126LEGE Contract General Conditions:Provisions to Review Checklists

Ales Tomek , CVUT March 2014

PART 1 - CONTRACT PROVISIONS THAT MUST BE REVIEWED FOR CLARIFICATION

1. Owner’s responsibility

• Drawings and specifications (construction documents)• Site layout• Soil borings and site conditions• Environmental reports and approvals• Abatement of any hazardous material• Special studies (traffic, water, utilities)• Permits clarification• Utilities• Disputes with adjacent owners or municipality• Testing responsibility• Other areas where the owner has control and must submit the information

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2. Schedule• Type that has to be prepared• Updates required• Penalty clauses• Substantial completion provisions• Delays (not covered by force majeure)• Extensions• Delays caused by owner or owner’s subcontractors or vendors

3. Costs• As defined in the contract• Allowances and how to be used• Definition of allowance items• How will GMP be impacted by actual cost vs. allowances allocated?• Contingency and how is it to be used and who controls it?• General condition’s clarifications (what is included and what is excluded?)• Inflation clause• Costs covered by the owner• Value engineering• New regulations by municipal and government agencies• Auditing of project by the owner

4. Change orders

• How defined• Method for developing costs• Approval process• Who signs off on any change orders?• Will labor rate change if new contracts are agreed upon

5. Dispute resolution• Records that have to be kept• Type of daily reports that have to be maintained• Owner and CM/GC executive review• Independent review board• Mini trials ( the executives of each party are involved in the negotiations. The lawyers for each of the affected parties prepare briefs and summaries and then present these results to the executives. A neutral party selected by the executives’ acts as a mediator between the disputed parties)

Dispute resolution - contd• Mediation (includes negotiations between parties, the parties select a mediator from the Mediation Board. The mediator does not come up with a decision. The mediator assists the M/GC and the owner in trying to get the two parties to agree to a solution to the problem.• Arbitration• Other legal means, including litigation • Notice provisions (How to …)

6. Requisitions and retainer• Schedule of values required? When is it paid and how often?• What is required with submittal?• Waiver of liens and from whom?• Subcontractors invoices• Percentage of retainer• When will the retainer be released?• Will retainer be held on fee, bonds, or insurance?• Final payment (In what manner?)

7. Insurance• Coverage• Is builder’s all risk policy required? (Property insurance covering loss arising from any fortuitous cause except those that are specifically excluded) (fortuitous = happening by chance rather than intention)• Will wrap-up insurance be considered? (The wrap-up policy takes the place of all of the individual insurance policies that the owner, CM/GC, and subcontractors would normally provide to cover their contractual requirements, risks, and the construction work. The concept is the same, whether the owner or contractor procures the wrap-up insurance policy for the project—to provide one umbrella insurance policy for the entire project that will cover all parties)• Understanding the requirements• Who is to be covered?

8. Bonds

• Types (i.e., bid, performance, payment, lien)• Enforcement• Circumstances in which they will be evoked

9. Unforeseen conditions

• Foundations and bearing capacity• Property lines• Utilities

10. Owner’s representative, architect, and consultants• Definition of role• Changes of scope• Means and methods• Review shop drawings and RFIs

11. Coordinated drawings

• CM/GC vs. the design team• What is to be coordinated

12. Close-out• Punch lists• Final waiver of liens and claims• Department of Buildings sign off• Close-out documents• Warranties (what is covered and when does it start?)• Maintenance agreements (if any)• Attic stock (additional material), As-built drawings, Maintenance manuals, Training (if required)• Specific equipment use and maintenance classes• Maintenance costs required?

13. Termination• Under what circumstances?• Define payment

PART 2 - POTENTIAL ONEROUS CONTRACT CLAUSES CHECKLIST

The CM/GCs should review certain clauses in the contract to make sure that any potential risk involved is within acceptable levels, including, but not limited to the following provisions

Onerous = burdensome, oppressive, or troublesome; causing hardship

1. Payment

• Owner should make payments within a 30-day period.• If payments will be made outside of 30 days, then the contractor and the subcontractors must be aware of this delay, and bid accordingly.• Be careful of states that refuse to enforce “pay when paid” clauses, therebyrequiring payments to subcontractors even when the contractor is not paid by theowner in a timely manner.• Check to see if the state in which you are working gives certificates of capitalimprovements (usually means that you do not have to pay sales tax on the laborportion of a capital improvement).

