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DBE Subcontractor Legal Seminar - Tyrone Powell, Esq.

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This presentation helps to demystify many legal issues experienced by DBE Subcontractors including the potential benefits of Joint Ventures and the finer points of developing contract agreements with Prime Contractors.

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DBE Subcontractor Legal Seminar - Tyrone Powell, Esq.

  1. 1. JOINT VENTURESAIA SUBCONTRACTOR AGREEMENTS (AIA 401) CHANGE ORDER BASICS PRESENTED BY TYRONE A. POWELL, Esquire POWELL LAW, P.C. 1
  2. 2. TYRONE A. POWELL301 Market Street AREAS OF PRACTICESuite 403 Business Counseling Commercial Real EstateHarrisburg, PA 17101 Diversity Counseling717.236.6666 EDUCATIONFAX 717.230.8855 Stanford Universitytyapowell@gmail.com (B.A., honors, 1981)HTTP://WEBPROFILE.INFO/ University of TexasTPOWELL/ School of Law (J.D., 1984) 2
  3. 3. POWELL LAW, P.C.Tyrone is a shareholder of Tyrone provides advice on a widePowell Law, P.C. Tyrone has range of matters includingmore than 20 years of government contracting, largeexperience in the counsel and urban redevelopment projects,representation of retailers, acquisitions and dispositions,developers and professionals choice of entity consultation andin real estate lease and public-private partnerships.contract negotiations with Tyrone has negotiated agreementsshopping center and office for a $1.0 billion automobile plant,complex owners and other a $1.1 billion engine plant and aretail tenants, representing $55 million marina, restaurant andboth landlords and tenants in housing development. He hasoffice building and shopping successfully completed over 700center leases and in complex retail pharmacy related real estatereal estate transactions. transactions and a $500 million 3 leverage lease transaction.
  4. 4. IMPORTANT NOTEThe contents of this presentation are intended for general information only and should not be construed or relied upon as legal advice nor as a legal opinion on any specific facts or circumstances. If you need legal advice concerning specific circumstances, please consider contacting Powell Law, P.C. 4
  5. 5. PARTNERING• Describes a relationship (or contract) where two or more persons (or companies) share management functions and share profits & losses.• Partnering for a specific procurement or project is a Joint Venture.• PennDOT recognizes Joint Ventures. 5
  6. 6. JOINT VENTURING• Supplements to Publication 408M/96 of PennDOT Specifications – Section 101 defines a Joint Venture: A legal association of contractors or subcontractors, limited to 3 participants, formed for the purpose of bidding and executing a common contract. Prequalification is required of each contractor or subcontractor, as specified in Section 102.01. 6
  7. 7. JOINT VENTURING• 2 or more companies form a partnership or joint venture to act as a potential prime contractor.• Contractors should complement each other’s unique capabilities.• Joint Ventures may offer the Government the best combination of performance, cost and delivery for the project. 7
  8. 8. JOINT VENTURING• Particularly appropriate: For large or complex projectsProjects requiring significant DBE participation 8
  9. 9. JOINT VENTURING• Time and effort is required to form Joint Ventures.• Identify potential partners & develop relationships as early as possible. Government workshops Chamber of Commerce or PennDOT sponsored networking sessions Trade journals Prebid sign-in sheets 9
  10. 10. BIDDING• To bid for State Highway construction work:Contractors should register with PennDOT as a business partner. Registration instructions are on the ECMS website.Generally, Contractors must be prequalified on the date of bid opening. Section 102.01 10
  11. 11. BIDDING• A Contractor’s bid cannot exceed its prequalification capacity.• The prequalification capacity is based on the contractors available financial capacity and approved work classification codes. 11
  12. 12. JOINT VENTURE BIDDING• For a Joint Venture Bid:Only 1 J.V. Business Partner is required to submit & electronically sign.The J.V. Business Partner will be considered the Joint Venture Prime. 12
  13. 13. JOINT VENTURE BIDDING• For alternative compact disk (CD) Bid submissions:• Each Joint Venturer is required to complete one signature page. 13
  14. 14. JOINT VENTURE BIDDING• A Joint Venture Bid is considered a bid by each of the participants, jointly & severally, for the entire project.• PennDOT recognizes 2 types of Joint Ventures:Line Item Joint VenturePercent Joint Venture 14
  15. 15. JOINT VENTURE BIDDING• Line Item Joint Venture Bids:Identify items to be undertaken by each Joint Venture Business PartnerSpecify the Quantity & Unit Price (in whole or in part) for each line item.Each JVBP will be evaluated for prequalification work classifications and capacity based on the designated line items. 15
  16. 16. JOINT VENTURE BIDDING• Percent Joint Venture bids:For a two-party 50/50 JV Bid, each Joint Venture Business Partner will be evaluated for prequalification work classifications for all items. Capacity will be calculated using 50% for all items. 16
  17. 17. JOINT VENTURE CONSIDERATIONS• Study the solicitation.• How does the capability of your company measure up to the evaluation factors?Technical abilityKey personnelPast performanceDBE utilization requirements 17
  18. 18. JOINT VENTURE CONSIDERATIONS• Evaluate your company and your potential joint venture partners:Do you want to bid as the prime?Would you rather limit the risk and commit as its subcontractor?Do you and others desire to bid together as a single prime contractor? 18
  19. 19. JOINT VENTURE AGREEMENT Who serves as the lead J. V. B. Partner?Controls bid submission.Serves as primary contact for the client.Receives & disseminates information on behalf of the Joint Venture.Serves as the J. V. change order advocate. 19
  20. 20. JOINT VENTURE AGREEMENT Who serves as the Managing Joint Venturer?Manages the Joint Venture.Calculates & allocates profits and losses in accordance with Joint Venture Agreement.Requires a well-organized and effective administrator. 20
  21. 21. JOINT VENTURE AGREEMENT Who serves as registered agent?Responsible for receiving correspondence from governmental authorities.Responsible for accepting service of process of lawsuits and claims.Requires a capacity to timely receive, acknowledge , disseminate & respond to correspondence & demands from 3rd parties. 21
  22. 22. JOINT VENTURE AGREEMENT• Some important provisions to consider:• Determine purpose of the Joint Venture.• Determine name of the Joint Venture.• Determine percentage ownership.• Determine compensation to partners. 22
  23. 23. JOINT VENTURE AGREEMENT• Determine allocation of Profits and Losses.• Determine powers of Joint Venture Manager.• Determine who serves a tax partner.• Special provisions. 23
  24. 24. QUESTIONS? 24
  25. 25. AIA SUBCONTRACTOR AGREEMENTS 25
  26. 26. AIA SUBCONTRACTOR AGREEMENTS OVERVIEW• Review A401 Subcontractor Agreement.• Explain Strengths & Weaknesses of the A401.• Identify the use of the A401 in Private Vs. Public Contracts.• Discuss advantages and disadvantages to subcontractor and prime contractor. 26
  27. 27. OVERVIEW OF AIA A401• Form is published by the AIA.• Form is copyrighted. - Licenses are expensive. 27
  28. 28. OVERVIEW OF A401 (CONTINUED)• AIA A401 incorporates AIA Document AIA201 – General Conditions -You must read and be familiar with the General Conditions. - If you do not have a copy, request one. 28
  29. 29. OVERVIEW OF A401 (CONTINUED)• Revisions to A401 are supposed to be shown in “redline” format. Ask to be sure.• AIA revises its documents approximately every 10 years. There are many revisions in use today, from 1987 to 2007. Be careful to verify which version you are using; some changes are substantial. 29
  30. 30. WHY USE AIA 401• Good off-the-shelf product, which addresses a majority of commercial issues on construction project.• Substantial case law interpreting AIA provisions.• Owner or Contractor may impose use of AIA forms. 30
  31. 31. WHEN TO USE AIA A401• If you do not have a ready off-the-shelf product• If upstream contracts use AIA documents• If you are Owner or Architect oriented 31
  32. 32. OTHER BENEFITS OF AIA A401• Terminology consistent throughout AIA families.• Mixing and matching will create challenges.• Use of AIA forms upstream & downstream will reduce risk of confusion & disputes. 32
  33. 33. INTEGRATION INTO NON-AIA PROJECTS• Requires careful analysis of forms to ensure Terminology is harmonized• Analyze treatment of key clauses, including: Payment Insurance Schedule Changes Limitation of Liability Dispute resolution 33
  34. 34. STRENGTHS OF A401• Presents fully integrated contract form addressing the majority of commercial issues confronting the trade contractor. Article 2: Places Subcontractor in similar relation to Contractor, as Contractor is placed with Owner.• Provides familiar language which facilitates obtaining insurance and bonding. 34
  35. 35. SUGGESTED REVISIONS – SUBCONTRACTOR’S VIEW• Inclusion of proposal as a contract document Pricing Assumptions Pricing Exclusions• Article 1.1(3): Clarify that modifications presented to Subcontractor after initial bid or RFP documents are not included, absent a change order. 35
  36. 36. SUGGESTED REVISIONS – SUB’S VIEW• Article 2: Clarify subcontractor’s rights to prosecute claims, even if Contractor says they are Owner’s responsibility.• Article 3.1: Revise to clarify that Subcontractor is entitled to receive all monthly schedule updates, in electronic format. Subcontractor should see all float, ES/EF, and LS/LF relationships, with all logic.• Article 3.3.2.1: Revise so that Subcontractor avoids default if it begins its cure within 7 days (make consistent with 3.4). 36
  37. 37. SUGGESTED REVISIONS – SUBCONTRACTOR’S VIEW Require objective 3rd party (architect) verification.• Article 4.1.7: Revise to state that contractor must ensure that its other subcontractors protect Subcontractor from their work.• Add duty to defend.• Articles 6.3.3 through 6.3.5: Consider revising to disallow joinder or consolidation. 37
  38. 38. SUGGESTED REVISIONS – SUBCONTRACTOR’S VIEW• Articles 11 and 12: Consider adding protections from appropriate prompt payment acts.• Article 13: Have your broker preview and verify available coverage as required; otherwise, revise. 38
  39. 39. SUGGESTED REVISIONS - CONTRACTOR’S VIEW• Article 3.1: Clarify that the float belongs to the Contractor.• Article 3.4: Revise to allow Contractor to immediately begin work upon notice of default, charging costs back to Subcontractor.• Article 4.3.5: Add duty to defend and hold harmless.• Article 4.6.1: Add duty to defend.• Article 7.2.1: Revise to allow quicker termination 39 for default.
