Building Principles: Construction Contracting

by Michael W. Weeks, P.E.

As a facility owner and operator, you are faced with the task of contracting with professionals and contractors on a regular basis to accomplish many of your maintenance and development needs. The importance of a contract, which is a legal agreement, is often overlooked because:

  • we have worked with him forever,
  • he has worked here before and we had no problems, or
  • it’s just a small job, what could go wrong?

These are often the mindsets that set the stage for a very sour relationship with a contractor. How many times are you as the operator under the gun to complete a facility project where your primary concern is having it done before camp opens? The last thing on your mind may be the legal agreement between you and your contractor. This agreement is often analogous to a marriage, and everyone knows that for a marriage to be successful there must be an understanding and communication of the rules between both parties. Incorrect assumptions by any of the parties with no written backup spelling out the conditions, time frames, and project specifications are inherent in a verbal agreement and are destined for conflict. What steps, as an owner, operator, or director of a camp, should you take to insure that your expectations of your contractor, and more importantly your project, are properly conveyed and realized?

Read the Fine Print
Any time you plan to hire a contractor for services, whether it’s an engineer for the design of a new sewage disposal system to accommodate the new bunkhouse or a roofing contractor to replace the leaky roof on the dining hall, you must enter into an agreement formalizing the scope of work, cost for services, and time frame for completion. Many times your design professional or contractor will have a standard contract for your execution prior to their initiation of work. Most often, these agreements are written to benefit the contractor, not the owner. Failing to read the proverbial fine print may result in discovering that waste removal was not included in the agreement.

Be proactive
You have the ability to be in the driver’s seat by taking a proactive role in constructing contracting. The success of your “marriage” to your contractor is highly dependant upon the mutual understanding of the project scope. For example: Does the roofing project include the replacement of underlayment sheathing, is there an allowance for it, or will it be a change order at the end of the job because the contractor specifically excluded it from his contract? A camp executive’s primary business is operating a camp and ensuring that it opens on time and runs safely, not construction or contract administration. The other parties with whom you are contracting are thoroughly familiar with the contract itself as well as the contract loopholes and the effect of those contract loopholes on the project. You must bear this in mind when you execute a contract not prepared by you or your agency. Now that we understand why we need a formal agreement, let’s discuss what types of conditions and topics should be included in your agreement and how they will protect you if something goes wrong.

Standards for Contracts

There are several published standards for contracts between owners and engineers and owners and contractors and standard agreements for the actual construction of the improvement. These are published by organizations such as The American Institute of Architects (AIA), the National Society of Professional Engineers (NSPE), and the Associated General Contractors of America (AGC) and are available for a relatively small cost. Although each document bears the slant of the organization that prepared it, they are time tested and offer a reasonable starting point for owner-contractor agreements.

A typical contract document for a construction project consists of several different sections. Generally it contains:

  • legal agreement
  • bonds and insurance
  • general conditions
  • special provisions
  • project specifications
  • contract plans

The agreement, bonds and insurance, and general conditions are what we refer in the industry as the “boiler plate,” since these sections are typically not modified from project to project. Your facility should have a standard “boiler plate” that it utilizes for each and every construction contract. The special provisions, specifications, and plans are the project specific portions of your project and are tailored to meet the demands of the scope of work and your facility. The project specific portions are as indicated project specific and can be prepared to varying degrees of detail depending on the project.

Legal agreement
The legal agreement is a standard agreement between the owner and contractor binding them to the terms and conditions of the construction contract in it’s entirety. Apart from the general conditions, specifications, etc., the agreement would serve no purpose, as it contains no specifics as to project scope, time frame, etc.

Bonds and insurance
Bonds and insurance must be provided by the contractor prior to execution of the contract, and copies should be physically integrated into the contract. The general conditions provide for the terms of insurance and bonding. These details must be considered specifically for your facility and for each project, with advice from your legal and design professionals. You need to determine what level of protection you are seeking from the bonds and stipulate the amounts and type required for your projects. Bear in mind that the more extensive the insurance requirements on a project, the higher the bid is likely to be.

Bonds can include bid, labor and material, performance, and maintenance bonds. For example, a bid bond may not typically be required by a camp facility, as it only provides a guaranty that the contractor will accept his bid if awarded. This provides some compensation for the owner (5 percent of the bid price, typically) if a contractor rescinds his bid. A performance bond, however, will protect your investment if the road that was built last fall falls apart in the following spring, after you have issued your final payment to the contractor. You can think of the performance bond as a materials and workmanship warranty, which is being insured by a third party. The performance bond will typically be in the amount of 100 percent of the contract price and provide a means for you to repair any work, which was not satisfactory. Remember that bonds will ultimately be a hidden cost, so be cognizant of what bonds you require in your contract.

General conditions
A typical general conditions section of a contract will provide provisions for topics such as:

  • reference standards and codes,
  • resolution of disputes,
  • unforeseen conditions and how to deal with them,
  • insurance provisions,
  • contractor guarantee and warranty,
  • safety and protection of site,
  • changes in work and how to deal with them,
  • testing and acceptance of work,
  • payments to the contractor, and
  • suspension and termination of work, among others.

These issues are extremely important no matter the size of the project, because they provide provisions and methods for handling what might otherwise be very sticky issues. These also help transfer liability from you and your facility to the contractor. Your contract must include details for time of completion, insurance, change orders, and dispute resolution.

Special provisions and/or supplementary conditions
Special provisions and/or supplementary conditions are generally more project specific than general conditions, but cover some of the same ground. These are usually a standard list of provisions that are modified project specific. For example, this may be where to specify to the contractor that all flows must be maintained while he repairs the sewage pump station. (Otherwise, he might assume that the sewage flow may be plugged while repairs are underway.)

Project specifications and contract plans
The project specifications and contract plans are the documents that specify and denote exactly what work is required of the contractor. The level of detail required for these provisions is highly dependant on the project. This is where you identify the quality of materials, the dimensioned detail of your project, etc.
The whole package bound together constitutes your construction contract. Any one piece without the others will not provide you with the degree of protection that you require. When buying a car, all of the components must be in place in order for it to work properly. Similarly, hiring a contractor with only a set of design plans will not provide you any method for enforcement of the provisions, nor will it insure that the finished project is the quality you expected or is completed in the time frame you require. Issuing only General Conditions will provide no means to insure that your specific project details will be realized.

A Well-Written Contract Provides Protection

In the end, it is impossible to rub the crystal ball and predict what might go wrong during your construction or development project. No project is immune to problems, no matter how well written the agreement, or how carefully the plans are drawn. However, a thorough set of construction documents spells out the rules and provides for a fair method of dispute resolution. Combining your facilities experience with advice and support from professionals can tailor an agreement for each of your projects to help reduce the potential for change orders, cost overruns, scheduling problems, and liability.

Michael W. Weeks, PE, is a professional engineer with Camp Facilities Consulting providing study, design, permitting, and construction consultation services to the camp and conference center community. Camp personnel may contact him at 570-296-2765 or by e-mail at mweeks@ptd.net.

Originally published in the 2002 May/June issue of Camping Magazine.

 

Tags: