ciem5100_lecture+1b

8/10/2019 CIEM5100_Lecture+1B

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Issues DuringConstruction Phase

Acceptance Period/Withdrawal

In formal competitive bid, the timing of activities has legal implications.

Prior to bid opening, contractors can withdraw bids without penalty. No

such prerogatives after bid opening.

Procedures to reconcile bid mistakes: If clearly a mathematical error,owner usually rejects the bid; if the mistake appears contrived to establish

a basis for bid withdrawal, the owner will not reject. Contractor must enter

into contract or forfeit his bid security.

Bid security protects owner from failure by contractor to enter into a formal

construction agreement

Contractor is protected by an acceptance period, after which contractors

can withdraw or adjust bids.

Owner must send written notice of award to the selected contractor during

the acceptance period or bidders are released from their original proposals.

Chronology of bid procedure

Award of Contract/Notice to Proceed

Notification of award: indicating selection and directing to proceed work

Implications: (1) consummates contractual relationship; (2) site is free of encumbrances and contractor can occupy the site for work purposes; (3)reference date for project start and damage calculation.

Time extensions

Damages for failure to complete the project on time is referenced to thedate of the notice to proceed.

Project duration: Calendar days or working days

Encumbrances to entry of construction site

Letter of intent: (1) selection and acceptance of proposal, (2) nature of

encumbrance to entry of construction site; (3) owner’s intent to enter intocontract as soon as barriers have been removed.



Contract Agreement

Notice to proceed establishes the elements of a contract.

Contract agreement formalizes the contract.

In a legal sense, formal contract agreement is the single document that

binds the parties and by reference describes the work to be performed.

Contract agreement covers (1) drawings, (2) general conditions, (3)

supplementary conditions, (4) technical specifications, and (5) addenda

Standard forms of contract agreement for a variety of contractual

formats are available from various professional organizations.



Time Extensions

Circumstances beyond contractor’s control could lead to delays.

Procedures for time extensions are established in general conditions.

Claims for time extension must be based on delays that are caused by

the owner, owner’s agents, or on delays due to acts of God.

Design errors or changes are typical of owner-assignable delays.

Weather delays are typical of act of God type delay.

Time Extensions

What constitutes project completion?

Beneficial occupancy date (BOD).

The Date of Substantial Completion of the Work or designated portion

thereof is the Date certified by the owner’s representative when constructionis sufficiently complete, in accordance with the Contract Documents, so the

Owner can occupy, or utilize the Work or designed portion thereof for the

use for which it is intended.

Owner relinquishes a large portion of the legal leverage he has in making the

contractor complete outstanding deficiencies once owner occupies the facility.

Time Extensions

Mutually acceptable date and joint inspection when seems substantially complete

Correcting these items will satisfy owner’s requirement for substantial

completion.

Recording deficiencies and noting items for correction.

Turnover phase can lead to claims for damages on both sides if no good

rapport exists between owner and contractor.

Punch list: list of deficiencies to be corrected.



Rework

Rework, and particularly field rework, is one of the major sources of

unplanned cost growth on construction projects.

According to Construction Industry Institute, if field rework alone can be

significantly reduced, or even eliminated, as much as 10% of overall

project costs can be saved.

Field rework is not caused solely by construction site activities in isolation. A

substantial effort must be made to improve the effectiveness of prior projectphases with a view to prevent all to frequent ‘catch-up’ work during the site

construction and commissioning phases.

Change Orders

Contract documents are included by reference in the formal agreement.Therefore, all aspects of the contract documentation are legally binding.

Any alteration of contract documents constitutes an alteration of contract.

Unit-price contract has a degree of flexibility whereas lump-sum contracthas no leeway for change or interpretation.

Changes during construction represent an alteration of a legal arrangement

and must be formally handled as a modification to the contract.

Modifications to the original contract are called change orders.

Change Orders

Procedures to implement change orders are specified in general conditions.

Change orders are minicontracts. Major difference is no competition.

A formal communication of the change that includes scope andsupporting technical documents should be sent to the contractor.

