the cost of doing business: best practices for public ......nov 14, 2018 · presenters michael...
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2018 Best Best & Krieger LLP
Best Best & Krieger
Company/BestBestKrieger
@BBKlaw
2018 Best Best & Krieger LLP
The Cost of Doing Business: Best Practices for Public Works Projects –
Part OneNovember 14, 2018
Best Best & Krieger Webinar
Presenters Michael MaurerPartner, Los Angeles Office(213) [email protected]
Haviva ShaneOf Counsel, Riverside Office(951) [email protected]
Goals of Presentation
1. Identify the potential risks that can arise on major construction and public works projects
2. Understand tools that can be used to control those risks
Initial Considerations
We have an idea… how do we make it a reality?
Initial Considerations
• How is the project funded?
• What help is needed?
• What procurement mechanism is used• Design-bid-build?• Alternatives?
• What type of contract is used?
Why is There Risk?
• Low bid contracts mean that:
• Contractors are encouraged to bid low and make up the difference through change orders, but
• Public agencies control the contract terms
Assessing Types of Risk
• What can cause unanticipated costs?• Loss of grant funding• Unqualified contractors• Bid challenges• Injuries to third parties• Construction claims• DELAYS• Legal Challenges
Risk # 1
PROTECTING GRANT FUNDING
Grant Funding
• Know your funding source(s) � local, state, federal, which agency(ies)?
• Make sure procurement process complies with terms of grant
• Verify procurement documents include all required flow down provisions
• Considerations: DBE requirements? Buy America? Davis Bacon?
Risk # 2
FINDING THE RIGHT CONSULTANTS AND CONTRACTORS
Hiring
• Consultants• TIP: Do not overlook hiring the right architect
and construction manager
• Use the RFQ/RFP process to:• Find a professional experienced in your
type of project• Check references• Define expectations
• Consider – should the architect and CM be separate?
Hiring
• Question – How do you know you’re getting a good contractor if you have to award the contract to the lowest bidder?
Hiring
• Answer – Use your bid documents to clearly define the minimum qualifications
• Responsive – Bid meets requirements of Invitation to Bid• Responsible – Bidder is qualified to perform the work
• TIPS: • Tailor your bid documents so that clearly unqualified bidders
are nonresponsive• Tailor the qualifications to the project – make sure that
qualified bidders have (successfully) completed similar projects
• Consider using a prequalification process –but note requirement to allow bidders to qualify during solicitation period if using federal funds
• Identify red flags
Risk # 3
LIMITING LIABILITY TO THIRD PARTIES
Third Party Liability
• The Three I’s:• Immunity• Insurance• Indemnity
Third Party Liability
• Design Immunity: “Neither a public entity nor a public employee is liable under this chapter for an injury caused by the plan or design of a construction of, or an improvement to, public property where such plan or design has been approved in advance of the construction or improvement by the legislative body of the public entity or by some other body or employee exercising discretionary authority to give such approval or where such plan or design is prepared in conformity with standards previously so approved....” (Gov. Code § 830.6)
• Meaning, if the design is properly approved, the City is not liable if the design causes an injury.
• So how is a design properly approved?
Third Party Liability
• Castro v. City of Thousand Oaks• City Council approved street
rehabilitation project with pedestrian safety improvements
• Plans approved by Council did not include warning beacons
• City engineer approved installation of additional warning beacons
• Pedestrian was struck by car; claimed beacons created a false sense of security
Third Party Liability
• Castro v. City of Thousand Oaks• Court held that the City Engineer had
purchasing authority, but not authority to approve adding beacons
• TIPS:• Ensure that plans are approved by Council or
other appropriate official• Include delegations of approval authority• Follow approved design or clearly document
change orders prior to implementation
Third Party Liability
• Insurance• Types and coverage limits should be
considered on a project-by-project basis• Engage your risk manager early in the
process to determine specific requirements
• Indemnity• Make sure there is unilateral indemnity
from all consultants and contractors• Preserve the duty to defend
Risk # 4
CONTROLLING AGAINST ADDED COSTS DURING CONSTRUCTION
Added Construction Costs
• Can occur for:• Unforeseen conditions• Design flaws• Extra work
Added Construction Costs
• How do you protect against costs that are unforeseen?
