 7. Bid security issues such as requirements for security, amount, form of security (cashier/certified

check), who should it be payable to, time limit before owner returns security, conditions that lead to return/forfeiture bid security

8. Performance and payment bonds issues such as requirement for bonds, bond value as % of bid, time limit to furnish bonds

9. Subcontractors list issues such as the requirement for submitting a list and time limit on submitting such a list

10. Bids identification and submittal issues such as how to ID the bid, submittal procedure, and handling of late bids

11. Modification/withdrawal issues such as procedures and time limits or withdrawing and resubmitting a bid

12. Disqualification issues such as determining the causes for disqualifying a bid/bidder 13. Laws & regulations issues such as permits, licensing for special requirements, tax exemption,

wage rates (if law requirement), local labor agreements, non-discriminatory hiring, etc 14. Pre- bid conference issues including requirements, where, when, and who must attend 15. Liquidated damages issues such as stating the required amount and specifying bonuses 16. Bid opening issues such as the detailed procedures 17. Bid evaluation issues including basis for evaluation and reserving the owner’s right to reject any

or all bids 18. Execution of contract issues involving the description of the procedure and the required

signatures levels


Pre-bid Information Information classified as pre-bid is entirely optional, and offered for bidders’ convenience. It is not part of the contract and does not relieve bidders from investigating its accuracy. Care should be exercised in presenting such info to avoid misleading the bidders. Examples of such information include preliminary construction schedule prepared by A/E, Geotechnical data and reports including soil borings and other reports, and conditions of existing site and structures. This information should also be coordinated with General Conditions since both documents mention it.

Bid Form

It is a form provided by the owner to carry the final bid figures. It is also known as “Proposal Form”. Although provided by the owner, it is prepared in the form of “FROM: Bidder… TO: Owner”. It incorporates many blank spaces to be filled by bidders. Purpose: It ensures the completeness and uniformity of the bids, and therefore promotes fairness in judging the bids on the same basis.

Contents:

1. Bid ID- including Project ID/Title/# as well as owner’s name & address and bidder’s name & address.

2. Acknowledgement of all documents including drawings, specs, addenda, as well as confirming the

correlation of site conditions to project documents. 3. Bidder obligations- confirming that bidders holds the bid price for certain time period (usually 30

days in private work and 60-90 days in public work) and agreeing to forfeit bid security if defaults.

4. Basis of bid- specifying the payment method (i.e., Lump sum, unit price, etc) and requirements for

alternates (if any). An alternate is a definable scope (part of the project) for which the owner requests a separate bid that could be added to or subtracted from the base bid.

5. List of attachments – often owners will require items to be attached to the bid form such as: the

bid security, subs & suppliers list, bidder’s qualifications statement, bidder’s financial statement, and non-collision affidavit. The non-collision affidavit is a written document stating that the bidder did not collaborate/cooperate/share any specifics of its bid with other bidders. Appendix 6 provides an example of a Proposal Form.


BID BOND

What does each of these terms mean? Surety bond – written document given by principal & surety to oblige guaranteeing a specific obligation Principal – party under obligation (contractor) Surety – party guaranteeing principal’s performance (bonding company) Obligee – party benefiting from bond (owner) Indemnity agreement – written agreement between principal & surety guaranteeing that the surety will be held harmless and will incur no losses as a result of providing the bond

PURPOSE:

Assurance to owners, subs & suppliers of financial backing of the contractor’s obligations TYPES: Bid bond:

Submitted with bid, used if lowest bidder refuses contract; absence is a reason for disqualification of bids; provided free of charge with other services; may include cost of re-bidding

Performance bond:

Submitted with execution of contract, used if contractor defaults in performing obligations; surety takes over or provides funds to complete project; costs 0.3-2% of bond amount (usually 100%)

Payment bond:

Submitted with the execution of contract, used if contractor defaults in paying labor, subs, or suppliers; protects owners from mechanic’s liens; and claims against contract balance by unpaid subs

Maintenance bonds: Usually specified in a specification’s section to ensure that certain component/system of the facility will run free of defects for certain number of years…commonly requested for roofs and mechanical systems - BOND FORMS:

Standard forms for federal, state, municipal projects (AIA A311) others by EJCDC (#1910-28) and AIA (A312)

(Appendix 7 – Surety Bonds)


CONTRACT FORMS These include:

1. 2. 3. 4.