  40. 40. USE OF ADDENDUM• Limitation of Liability Disclaimer of consequential damages• Changes to schedule / push-around language is compensable• Indemnity only to extent of negligence• Reliance on Owner information 40
  41. 41. USE OF ADDENDUM• Differing site conditions• Dispute resolution• No damages for delay 41
  42. 42. CLARIFYING PRICE ASSUMPTIONS & SCOPE OF WORK• Are pricing assumptions included as a Contract Document?• Are exclusions clearly stated and incorporated into the Contract Documents?• Has Subcontractor reviewed all plans and specifications?• Has Subcontractor inspected the project site for access, laydown area, and the like? 42
  43. 43. FLOW DOWN – PUBLIC PROJECTS• Public works projects incorporate numerous regulations. Federal contracts require certain regulations to be flowed down to Subcontractors.• Subcontractor must be careful to price these risks. Exclusions, if permitted, must be confirmed in writing 43
  44. 44. CLAIMS HANDLING• Contractor seeks to stay subcontractor claims until the project is complete. 44
  45. 45. COMPAIRISON TO CONSENSUSDOCS SUBCONTRACT There are a number of differences between ConsensusDOCS and AIA Contract Documents.(I.) The ConsensusDOCS do not provide a significant role for the architect during the construction phase of the project. The role of the architect during construction, under the ConsensusDOCS, is principally limited to certification of payment applications and certification of substantial completion. By contrast, under AIA Construction Documents the Architect serves as a representative of the owner and provides valuable assistance to the owner 45 throughout the construction process.
  46. 46. Among other things, the architect (1) evaluatesand facilitates communications between theowner and the contractor; (2) reviews andevaluates contractor submittals, proposals, andpayment applications; (3) periodically visits thesite and reports to the owner observed defectsand deficiencies in the work; (4) assists theowner in evaluating proposed sitesuperintendents and subcontractors; (5)processes change orders; and (6) may serve asthe initial decision maker in disputes betweenowner and contractor. 46
  47. 47. (II.) There was little or no input from the design industry in the ConsensusDOCS process. Neither the AIA, nor the Engineers Joint Contract Documents committee (EJCDC), including the engineering associations comprising the EJCDC (American Council of Engineering Companies, National Society of Professional Engineers, and the American Society of Civil Engineers) has endorsed the ConsensusDOCS.(III.) The AIA has been publishing standard form documents for 120 years. AIA documents are timely tested and widely used. 47
  48. 48. The following groups provided input into the AIA: • Associated General Contractors • Associated Specialty Contractors • Associated Builders and Contractors • American Subcontractors Association • Council of American Structural Engineers • National Association of State Facilities Administrators • Commercial Owners Association of America • Owner, Contractor & Architect’s Attorneys form Divisions 2, 3 and 12 of the ABA Forum on the Construction Industry • American College of Construction Lawyers 48
  49. 49. PENNDOT SPECIAL PROVISIONSSpecial Provisions supersede specifications. FINDING SPECIAL PROVISIONS• Referenced in Contract specification section• Referenced in addendum or rider• PENNDOT Special Provisions can be found under PENNDOT Publication 408.• Access PENNDOT website 49
  50. 50. - Internet Explorer (Do not use “firefox” or “google”.)- www.dot14.state.pa.us/ECMS- ECMS home page- Log in as a guest- “Construction Projects” (top of the page)- Drop down box – “Resources”- Drop down box – “Special Provisions”- “Advanced Search”- “Search”- View list of all Special Provisions 50
  51. 51. QUESTIONS? 51
  52. 52. CHANGE ORDER BASICS 52
  53. 53. CONSTRUCTION CHANGE1) Change happens2) Changes cost more than Contract Work3) Early resolution = reduced cost 53
  54. 54. AVOIDING CLAIMS AND DISPUTES• Complete the design• Minimize changes during construction• Document the issues• Establish and follow a protocol• Price changes fairly• Recognize schedule impacts fairly 54
  55. 55. CHANGE ORDER RESOLUTION• Recognize changes• Procedure for requesting Change Order• Mechanism for pricing and scheduling• Grant/deny properly and fairly• Complete the Project• Lender and Surety Concerns 55
  56. 56. CONTRACT PROVISIONS• General provisions regarding process• Circumstances entitling Contractor to Change Order?• Contractor options if Owner/Architect denies Change Order? 56
  57. 57. BENEFITS OF USING CHANGE ORDERS• Force parties to adhere to Contract• Predictability and Certainty• Allow parties to control costs and schedule• Enables contractor to be paid for extra work• Avoids disputes, litigation 57
  58. 58. DANGERS OF CHANGE ORDERS• Offensive use of Change Orders: “Pocket Change Orders”• Failure to adhere to Change Order procedure• Construction Loan Balance 58
  59. 59. ACTUAL AND CONSTRUCTIVE CHANGESActual change: Express owner-directed oragreed change to price, time or qualityConstructive change: Scope change resultingfrom other events or circumstances • Defective design requiring additional work • Owner caused delays • Differing Site conditions 59
  60. 60. CARDINAL CHANGE• Constructive or actual changes by Owner AND• Project fundamentally different from job bid• Fixed price contract can become a time and materials contract• May excuse Contractor’s performance altogether 60
  61. 61. WHAT IS A CHANGE ORDER?• Modification of a Contract• Requires meeting of the minds - Intent - Offer, acceptance or counter-offer• Consideration• Oral or written - Statute of Frauds• Binding on the parties 61
  62. 62. AGREED MODIFICATIONS TO CONTRACT• Time, price or quality terms - Adjustment of time - Adjustment of cost - Change in the scope of work• Authorization and/or agreement to proceed• Reservation of Rights 62