• Change order/claims procedures• Limitations on mark-ups
* Note federal funding constraints applicable to change orders
Added Construction Costs
• Opinski v. City of Oakdale• Contracts may include provisions for giving notice
of and requesting change orders• The contractor may be allocated the risk of added
costs unless it follows the required procedures
• TIPS:• Use contract terms that require notice of potential
changes within certain timeframes• Have a contract procedure for requesting change
orders within certain timeframes• Require supporting documents with all change
order requests
Added Construction Costs
• 2018 Greenbook 7-4.3.1: • “a reasonable allowance shall be added for
overhead and profit”
• What is a reasonable allowance and how is it determined?
• TIPS:• Require documentation of actual costs• Use defined percentages for mark-ups• Use unit prices with no mark-up where applicable
Risk # 5
CONTROLLING DELAYS
Delays
• Delays tend to be the biggest risk on construction projects.
• Two types:• Agency-caused delay
• i.e., you owe the contractor additional money
• Contractor-caused delay • i.e., the contractor doesn’t complete
the project on time
Delays
• Agency-caused delays:• Public Contract Code section 7102:
• Public agencies cannot preclude damages for unreasonable delays
• Contracts may require notice, settlement procedures, liquidated damages as a condition of receiving damages for delay
• Meaning – you are the hook for unreasonable delays, but you have tools to control your risk
Delays
• Without utilizing section 7102 tools, how is a contractor compensated for agency-caused delays?
• Entitled to “all of the detriment proximately caused.”
• At least one court has stated this could include increased overhead and fixed costs, labor and material cost increases, loss of productivity, extended home office overhead etc.
Delays
• Section 7102 Tools:• Notice – contractor must inform of delay even if
delay caused by agency• i.e., no surprises
• Settlement Procedures – contractor must request a time extension and damages and comply
• i.e., submit supporting documentation
• Reverse Liquidated Damages – Set reasonable amount for daily delay
• i.e., limit on potential amount
Delays
• Reverse Liquidated Damages• Must be a reasonable amount
• Advantages:• Limits total potential cost• Allows cost-benefit analysis• Makes settlement easier/lowers litigation costs
• Disadvantages:• Actual damages may be difficult to prove –
you may end up paying more using reverse LD’s
Delays
• How to allocate responsibility for delay?• Use Schedules
• Require to submit baseline schedule and regular updates
• Must show critical path• Float belongs to the project, not the contractor• Require Time Impact Analyses for delays
• TIPS:• Be careful about issuing a Notice to Proceed if
project is not ready• Be careful with suspending projects• No delay damages for extra work at unit cost or with
mark-up (i.e., no double-dipping)
Delays
• Standard Liquidated Damages• Public Contract Code § 7203: contractor is
only responsible for delay damages if there is a liquidated amount.
• TIPS:• Consider the actual impact of project
delays – e.g., will you have to continue paying rent for temporary facilities? Will grant funds be at risk?
• DON’T delete or leave the amount blank
Additional Considerations
Additional Considerations
• Be careful with standard-form contracts• Look out for limitations on City’s ability to recover damages
• Arbitration/attorneys’ fees?
• Getting out:• Bonds
• Payment – required if over $25,000• Performance – recommended (required for federally funded projects if over
$150,000)• Termination for Convenience
• Include termination procedures• Control costs on termination• Required for federally funded contracts
• Prevailing Wages• Ensure contractor is responsible• Fines for failing to report project to DIR or verify that contractor is registered• Davis Bacon applies for federally funded projects, require payment of the higher of
the two rates; attach rate sheets to bid and contract documents
Final Thoughts
• Public agencies have tools to control risks. Use them!
• Take the time to review contracts before starting major projects
• Be project-specific and use contracts that you’ll be comfortable administering
• Maintain communication with your funding sources
Reminder!Upcoming BB&K WebinarsNovember 29, 2018“Emergency Procurement & Contracting Essentials: Being Prepared for Federal Disaster Funding”
January 24, 2019 “The Cost of Doing Business: Best Practices for Public Works Projects – Part Two”
Please visit the BB&K website for more information.
Questions?Michael MaurerPartner, Los Angeles Office(213) [email protected]
Haviva ShaneOf Counsel, Riverside Office(951) [email protected]