AGREEMENT FORM

1. Background

- Mistakenly, referred to as the “ contract” - Is the instrument that obligates the signing parties - Binds the other documents firmly and permanently (incorporates by reference) - Consult an attorney because of legal consequences

1. Contents

1. 2. 3. 4.

• Agreement Forms - Standard forms are available from professional and trades societies, government agencies, and

institutes - Standardization: save effort, assure completeness; acceptability; familiarity - Modification must be coordinated with General Conditions - AIA (A101) & EJCDC (#1910-8-A-1): Standard statements + blanks to be filled to reflect the

specifics of a contract See Appendix 8 – lump sum contracts See Appendix 9 – cost plus contracts


PROJECT CERTIFICATES These certificates include:

- - - - See Appendix 10 – certificate of substantial completion)

INSURANCE

1. Worker’s compensation - Statutory insurance - Covers: medical expenses, wage loss, hardships

1. General liability - Covers personal & property damage of third party - “Exclusionary” i.e. every except specified

1. Vehicle liability - Mandatory in most states - Covers operator, passengers, property

1. Builder’s risk insurance

- Covers the property for construction time against: windstorms, hail damage, fires, floods,…, materials & equipment installed only

2. All risk insurance - Combines vehicle and builder’s risk policies in one

3. Owner’s liability - Covers owner against a third party

4. Loss-of-use insurance - Covers owner for delays through a mishap and no fault of contractor


CONTRACT CONDITIONS

Purpose Define basic rights, responsibilities, and relationship of parties executing the contract Contents

1. 2.

Is the A/E a party to construction contracts? No, but although the A/E is not a signatory the document describes its duties & responsibilities:

• Owner’s rep to visit & check site • Interpretation of documents • Authorize progress payments • Prepare change orders • Approval/ disapproval of submittals • Reject defective work • Determine substantial comp date • Determine final completion date

- The document must be coordinated with: • Agreement between O & A/E • Instruction to A/E field rep


GENERAL CONDITIONS

ARTICLE 1 - Contract documents/terminology - A/E responsibilities: (see “B” above) ARTICLE 2 - OWNER’S OBLIGATIONS:

- Evidence of financial arrangement - Survey, legal limits and description - Free copies of DWGs & SPECs (e.g., 10-18)

- OWNER’S RIGHTS:

- Right to perform work with own force/ other - Right to stop the work - Right to carry on defective work After 7 days from a written notice

ARTICLE 3 - CONTRACTOR’S OBLIGATION:

- Review and compare documents - Report inconsistencies/ errors - Direct, supervise & test work - Liable for his employees and subs - Liable in spite A/E inspection - Provide & pay resources for all work - Warranty all material and equipment - Pay applicable taxes - Secure permits & licenses required - Comply with all laws & regulations - Employ competent superintendent & key person - Submit progress schedule - Submit shop drawings, samples product data - Submit list of subs & suppliers - Clean-up

- CONTRACTOR’S RIGHTS:

- Withholding payment for no reason: AIA 7 days past due + 7 days notice = stop Cost of shut down Cost of delay 7 start up

ARTICLE 4 - CONTRACT ADMINISTARTION:

- Longest Article - Interpretation of documents - Dispute resolution


- Arbitration ARTICLE 5 - SUBCONTRACTORS:

ARTICLE 6 - WORK BY OWNER OR OTHER PRIMES

ARTICLE 7 - CHANGES IN THE WORK

- Change orders: written, signed by A/E & Owner - Contractor signature means agreement with adjustment only. - Cost of change orders:

1. Mutual consent 2. Unit price schedule 3. As determined by A/E 4. GC claims for cost adjustment (20 days time limit)

ARTICLE 8 - TIME

- Date of commencement: NTP or agreement form (Appendix-19 examples of NOA and NTP) - Time extension if delays by O or A/E - Must submit time claims within 20 days

ARTICLE 9 - PAYMENTS

- Schedule of values before 1st payment - For installed/ not deliver only - Time to review application - Owner pays with time specified in agreement - Withholding payments for reason - Final completion & final payment

1.Final inspection 2.Affidavit of all payments made 3.Waivers of liens

ARTICLE 10 - PROTECTION OF PERSONS AND PROPERTY

- Safety programs - Designate a safety officer - Maintaining safe operation - Comply with all safety laws & regulations - Utmost care in handling hazardous material - Prompt remedy