  63. 63. CHANGES IMPOSED BY• Change Order: Parties agree to the change• Construction Change Directives: Owner directs the change• Order for minor change in the work: Architect directs the change 63
  64. 64. TYPICAL CHANGE ORDER CLAUSE IN CONTRACT• §7.2 CHANGE ORDERS• §7.2.1 A Change Order is a written instrument prepared by the Architect and signed by the Owner, Contractor and Architect after execution of the Agreement, stating upon all of the following: 1) change in the work 2) the amount of the adjustment, if any, in the Contract Sum; and 3) the extent of the adjustment, if any, in the Contract Time. 64
  65. 65. • §7.2.2 Methods used in determining adjustments to the Contract Sum may include those listed in Section 7.3.3. 65
  66. 66. • §7.2.3 Agreement on any Change Order shall constitute a final settlement of all matters relating to the change in the Work which is the subject of the Change Order, including, but not limited to, all direct and indirect costs associated with such change and any and all adjustments to the Contract Sum and the Contract Time. The schedule of values shall be modified accordingly for Work covered by Change Orders. 66
  67. 67. • §7.2.4 The Contract Sum and the Contract Time may be adjusted by Change Order or Construction Change Directive Only. 67
  68. 68. CHANGES WITHOUT A CHANGE ORDER• Construction Change Directive Change nominal without price or time impact Owner and Contractor disagree on price or time• Order for minor change in the Work• Contractor must proceed promptly• Contractor should advise Owner/Architect if disagrees with price or time adjustment 68
  69. 69. • §7.3 CONSTRUCTION CHANGE DIRECTIVES• §7.3.1 A Construction Change Directive is a written order prepared by the Architect and signed by the Owner and Architect, directing a change in the Work prior to agreement or adjustment, if any, in the Contract Sum or Contract Time, or both. The Owner may by Construction Change Directive, without invalidating the Contract, order changes in the Work within the general scope of the Contract consisting of additions, deletions or other revisions, the Contract Sum and Contract Time being adjusted accordingly. 69
  70. 70. • §7.3.2 A Construction Change Directive shall be used in the absence of total agreement on the terms of a Change Order.• §7.3.3 If the Construction Change Directive provides for an adjustment to the Contract Sum, the adjustment shall be based in one of the following methods: 1) mutual acceptance of a lump sum properly itemized and supported by sufficient substantiating data to permit evaluation; 2) unit prices stated in the Contract Documents or subsequently agreed upon; 3) cost to be determined in a manner agreed upon by the parties and a mutually acceptable fixed or percentage fee; or 4) as provided in Section 7.3.6 70
  71. 71. CHANGES WITHOUT A CHANGE ORDER• §7.3.4 Upon receipt of a Construction Change Directive, the Contractor shall promptly proceed with the change in the Work involved and advise the Architect of the Contractor’s agreement or disagreement with the method, if any, provided in the Construction Change Directive for determining the proposed adjustment in the Contract Sum or Contract Time. 71
  72. 72. • §7.3.5 A Construction Change Directive signed by the Contractor indicates the agreement of the Contractor therewith, including adjustment in Contract Sum and Contract Time or the method for determining them. Such agreement shall be effective immediately and shall be recorded as a Change Order. 72
  73. 73. MINOR CHANGES IN THE WORK• §7.4 MINOR CHANGES IN THE WORK• §7.4.1 The Architect will have authority to order minor changes in the Work not involving adjustment in the Contract Sum or extension of the Contract Time and not inconsistent with the intent of the Contract Documents. Such changes shall be effected by written order and shall be binding on the Owner and Contractor. The Contractor shall carry out such written orders promptly. 73
  74. 74. CHANGE ORDER PROCESSSCOPE OF OWNER’S RIGHT TO MAKE CHANGES • Owner “owns” the project: Can change anything • Change can impact price or time • Change Order or claim/dispute will determine effect on price, time or quality • Contractor’s right to a Change Order 74
  75. 75. ROLE OF THE ARCHITECT• Coordinate the design and administer the Contract• Prepare Change Orders, construction change directives and orders for minor changes in the Work• Interpret plans and specifications• Decide matters of performance, requirements of Contract documents, disputes 75
  76. 76. ROLE OF THE CONTRACTOR• Perform, supervise and/or coordinate the Work• Review documents and field conditions• Request information/clarification• Request Change Orders and/or make claims if cost, time or quality are impacted by changes 76
  77. 77. ROLE OF THE CONTRACTOR• Pricing• Scheduling• Value engineering 77
  78. 78. ROLE OF THE SUBCONTRACTORS• Provide pricing and scheduling information• Perform portions of the Work• Pass-through obligations• Subcontract Change Orders 78
  79. 79. ROLE OF THE LENDER AND SURETY• Loan imbalance• Surety obligation to cover modified time, cost and quality 79
  80. 80. CHANGE ORDER FORMATION• “Change event”• Agreement on “change”• Negotiation of effect on price, time or quality• Reservation of rights if cannot agree• Make Change Orders “all inclusive” to avoid claimed Change Orders for “cumulative effect”. 80
  81. 81. NEGOTIATING THE CHANGE• Agree on entitlement• Agree on pricing method (T & M, unit price, estimate…)• Agree on the scope of change 81
  82. 82. NEGOTIATING THE CHANGE• Prepare independent estimate• Carefully review Contractor’s estimate - Including all backup• Resolve it Now through negotiation 82