2. Retention

• Most owners require 10% retention. This means that when a subcontractor submits a monthly invoice, only 90% of the submitted costs will be paid. The remaining 10% is held by the owner (or financial institution paying for the project).• The contract should define at what point in the project the retention will be released or reduced.

3. Change orders• May require the contractor to proceed with the work even when the cost is in dispute. In this particular case, all involved parties must retain accurate cost, scheduling, and photographic information.• Negotiating skills must be exercised so that the cost issue can be resolved as expeditiously as possible. Many disputes and claims are based on change order work that has progressed without resolving the monetary issues.• Method for providing data for a change order should be spelled out in the documents.• Make sure that change orders will only precede after the owner’s authorized representative signs a proposal.

4. Authorization

• The owner must assign one person who has the authority to make changes and to approve change orders.• Be careful of multi-approval process (i.e., architect and owner representation).

5. Liquidated damages or consequential damages

• The contractor is usually better off with a specified sum for each day lost than having to determine what the cost expenses might be at some future date.• The schedule has to be clearly defined.• A change initiated by the owner must be detailed as to the possible extension of time.• Never agree to any consequential damages. They may include items by the owner that would be completely out of the scope of the project. If it cannot be avoided then a list of all the consequential damages (with the costs) must be enumerated. The contractor should review this and unreasonable items should be eliminated.

6. Force majeure

• Events or circumstances beyond the control of the parties. Examples could be war, flooding, earthquakes, tornados, hurricanes, and volcano eruption.• Force majeure clause must be part of the contract. Thus, weather information history for the area in question must be analyzed.

7. No damages for delay (by the owner)• This is an onerous contract provision and should be deleted. It typically states that the contractor’s sole and exclusive remedy, if delayed, is a time extension. The CM/GC should be paid for any event precipitated by the owner that will cause the project schedule to extend beyond the original agreed upon date.• Any delay caused by the owner will cause extensive costs to the CM/GC. This could be additional general conditions, subcontractor costs, and potential inflationary costs for material and labor.

8. Warranty

• Warranty for construction is usually for 1 year (except for certain work and equipment that may have an extended warranty).• When does the warranty period start? AIA documents state that the warranty period will start from substantial completion of the project.• Substantial completion as defined by the AIA is the period when the facility can be occupied for the owner’s beneficial use.

Warranty - contnd• If the owner should occupy the space prior to substantial completion, then the responsibility of the owner must be detailed in writing as to the owner’s obligation for non-completed areas. This could include protection of the walls, ceiling, and flooring; rebalancing of the mechanical systems; and early start-up costs for all systems.• Make sure that any warranty does not include maintenance of the equipment duringthe period unless expressly requested in the design documents.• If the owner wants the CM/GC to attend any meetings after the warranty period,then define the meetings and how the CM/GC will be paid.

9. Allowances

• When documents are presented that are not complete, an allowance must be indicated.• Make sure that any allowance is based on as much information as possible provided by the design team.• In order to protect the CM/GC, the allowance cost item must be clearly defined (i.e., curtain wall is standard 1/4 in. insulated glass in aluminum mullions that will be spaced 5 ft apart and can withstand a wind load of 60 lb/ft2 with no air or water leakage. The total area of the curtain wall will be 80,000 ft2).

Allowances - contnd• When the drawings are complete (no drawings are 100% complete)

and you receive a bid from a subcontractor, the cost is going to be compared to the allowance you developed. If the bid is lower, there is no problem. If the bid is higher than the allowance, then the problems start. The CM/GC may be required to pay the difference if the allowance was not clearly defined.

10. Construction documents

• The contract documents (drawings, specifications, addendums, bulletins, sketches) must be listed with the latest revision dates.• These documents will act as your base for the construction of the project

11. Dispute resolution• Some form of dispute resolution should be included in the contract.• This would take the form of collaborating, arbitration, mediation, or a dispute resolution board.• If the parties do not agree to arbitration, they can end up in court.