ARTICLE 11 - INSURANCE

- Contractor’s liability (purchased by contractor) - Owner’s liability (purchased by owner) - Property insurance (purchased by owner) - Boiler and machinery (by owner) - Policies filed before commencement of work

ARTICLE 12 - UNCOVERING & CORRECTION OF WORK

- Covered contrary to A/E request uncover & cover on contract $$$

- Uncover request: 1.If in accordance with contract documents, owner pays the cost 2.If not in accordance with contract documents, contractor pays the cost

- Prompt correction of defective work - One year from substantial completion or as per law = correct deflective - Right to deduct $$$ for defective work

ARTICLE 13 - MISCILLENIOUS ARTICLE 14 - TERMINATION OF THE CONTRACT - By contractor:

1.Stopped for 30 days (no fault of his) 2.7 days notice = = recover all $$$

- By owner: 1.Major non-compliance with: contract, laws, regulations, standard workmanship, payment to subs; or

go bankrupt 7 days notice to contractor + surety Take position of site, material, equipment, construction equipment, tools, etc …. See Appendix 11 – Example of General Conditions


SUPPLEMENTARY CONDITIONS

What is the purpose/function of the Supplementary Conditions? - Examples of issues handled by Supplementary Conditions include:

1. 2. 3. 4. 5. 6. 7. 8. 9. 10 11.

- Language samples: 1. Delete paragraph 5.4.2. of the general conditions in its entirety and insert the following in its

space: 2. Add the following at the end of the second sentence of paragraph 9.4.3 of the general

conditions: 3. Add a new paragraph immediately after paragraph 8.6.3 of the general conditions which reads:


SPECIFICATIONS Purpose

Written documents that specify: 1. Type and quality of materials and equipment required 2. Quality of workmanship (standards/codes) including:

a. Fabrication and installation methods b. Testing requirements (QA/QC) c. Allowances (i.e., amounts of money specified by the owner to cover the cost of

certain items) d. Alternates (i.e., defined scope for which the owner requested a separate bid that

could be added or subtracted from the base bid)

Evolution In the Medieval time, the Master builder directed the work and selected materials as the work was executed. In the 20th century, specifications started as compilation of notes on drawings and infrequently provided as separate write ups. Today, writing specifications is a recognized profession that requires individuals with good writing skills; verbal communication; ability to communicate with wide range of people; capability of researching and fast reading; understanding of legal principles; and knowledge of field practice. There is no specific education (i.e., no single program; college degree) is necessary. However, many professional specifiers have degrees in Engineering, Architecture, and Construction Management. However, some specifiers have vocational or high school degrees complemented by extensive experience on job sites.

Methods of Specifying

Specifications could be written as:

1. Descriptive specs 2. 3. Reference specs Proprietary specs 4. Performance specs 5. Combination of above

Descriptive Specifications This type of specifications is written to describe the means and methods of reaching the end product. Therefore, it provides details regarding selection, proportions, preparation, properties, and installation of the materials desired. In this type of specifications concrete is specified by its concrete mix proportions (i.e., 4:2:1:0.5) instead of specifying the concrete strength (e.g., 3000 psi). As such, the specifier assumes the performance liability of the end product. In other words, the contractor will not be liable for attaining certain concrete strength if the contractor follows the specified mix proportions. This method is being used less because of this shortcoming. However, sometime it is the only choice available to the specifier. Examples of such situations include specifying a new material where the manufacturer is the only expertise and no previous standards or expertise are available.


Reference Specifications This type of specifications refers the contractor to nationally recognized standards that govern the means and methods of reaching the end product. Exemples of such standards include standards those written by ASTM, ANSI, ACI, ASME, etc. Although full inclusion of the standard is recommended, it is sufficient that a specifier only mention full title and number of the standard desired. This type of specifications saves text, time, and effort. It should be noted however that such standards only cover the minimum acceptable quality and can contain hidden choice. For instance, specifying the concrete work using the ASTM C150 standard allows the contractor to choose among 8 types of Portland cement. Obviously, a contractor will choose the least expensive regardless of the quality or what is best for the project. In addition, this method can create duplication and confusion because many organizations developed standards that are contradicting at times. The worst of all is to mistakenly reference the wrong standard number or acronyms of the issuing organization, which could easily happen. To avoid such disastrous situations, it is recommended that the specifier:

1. Reviews the contents and purpose of the reference spec 2. Verifies that it is compatible with rest of the specs 3. Utilizes the most commonly used specs 4. Ensures no hidden choices 5. Ensures no duplication 6. States exceptions to the ref specs, if any 7. Use full titles, designations and define acronyms

Proprietary Specs This type of specifications defines the requirements by stating:

1. Manufacturer’s name 2. Brand name 3. Model #/ catalogue # 4. Type & other designations

As such, this method simplifies bidding, reduces the volume of specs, provides more complete project documents, and offers closer control of product selection. However, it eliminates wide competition, favors certain products, and can force contractors to use undesirable products or vendors with whom they may not be able to work harmoniously. At times, proprietary specs are a must when the products have to match exiting ones to avoid extra efforts in maintenance and tying additional money in spare parts. Also, when the system is vital to the operation of the facility and a certain product has proven superiority. In general, proprietary specs are not allowed in public works unless it names at least 2 brands and allows substitutions. Proprietary specs could be classified as: closed or open as discussed below.

Closed Proprietary Specs This type of specifications states only one product name and allows no substitutions for the purpose of reducing variability in the possible alternatives. This type of specs could result in higher cost because of sole sourcing, unfair advantage of one vendor against others, and increase the possibility of collusion (i.e., bribing/kick-backs) between the specifier and the supplier.


Open Proprietary Specs This type of specifications lists more than one product name and indicates that named products are primarily for guidance, allows substitutions. As a result, it eliminates sole sourcing, provides more flexibility to bidders, and benefits from the introduction of new products. However, it should be noted that bids are evaluated based on base items (named products) with substitutions’ prices listed separately for owner’s assessment.

Performance Specs This type of specifications the items are described by detailing the results required instead of the physical products. For example, instead of specifying an Air Conditioning system by its brand name or tonnage it is specified by the ability of the system to cool/heat certain volume in specified time period and its ability to offer certain number of air exchanges within certain time, etc. Another example is specifying concrete by its strength (5000 psi) instead of the mix design. In this method the specifire must clearly state the method by which the results will be verified.

Writing Specifications Each specification must answer 3 questions:

1. What interrelationships exist with reminder of the sections? 2. What products are involved? 3. How products are incorporated/installed?

This is accomplished by writing specs in what is known as “the 3-part format”:

1. Part 1: General 2. Part 2: Products 3. Part 3: Execution

The name and sequence of these three parts are fixed in all specifications. The following elaborates on each part:

PART 1-GENERAL This part represents the administrative and procedural requirements of the spec and contains the following:

1. It lists the contents of the section and lists related references and standards 2. It lists the related sections and clarify it the item is to be furnish, installed or both 3. It lists the unit price work, allowances, and alternates 4. It lists the requirements for submittals, Q/A & Q/C, handling, and storage 5. It lists the requirements for sequencing, scheduling, warranty, and maintenance

PART 2-PRODUCT It specifies the materials, equipment, components, mixes, fabrications, tests, inspections, tolerances, accessories, and manufacturers PART 3-EXECUTION It specifies the requirements of on-site labor, as well as, examination of material, acceptability criteria, preparation, erection, tolerances, field Q/C, tests, field manufacturing, adjusting, cleaning protection, and scheduling constraints………… Appendix 13-Example Spec


Organization of Specifications Prior to 1960s, specs were presented as notes on drawings. This has proven impractical and confusing to bidders. In 1963, the Construction Specifications Institute (CSI) came up with the idea of uniform location of matters to standardize the formatting of specs. This was accomplished by providing a fixed framework of standard titles, sequence, and a numbering system. The CSI Master-Format gained global popularity and was adopted by designers. The CSI Master-Format (up to 1995) was made of 16 divisions. After 1995, the CSI switched to 50 Divisions. The 16-Division format is still used and more popular than the 50-Division version. Regardless of the version, a CSI Division represents a basic grouping of related items. Each Division is broken down into Phases (related sections to address the major components in a division). For example, Division 3- Concrete is broken down into three phases: 3.1 Formwork, 3.2 Rebar, and 3.3 Concrete materials. Each Phase in turn is divided into sections to detail the items included in the phase. The CSI Master-Format utilizes a five-digit numbering system as explained below:

The 5 digits are used to fully identify each spec section The first 2 digits refer to the Division number The next 3 digits refer to the broad, mid, and narrow scope

Example: 05 200 metal joists (broad scope)

05 210 Steel joists (medium scope) 05 211 Open web steel joists (narrow) 05 212 Steel joists girders (narrow)

The CSI system is flexible enough to allow designers to select only the applicable divisions and sections. They are not forced to use all broad, mid, narrow scopes; they can mix and match as they see fit. It should be noted that the numbering code and the sequence of Divisions, Phases, and Sections do not follow the construction timeline or individual trades work.

CSI 16-Division Format DIVISION 1- General requirements DIVISION 2- Site work DIVISION 3- Concrete DIVISION 4- Masonry DIVISION 5- Metals DIVISION 6- Wood and Plastics DIVISION 7- Thermal and moisture DIVISION 8- Doors and widows DIVISION 9- Finishes DIVISION 10- Specialties DIVISION 11- Equipment DIVISION 12- Furnishings DIVISION 13- Special construction DIVISION 14- Conveying systems DIVISION 15- Mechanical DIVISION 16- Electrical


Hierarchy of Contract Documents The contract documents are organized in a hierarchical arrangement. This was necessary so that information is only stated once and referenced repeatedly as needed. Also, such an arrangement allows certain documents to delineate the information summarized in others, as needed. In addition, it preserves information contained in the Bidding Documents to make it part of the Contract Documents. This is important since Bidding Documents are not part of the Contract Documents. The Figure below shows pictorially the relationships among the contract documents.

As shown in the above Figure, Division 1- General

Requirements governs the execution of the rest of specs because it lists the administrative requirements, procedural requirements, and temporary facilities requirements for the entire contract instead of repeating the same for each section of the specs. Division-1 is also related to the following documents:

53 This manual was prepared by Dr. Neil N. Eldin, PhD, PE for the purpose of student training© C:\Documents and Settings\neldin\My Documents\0. Online Courses\Masters -6310 Contracts\0. 6310-Students Notes 2010.doc

Instruction to Bidders Instruction to bidders is a document included in the Bidding Requirements. Therefore it is not a part of the contract documents. However, the instructions include information that needs to be preserved in the contract such as: procedures for substitutions, unit prices, site use, materials purchased by owner, alternates, and phasing of work. Instructions to Bidders therefore should only detail information that is applicable only during bidding (e.g. time limit on the offer, bid security, refund for returned documents) and reference the information in Div.1 that need to stay in the contract. Agreement Division 1 is referenced in the Agreement since it expands the summary of work mentioned in the agreement, specifies administrative details, and delineates the responsibilities of the parties during execution of work. General Conditions The General Conditions (GC) document governs all the contract documents including Division 1. However, requirements that are broadly stated in the GC are further detailed in Division 1. Examples of such items include property surveys, temporary utilities and services, warranties, allowances, progress schedules, submittals, cutting and patching, cleaning, and schedule of values. For example, the GC document states that the owner may employ a separate contractor. Division 1 (Sec 01010) will identify the contractors, scope of work for each, responsibility of each, who will coordinate the overall activities, etc.

Divisions 2-16 These Divisions further detail the requirements stated in Div.1. General Conditions Requirements are summarized in the General Conditions (GC) and expanded in Division-1. For example, testing may be stated in the GC, but the administrative procedures such as who hires the testing lab? who pays for the tests? lab qualifications, reports requirements, coordination of tests, etc are stated in Division-1.

Supplementary Conditions

The Supplementary Conditions (SC) is related to Division-1 since it adds/modifies the General Conditions. Examples of items in the SC that relates to Division-1 include particular test, number of tests required for products and execution, etc.

Drawings Complement and delineate the requirements stated in Division-1. The Figure below is an example of expanding information from the summary presented in the General Conditions to the details presented in a section in the specifications.

54 This manual was prepared by Dr. Neil N. Eldin, PhD, PE for the purpose of student training© C:\Documents and Settings\neldin\My Documents\0. Online Courses\Masters -6310 Contracts\0. 6310-Students Notes 2010.doc

55 This manual is an intellectual property prepared by Dr. Neil N. Eldin, PhD, PE only for the purpose of student training and education.