  83. 83. MANAGEMENT & ADMINISTRATION OF CHANGES• Compliance with contract - Notice; changes; time; reservations• Create issue files - Document control system - Change control system - Records as principal source of proof - 3rd party review / reconstruction 83
  84. 84. MANAGEMENT & ADMINISTRATION OF CHANGES• Prepare timely assessment of issues - Time and Cost analysis• Negotiation / resolution 84
  85. 85. RECORDS TO DOCUMENT CO WORK• RFI and response• Request for CO (COR or PCO) 85
  86. 86. RECORDS TO DOCUMENT CO WORK• Request for pricing or proposal• Pricing & scheduling information - Unit costs - Labor rates - Estimated time/schedule• Explanation or reason for change 86
  87. 87. RECORDS TO DOCUMENT CO WORK• Delivery tickets• Provide daily report form in the Contract• Report of labor, materials and equipment by subcontractor: Quantity and merit 87
  88. 88. RECORDS TO DOCUMENT CO WORK• Avoid/minimize disagreement over entries• Signature of each party: receipt, agreement or verification, approval for payment• Document resolution of the change 88
  89. 89. CONTRACTOR’S OBLIGATION TO CONTINUE• Determined by Contract• “Contractor shall have the right to stop Work if…” 89
  90. 90. CONTRACTOR’S OBLIGATION TO CONTINUE• “Contractor shall proceed with the performance of the Work pursuant to the Contract without causing any delay or cessation of the Work in the event of any dispute or controversy over many matter whatsoever…”• Otherwise, Contractor may be able to continue and sue, rescind or terminate. 90
  91. 91. CONTRACTOR’S OBLIGATION TO CONTINUE• §4.3.3 Continuing Contract Performance. Pending final resolution of a Claim or dispute, except as otherwise agreed in writing or as provided elsewhere in the Contract Documents including in Section 9.7.1 and Article 14, the Contractor shall proceed diligently with performance of the Contract and the Owner shall continue to make payments in accordance with the Contract Documents. 91
  92. 92. CAUSES OF CHANGE ORDERS• Differing site conditions• Changes in scope of work• Defective or ambiguous plans and specs• Owner’s failure to disclose information 92
  93. 93. CAUSES OF CHANGE ORDERS• Owner’s interference / micromanagement• Delay• Disruption• Acceleration 93
  94. 94. AREAS OF CONCERN NECESSITATING CO• Constructability review and site familiarization• Owner / Architect-directed scope changes/substitutions 94
  95. 95. AREAS OF CONCERN NECESSITATING CO• Delays• Unknown or concealed conditions• Unit prices materially changing 95
  96. 96. DIFFERING SITE CONDITIONS• Contract should clearly allocate risk for different site conditions between the parties 96
  97. 97. TWO TYPES OF DIFFERING SITE CONDITIONS• Type I: Subsurface or related physical condition at the site which differs materially from those indicated in the Contract documents• Type II: Unknown physical condition of an unusual nature differing materially from those ordinarily encountered but recognized as inherent in the work of same character as provided for in the Contract 97
  98. 98. • §4.3.4 Claims for Concealed or Unknown Conditions. If conditions are encountered at the site which are (1) subsurface or otherwise concealed physical conditions which differ materially from those indicated in the Contract Documents or (2) unknown physical conditions of an unusual nature, which differ materially from those ordinarily found to exist and generally recognized as inherent in construction activities of the character provided for in the Contract Documents, then notice by the observing party shall be given to the other party promptly before conditions are disturbed and in no event later than 21 days after first observation of the conditions. 98
  99. 99. • The Architect will promptly investigate such conditions, and, if they differ materially and cause an increase or decrease in the Contractor’s cost of, or time required for, performance of any part of the Work, will recommend an equitable adjustment in the Contract Sum or Contract Time, or both. If the Architect determines that the conditions at the site are not materially different from those indicated in the Contract Documents and that no change in the terms of the Contract is justified, the Architect shall so notify the Owner and the Contractor in writing, stating the reasons. Claims by either party in opposition to such determination must be made within 21 days after the Architect has given notice of the decision. 99
  100. 100. • If the conditions encountered are materially different, the Contract Sum and Contract Time shall be equitably adjusted, but if the Owner and Contractor cannot agree on an adjustment in the Contract Sum or Contract Time, the adjustment shall be referred to the Architect for initial determination, subject to further proceedings pursuant to Section 4.4. No adjustment in the Contract Time or Contract Sum shall be permitted, however, in connection with a concealed or unknown condition which does not differ materially from those conditions disclosed, or which reasonably should have been disclosed, through performance of those activities that the Contractor represents and warrants, under Subparagraphs 1.5.2 and 1.5.3 to have performed or through any of the Contractor’s preconstruction services rendered in connection with the Project. 100
  101. 101. DEFECTIVE OR AMBIGUOUS PLANS &SPECIFICATIONS: THE SPEARIN DOCTRINE • U.S. v. Spearin, 248 U.S. 132 (1918) • Owner impliedly warrants plans and specifications – free of defects and buildable • Effect of clauses requiring Contractor to visit site, review plans and become informed about the requirements of the Work • Ambiguities, errors or omissions 101
  102. 102. AMBIGUITIES IN PLANS & SPECIFICATIONS• Contractor’s duty to review the plans and specifications• Construction Coordination v. Design Coordination 102