12. Construction acceleration

• If the owner has this provision in the contract, then the CM/GC must prepare a cost (with inflation) that would account for the economic effect of finishing the work earlier then anticipated.• It is of utmost importance that the CM/GC does not proceed until a cost has been negotiated with the owner.• It must also be stipulated that at least 1 month would be required to obtain the costs for acceleration.

13. Schedule

• The contract should be specific as to the time to complete the work (i.e., 100 workdays, no weekends or holidays).• The approved schedule should be based on one that is submitted by the CM/GC and approved by the owner.• All holidays, weekends, and restrictive days (no work mandated by a municipality) must be noted on the schedule.• Owner-provided equipment and finishes must also be shown on the schedule.

14. Approval process

• Be careful of clauses where the owner’s consultants will act as final and conclusive arbitrators of any disputes that may arise. This will mean that an individual who works for the owner will have the final say on a disagreement between the owner and the CM/GC.

15. Implied warranty• Make sure a clause is included stating that the construction document represents the total work.

16. Coordination of drawings

• These drawings are usually prepared by the various trades to make sure no conflicts will exist in the field (i.e., duct work, sprinkler, lights must fit within the ceiling void spaces without “hits”).• The obligation of the design team concerning coordinated drawings should be spelled out in the contract..

17. Unforeseen conditions

• Some form of indemnification must be stated in the contract that protects the CM/GC from any latent conditions that may be found upon exposure (i.e., earth, a wall, the roof, the floor).• This clause must specifically address conditions associated with foundation work borings and finding conditions other than noted in the boring logs.• The owner must deal with hazardous environmental conditions.

18. Owner’s responsibility

• The owner’s obligation should be completely enumerated to include the items noted in enclosed slide

Owner´s obligations

• 1. Submittal of a complete set of drawings and specifications (construction documents)

• 2. Provide access to the site• 3. Prepare environmental reports• 4. Survey of the site• 5. Soil (or rock) boring information• 6. Permits (unless stipulated otherwise)• 7. Payment of CM/GC’s invoices in an agreed upon period of time• 8. Coordination with utility companies• 9. Obtaining TCO (unless transferred responsibility to the contractor)• 10. Any adjacent property approvals• 11. Coordination of all non-contractor responsibilities, including communications,• cable installation, and furniture and carpet installation

19. Inflation clauses

• The contract should stipulate that if any materials and/or construction works generally escalate by some (negotiated) percentage, then adjustments would be made for the material cost increases.

20. Shop drawings

• These drawings could have a major impact on the schedule if the design team does not approve them in a timely manner.• The contract should stipulate the time required for the design team to review and comment on the shop drawings.

21. Failure of the owner to make timely decisions(time is of the essence)

• The owner should not put any time constraint on the CM/GC when the owner cannot make timely decisions.• Delays caused by the owner’s indecision should be addressed.• You do not want this item to become adversarial, but the CM/GC has to protect himself from possible delays caused by the owner.• The best way to handle this would be to notify the owner in writing that unless a decision is made by a certain date, delays would occur

22. Owner-provided suppliers and vendors• The contract should identify the owner’s suppliers and vendors.• The work of the owner’s suppliers and vendors should be included in the CM/GC’s schedule.• Any delays by those suppliers and vendors should not affect the CM/GC’s schedule. If their work affects the final schedule, then the owner must compensate theCM/GC for any resulting delay.• The vendors and suppliers will not interfere with the CM/GC’s work. If they do, then the CM/GC must advise the owner in writing of the potential consequences.• The vendor and supplier will provide their own laborers and containers for cleaning up the area in which the work is being performed.

23. Notification provisions

• The contract may state that the CM/GC must notify the owner of any problem, schedule change, or cost changes and the notification must be accomplished within a limited time.• Based on certain case law, the CM/GC must adhere to the notification time or possibly lose the ability to collect any money for additional work or request a time extension.

24. Order of precedence

• Make sure the contract states the order in which the design documents are based.• Which takes precedence—the drawings, specifications, sketches, or

other documents produced by the design team?• Obviously, the CM/GCs may not be able to negotiate all of these

favorable clauses, but they must understand the risks if certain onerous clauses are included in the contract.