The following summarizes the information contained in Division-1:

01010-SUMMARY OF WORK Work by Owner, Owner Furnished Products, Contractor Use of Premises, Future Work, Work Sequence, Owner Occupancy 01019-CONTRACT CONSIDERATIONS Cash allowances, Contingency Allowance, Inspection and Testing Allowances, Schedule of Values, Applications for Payment, Change Procedures, and Alternates 01039-COORDINATION AND MEETINGS Coordination, Field Engineering, Alteration Project, Procedures, Cutting and Patching, Preconstruction Conference, Site Mobilization Conference, Progress Meetings, Pre-installation Conference 01300-SUBMITTALS Submittal Procedures, Construction Progress Schedules, Proposed Products List, Shop Drawings, Product Data, Samples, Manufacturer’s Instructions, Manufacturer’s Certificates, Construction Photographs 01400-QUALITY CONTROL Quality Assurance/Control of Installation, References, Field Samples, Mock-Up, Inspection and Testing Laboratory Services, Manufacturer’s Field Services and Reports 01500-CONSTRUCTION FACILITIES AND TEMPORARY CONTROLS Temporary Electricity, Temporary Lighting Temporary Heat, Temporary Ventilation, Telephone Service, Temporary Water Service, Temporary Sanitary, Facilities, Barriers, Fencing, Water Control, Exterior Enclosures, Interior Enclosures, Protection of Installed Work, Security, Access Road, Parking, Progressive Cleaning, Project Identification, Field Offices and Sheds, Removal of Utilities, Facilities and Controls 01600-MATERIAL AND EQUIPMENT Products, Transportation and Handling, Storage and Protection, Product Options, Substitutions 01650-STARTING OF SYSTEMS Starting System, Demonstration and Instructions, Testing, Adjusting and Balancing 01700-CONTRACT CLOSEOUT Closeout Procedures, Final Cleaning, Adjusting, Project Record Documents, operation and Maintenance Data, Warranties, Spare Parts and Maintenance Materials NARROWSCOPE SECTIONS 01011-Summary of Project 01027-Application for Payment 01028- Change Order Procedures 01030-Alternates 01041-Project Coordination 01045-Cutting and Patching 01049-Mechanical and Electrical Coordinator 01050-Field Engineering


01120-Alteration Project Procedures 01310-Progress Schedules 01311-Network Analysis Schedules 01380-Construction Photographs

01090-Reference Standards 01410-Testing Laboratory Services 01540-Security 01550-Access Roads and Parking Areas 01560-Temporay Controls 01570-Traffic Regulations 01580-Project Identifications and Signs 01590-Field Offices and Sheds

01730-Operation and Maintenance Data 01740-Warranties and Bonds


DRAWINGS

Also known as plans and blue prints. Residential drawings are simple and usually small in number. All systems are usually shown on floor plans. Non-residential (commercial, process, and heavy civil) drawings are more complex and have dedicated plans for the separate systems (mechanical, electrical, fire, etc).

Classification

Drawings are classified as:

1. Working drawings 2. Shop drawings

Working Drawings Drawings produced by the designer are known as working drawings. They show the design intent and not the details that allows manufacturing and fabrication of the design components. Shop Drawings

Shop drawings are necessary to commence manufacturing and fabrication. These drawings are produced by manufacturers/fabricators/vendors and reviewed by designer. Once produced, they become part of the project drawings. Purpose and Arrangement The following summarizes common terminology and summarizes information common to the various drawing types: SITE PLAN

1. Project site 2. Layout of components 3. Property lines 4. Site elevation 5. Overall dimensions 6. Finished elevations 7. Utilities 8. Roads 9. Landscaping


FOUNDATION PLAN

1. Footings/Rafts/Piles 2. Foundation walls 3. Columns

ELEVATIONS

1. Outside views 2. Front, rear, left, right 3. North, south, east, west

SECTIONS

1. Internal relationships, sizes, material 2. Transverse (side to side) 3. Longitudinal (end to end) 4. Vertical cross-cut 5. Horizontal cross-cut

DETAIL

1. Enlarged view of a specific part 2. Special features

SCHEDULES

1. Tables /Charts 2. Repetitive items 3. #, Size, Shape, type, Material, Location 4. Doors, windows, finishes 5. Footings, columns, reinforcement steel