  103. 103. §1.5.2 Execution of the Contract by the Contractor is a representation that the Contractor has visited, examined and inspected the site, become generally familiar with the Project site and the local conditions, excepting conditions that are unknown and concealed or not reasonably inferable from the conditions observed, such as unsuitable soils, and is satisfied with the conditions and limitations under which the Work is to be performed including, without limitation:(i) the location, accessibility, physical qualities, layout, and nature of the project site, the improvements thereon and the surrounding areas(ii) generally prevailing climatic conditions 103
  104. 104. (iii) anticipated labor supply costs, and(iv) availability and cost of materials, tools and equipment. Except as explicitly set forth elsewhere in the Contract Documents, the Owner assumes no responsibility for the physical condition of the Project site, or any improvements located on the Project site and the Contractor shall be solely responsible for providing a safe place for the performance of the Work. The owner shall not be required to make any adjustment in the Contract Sum or the Contract Time in connection with any failure by the Contractor to comply with the requirements of this Subparagraph 1.5.2. 104
  105. 105. §1.5.3 Execution of the Contract by the Contractor is a further representation that the Contractor has examined all documents provided to the Contractor pertaining to the Work, has correlated its personal observations at the site with the requirements of the Contract Documents, has read carefully and is fully aware of the critical time restriction for performance of the Contract Work, is fully aware of the provisions and requirements of the Drawings and Specifications, and recognizes that the standard of care set forth in Paragraph 2.1 of the Agreement pertains to safety, protection of the existing structures and other facilities in the area, protection of pedestrians, health and sanitation laws and ordinances and protection of existing facilities, utilities, neighboring property and adjacent walks and streets. 105
  106. 106. §1.5.4 Execution of the Contract by the Contractor is a further representation that the Contractor is a licensed contractor who possesses a reasonable level of experience and expertise in the business administration, construction, construction management and superintendence of projects of the size, complexity and nature of this particular Project, is able to furnish the tools, materials, supplies, equipment and labor required to complete the Work and perform its obligation hereunder, has sufficient experience and competence to do so, and will perform the Work in accordance with the standard of care set forth in Paragraph 2.1 of the Agreement. 106
  107. 107. The above representations and warranties shallsurvive the execution and delivery of theContract, any termination of this Contract andthe final completion of the Work. 107
  108. 108. PROCEDURE• Discovery of ambiguity in plans and specifications• RFI• Clarification and/or change in design• Pricing proposal from Contractor 108
  109. 109. PROCEDURE CONTINUED• Change Order• Constructive Change Directive• Notice to Proceed 109
  110. 110. OWNER’S FAILURE TO DISCLOSE INFORMATION• Owner’s contractual obligation to disclose information• Financial arrangements to fulfill Owner’s obligations• Approvals, easements, assessments and charges• Surveys describing physical characteristics 110
  111. 111. OWNER’S FAILURE TO DISCLOSE INFORMATION• Legal boundaries• Utilities• Other information in Owner’s “control” as requested by Contractor• Misrepresentations? 111
  112. 112. CONTRACTOR SHOULD REQUEST CO• If subsequent discovery of undisclosed information impacts project• Adjustment of time• Adjustment of Contract price• Adjustment of quality 112
  113. 113. ALLOWANCES• Cost to Contractor of the materials and equipment delivered at the site• Often not including transportation and handling costs• Contract Sum adjusted “accordingly” or “equitably” 113
  114. 114. UNANTICIPATED COST IMPACTS• Escalation of material cost• Prevailing wage requirements• Force majeure event 114
  115. 115. PENNDOT PROVISIONS FORCE ACCOUNTS• Force Account is the payment method used for extra work if the contractor and the owner cannot agree on a unit price or lump sum amount, or if those methods are impracticable. Force account payments cover labor, materials, and equipment. They may also cover other miscellaneous expenses. 115
  116. 116. FORCE ACCOUNTS CONTINUED• Section 110.3(d)• Perform extra work on a force account basis only when directed in writing by the District Engineer, as stated in Section 110.03(a). 116
  117. 117. FORCE ACCOUNTS• Compare force account records with those kept by the Department, at the end of each day or as directed by the Engineer, to ensure accuracy and obtain concurrence. Report any unresolved disagreements with such records. Failure to review the Department’s records or to report disagreements with such records will create a presumption that the Department’s records are complete and accurate. 117
  118. 118. FORCE ACCOUNTS• Payment for extra work performed on a force account basis will be made, as specified herein, upon completion of the work. Progress payments will be made only when an itemized estimated force account of cost is provided, in writing, within 10 working days after receipt of the Department’s written authorization to perform the extra work on a force account basis. 118
  119. 119. FORCE ACCOUNTSSection 110.03 (d) payment provisions cover: • Labor • Material • Equipment - Owned Equipment - Rented Equipment• Services by Others - Engineering services / non-subcontract work 119
  120. 120. FORCE ACCOUNTS• Permits, Bonds and Insurance• Subcontracting• Overhead and Profit 120
  121. 121. PREVAILING WAGE RULES• Wage rates are governed by the U.S. Department of Labor, Davis Bacon Act. Wage Rate Decisions are divided into 4 categories: Highway, Heavy, Building and Residential. LET’S PLAY 20 QUESTIONS: 121