Contractor responds with price quotation.

Usually, contractor is justified in increasing price to recover costs.

If original contract documents were poorly scoped and prepared, theproject can turn into a patchwork of change orders.

Too many change orders can disrupt job activities, cause adversaryrelationships, and increase costs and construction duration.



Changed Conditions

Engineering designs are based on site conditions as perceived by A/E.

Superstructure is constructed in a highly predictable environment.

Subsurface and topographical portions are difficult to predict.

Ability of below-grade area to support weight is often established by agrid of test piles. If investigation is not adequate, the design can beinadequate.

Subsurface investigation is contractor’s basis to estimate excavation

and foundation work and to claim a changed condition.

Some conditions (e.g., underground river) may not be detected duringdesign, and failure of bid documents to reflect such conditions wouldcause the contractor to claim changed conditions for addition costs.

If owner accepts changed conditions, extended scope of work will beincluded in the contract as a change order.

If owner does not accept changed conditions claim, this has to be solved

through litigation or arbitration.

Value Engineering

VE was developed during World War II in USA.

Functional analysis produced low-cost products without reducing quality.

Necessity is the mother of invention.

In early 1960s, VE was introduced in the construction industry by NACE.

VE incentive clause allows contactor to share net savings.

VECP allows owner to harvest innovative ideas from contractor.

In DBB contract, contractors seldom have input to the design process.

Construction methods have great impact on cost. Contractors are more

knowledgeable than designers of field conditions and construction methods.

Value Engineering

VE encourages contractors to improve design during construction. Guiding

principal: reducing costs while maintaining/improving functionality.

VE can also be implemented during the design phase.

Procedures: brainstorming, prioritization, matrix analysis & scoring

Multi-criteria evaluation: aesthetics, performance, safety, etc.

Weighted system is often used for final analysis.

Government agencies have led the way in using value engineering

incentive clauses in construction contracts.

Criteria Evaluation Matrix



Suspension, Delay, or Interruption

The Contracting officer may order the Contractor in writing to suspend,

delay, or interrupt all or any part of the work for such period of time as hemay determine to be appropriate for the convenience of the government.

An adjustment shall be made for any increase in cost of performance of

this contract necessarily caused by such unreasonable suspension, delay,

or interruption and the contract modified in writing accordingly.

Standard SDI provision:

Possible lengthy litigation

SDI may be very costly

Demobilization-remobilization, inflated labor & materials

SDI compensation provision

Liquidated Damages

The purpose and function of a project requires it to be completed by a certainpoint in time, which is tied to the utilization/occupancy date.

Nonavailability may incur damages to the owner:e.g., lost revenues, cost of administration and supervision of contract

Provisions on LDs are given in special/supplementary conditions.

Amount of LD should reflect the actual damage incurred.

LD vs penalty-bonus clauses

Progress Payments and Retainage

Contractor is reimbursed on a periodic basis.

Retainage: owner typically retains a portion of money due the contractor

as an incentive for the contractor to properly complete the project.

Why retainage? A carrot.

Example provision:In making progress payments, there shall be retained 10 percent of

the estimated amount until final completion and acceptance of the

work.

Various retainage formulas can be used, based on the owner’s experience

and policy.

Progress Reporting

Contracts require the contractor to submit a schedule of activity and

periodically update the schedule reflecting actual progress.

S-curves or bar charts: based on either activities or percentage

completion of various work categories.

Work categories: concrete, structural, mechanical, electrical, etc.

Purpose: basis for progress payments; ensuring satisfactory progress.



(a) planned and (b) actual rate of progress.

Bar chart progress models: (a) bar chart schedule (plan

focus) and (b) bar chart updating (control focus)

Acceptance and Final Payment

Final acceptance of the project is important to all parties concerned.

Final acceptance of project is implemented by a joint inspection.

The owner’s representative notes deficiencies that should be corrected,

and the contractor makes note of the deficiencies.

The detailed deficiency list generated by the joint inspection is called

the deficiency, or punch, list.

A similar procedure is utilized between the prime contractor and the

subcontractors.