CHANGES TO CONSTRUCTION DOCUMENTS Legal Requirements The construction law requires two important provisions in changes to construction contracts:

1. Written notice provision – all changes must be in writing and owner must be notified of the impact on the contract.

2. Approval/pre-authorization provision – owner must approve changes before work starts. Violating these provisions may result in denying a contractor’s claim to additional compensations. However, owners must be aware that they could lose this legal right by their own actions. This can happen if an owner gives verbal instructions for changes and honor these verbal instructions by compensating the contractor. Change Instruments A number of legal instruments are used to enact changes to construction documents. Each is described below:

ADDENDA addenda are written or graphic instructions issued by the designer to clarify, revise, add, and delete information stated in the bidding documents or in previous addenda. The AIA limits issuance of addenda to anytime before contract execution. This is more common in private work. The EJCDC limits issuance of addenda to anytime prior to bid opening. This is more common in performing public works.

1. Purpose

Addenda are used to: 1. To communicate clearly and in a timely manner any corrections or

omissions in bid documents 2. Clarify bidder’s questions 3. Add new requirements 4. Increase or decrease scope of work

Examples of changes accomplished by addenda include modifying:

1. Date, time, location of receiving bids 2. Quality of work 3. Qualified products 4. Information in bid documents


2. Format/Contents

A complete addendum must contain the following: 1. Addendum#-consecutively, more than one contract? 2. Date 3. project ID 4. A/E name & address 5. Party issued to 6. Notice to bidders 7. Changes to prior addenda 8. Change to bidding requirements:

i. Instructions ii. Bid forms

iii. Others 9. Changes to agreement/forms 10. Changes to conditions of contract 11. Changes to specifications (in sequence) 12. Changes to drawings (in sequence)

See Appendix-16 for an example of an addendum. CHANGE ORDERS

A Change Order is a written authorization issued to the contractor and signed by the owner and A/E to authorize additions, deletions, or revisions of work, or adjustment of contract sum and/or execution time after signing the contract.

Purpose

Change orders are used to: a. Incorporate scope changes b. Address unforeseen field conditions c. Incorporate changes enforced by building codes d. Address changes in market conditions (shortage of materials, etc…) e. Eliminate errors/discrepancies

Format/Content A complete addendum must contain the following:

1. Change order # and date of issue 2. Project ID 3. A/E name and address 4. Owner name and address 5. Contractor name and address


6. Original contract date 7. Statement if company modifies original contract 8. Description of modification and cost 9. Tabulation: original, current before and after 10. Time extension/reduction 11. A/E signature and date of submittal 12. Owner’s signature and date of acceptance 13. Contractor signature and date of acceptance 14. Distribution of copies

See Appendix-17 for an example of a change order.

Pricing of change orders

The following is commonly considered areas of concern when pricing change orders: - Amount of contractor’s overhead and profit - Unit prices to be used in change orders - Confirmation of costs incurred - Equipment rentals - Amount of time extension

SUPPLEMENTAL INSTRUCTIONS (AIA)

A Supplemental/Minor Instructions is a written authorization used when the parties to a signed contract agree that the instructions will not result in changes in the contract sum or contract time. Examples of such changes include changing the color of a wall or floor covering.

Purpose

To satisfy the legal requirements of written changes and to serve as admissible proofs in disputes

See Appendix-18 for an example. FIELD ORDERS (EJCDC)

Same as SUPPLEMENTAL INSTRUCTIONS but more common in public works See Appendix-18 for an example.


CHANGE AUTHORIZATION (AIA) Written orders to proceed with changes subject to contract adjustment through a change order. These are used when the impact of the change on the time or contract price is not determined at the time the request is made.

Purpose

To satisfy the legal requirements of written changes and to serve as admissible proofs in disputes

See Appendix-18 for an example.

EJCDC-WORK DIRECTIVE: A Field Order (also known as Work Directive) is a written authorization used when the parties to a signed contract are not sure if the instructions would result in changes in the contract sum or contract time. This may happen in complex projects when reviewing and interpreting the scope documents could result in loosing valuable time to capture the optimum time or minimum cost. The document records the instructions and facts at that time and proves the parties intention to make these decisions in a later time.

See Appendix-18 for an example.

6310 Class notes

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