  122. 122. 1. Does it matter who employs the truck driver for the application of Davis Bacon?Answer: No.The Court of Appeals ruled that materialdelivery truck drivers, who come onto the siteof the work merely to drop off constructionmaterials, are not covered by the Davis-BaconAct even if they are employed by thegovernment contractor, because they are not"employed directly upon the site of the work". 122
  123. 123. 2. Are truck drivers employed by a constructionprime contractor to transport materials from thecontractor plant or yard to a Davis-Bacon coveredproject, or from a Davis-Bacon covered project tothe contractors plant or yard covered?Answer: Yes. 123
  124. 124. If the contractor/subcontractors plant or yardis part of the "site of the work", the drivers arecovered. If the contractor/subcontractorsplant or yard is not part of the "site of thework", the drivers are generally not covered.The travel time between the plant or yard andthe site of work in this instance is nevercovered. However, if the time spent unloadingthe material or equipment on the site of workis more than de minimis (20%), then this timeis covered. 124
  125. 125. 3. Is the time drivers spend transporting materialsor equipment from one Davis-Bacon project toanother Davis-Bacon project covered?Answer: Generally, no.Again the regulatory definition of "construction …"specifically states that the transportation of materials orsupplies to or from the "site of the work" is notconsidered construction (29 CFR 5.2(l)(2). Nevertheless,there may be some instances where the two sections ofhighway construction are contiguous and thetransportation of materials or equipment is all on the"site of the work" of both sections that constitute acombined covered project. 125
  126. 126. 4. Are drivers transporting material or equipmentaway from a Davis-Bacon project or anotherproject of the contractor which is not a Davis-Bacon project covered?Answer: No.Unless the transportation of such materials orequipment is to a dedicated facility locatedadjacent or virtually adjacent to the constructionarea. 126
  127. 127. 5a. When truck drivers are engaged in haulingexcavated material, debris, dirt, asphalt, etc., forrecycling away from a Davis-Bacon coveredconstruction site, is the time spent loading at thesite covered?Answer:Assuming that the location or facility to which theexcavated material or debris will be transported is not afacility that is part of the "site of the work" (adjacent orvirtually adjacent to the construction work area: anddedicated exclusively or nearly so to the performance ofthe contract or project): If the time spent on the site is notmore than de minimis, then loading the debris, dirt,asphalt, etc., is not covered. 127
  128. 128. 5b. When truck drivers are engaged in haulingexcavated material, debris, dirt, asphalt, etc., forrecycling away from a Davis-Bacon coveredconstruction site, is the time transporting thematerial away from the site covered?Answer:The time transporting the material away from thecovered site is not covered. The regulationspecifically states that the transportation ofmaterials or supplies to or from the "site of thework" is not considered construction. 128
  129. 129. 5c. When truck drivers are engaged in haulingexcavated material, debris, dirt, asphalt, etc., forrecycling away from a Davis-Bacon coveredconstruction site, is the time unloading thematerial covered?Answer:The time unloading the material off site is notcovered. Davis-Bacon only applies to work doneon the "site of the work". 129
  130. 130. 6. Are truck drivers who are employed by anindependent contractor or bona fide materialman tohaul material to a covered project from a non-covered supply source (i.e., sand or gravel pit,asphalt plant serving the public in general) covered?Answer: No.If the material source is commercial in nature and supplies thegeneral public, then the drivers are generally not covered.However if the time spent on the site of work is more than de-minimis (20%of the truck drivers work week), the driverwould be covered. (regardless of whether they are employedby the contractor or subcontractor, or by an independentcontractor or bona fide materialman/supplier). 130
  131. 131. 7. Are truck drivers covered for the delivery ofmaterials to the "site of work" from coveredsupply sources (e.g., batch plants or borrow pits,stockpiles, etc.) which have been established toserve exclusively, or nearly so, the coveredproject?Answer: Yes.If the supply facility is part of the “site of the work”because it is dedicated (exclusively or nearly so) toperformance of the contract or the project andlocated within or near the project limits –“adjacent or virtually adjacent” to the actualconstruction site. 131
  132. 132. Note: DOL has an enforcement position withrespect to bona fide owner-operators of truckswho own and drive their own trucks. Certifiedpayrolls including the names of such owner-operators do not need to show the hoursworked or rates paid, only the notation “owner-operator”. This position does not apply toowner-operators of other equipment such asbulldozers, backhoes, cranes, welding machines,etc. 132
  133. 133. 8. A barricading company supplies traffic control products for 20 Davis-Bacon projects. The devices are dropped off and picked up at the contractors yard for each project. No setup work is involved. Are the employees of this company covered? Answer: Generally No. If the contractor’s yard isnot deemed a part of the “site of work”, theemployees are not covered. However, if thecontractor’s yard is deemed a part of the “site ofwork”, then the employees would be covered if thetime spent on each project is more than 20% oftheir work week. 133
  134. 134. 9. Would these workers be covered if they arenot only involved in drop off/pick up, but arealso involved in setting up and servicing thetraffic control products?Answer: Yes.If a material supplier, manufacturer, or carrierundertakes to perform part of a constructioncontract as a subcontractor, its laborers andmechanics employed at the site of the work aresubject to the prevailing wage requirements underDavis-Bacon in the same manner as those employedby any other contractor or subcontractor. 134
  135. 135. 10. What prevailing wage rate would apply to theworkers in the above example?Answer:The employees driving the trucks would be paid truckdrivers rates. The employees doing the servicing would bepaid at the unskilled or misc. laborers rate. If the driver isdoing both activities, Davis-Bacon compliance can beachieved by payment of the higher rate for all hoursworked. However, laborers or mechanics performing workin more than one classification may be compensated atthe rate specified for each classification for the timeactually worked in each, provided that the employerspayroll records accurately set forth the time spent in eachclassification in which work is performed. 135
  136. 136. 11. A barricading company places the advancewarning signs per contract, pounds posts, andplaces a sign cover which the prime contractorremoves when construction begins. Is all thework performed by this company now subject toDavis Bacon?Answer:The USDOL position is that if this is a one time incident,before construction begins, and the time spent on the siteof work is minimal (less than 20% of the employee’s workweek) then in this instance, the installation of the advancewarning signs will not be covered by Davis-Bacon. 136
  137. 137. 12. Prior to the start of construction, abarricading company places into position andturns on a portable changeable message sign perthe contract.What Davis Bacon rules apply to this situation?Answer:Again if this is a one time situation beforeconstruction begins, and the time spent on thesite of work is minimal, (less than 20% of theemployee’s work week) then Davis-Bacon wouldnot apply in this situation. 137
  138. 138. 13. On the same or the next day, this companysets the drums and temporary signs along theshoulder of the road for the prime to set intoposition when construction begins. What are theDavis-Bacon rules for this situation?Answer:When temporary signs and drums are placed alongthe shoulder of the road for later placement perthe contract, Davis-Bacon does not apply, if thetotal time spent on the project is not more than20%. 138
  139. 139. 14. Does it matter if the barricading company isworking with a sub-contract or a purchase order,for the purposes of applying Davis-Bacon rules?Answer: No.Sub-contract status is irrelevant for the purposesof Davis-Bacon. 139
  140. 140. 15. The manufacturer of concrete box beamsdelivers 10 beams to a Davis-Bacon coveredproject. After beams are set and themanufacturer sends a technician out to theproject to post tension the beams. Is the posttensioning of the beams covered? 140
  141. 141. Answer:For purposes of administration and enforcement of Davis-Bacon, under the applicable regulations issued by theDepartment of Labor, the regulatory definition of"construction" includes "[m]anufacturing or furnishing ofmaterials, articles, supplies or equipment on the site…", aswell as the installation of items fabricated off-site. (See 29CFR 5.2(l)). As discussed regarding item 8, if a materialsupplier, manufacturer, or carrier undertakes to performpart of a construction contract as a subcontractor, itslaborers and mechanics employed at the site of the workare subject to the prevailing wage requirements underDavis-Bacon in the same manner as those employed by anyother contractor or subcontractor. 141
  142. 142. For example, employees of a materials supplierwho are required to perform more than anincidental amount of construction work in anyworkweek at the site of the work would becovered by Davis-Bacon and due the applicablewage rate for the classification of workperformed. For enforcement purposes, theDepartment of Labor adopts a policy that if suchan employee spends more than 20% of his/hertime in a workweek engaged in such activitieson the site, he/she is covered by Davis-Bacon forall time spent on the site during the workweek. 142
  143. 143. 16. The contractor hires a company to provideinspection services for the contractors qualitycontrol operations on a Davis-Bacon coveredproject.Are the inspectors subject to prevailing wages? 143
  144. 144. Answer:In general, individuals who perform inspectionsand testing for quality control purposes are notconsidered laborers or mechanics within themeaning of the Davis-Bacon Act. However, if anemployee spends more than 20% of a workweekperforming manual, physical and mechanicalfunctions that are normally performed bytraditional craftsmen, he/she would beconsidered laborers and mechanics and coveredby the DBRA and due the applicable wage ratefor the classification of work performed. 144
  145. 145. 17. The contractor hires an engineering firm toprovide surveying and staking activities for aDavis-Bacon covered project.Are these workers subject to prevailing wages?Answer:Where surveying is performed immediately priorto and during actual construction, in direct supportof construction crews, such activity is covered byDavis-Bacon requirements for laborers andmechanics. 145
  146. 146. The determination of whether certain membersof survey crews are laborers or mechanics is aquestion of fact. Such a determination must takeinto account the actual duties performed. As ageneral matter, an instrumentman ortransitman, rodman, chainman, party chief, etc.,are not considered laborers or mechanics.However, a crew member who primarily doesmanual work, for example, clearing brush, is alaborer and is covered for the time so spent. 146
  147. 147. 18. Does Davis Bacon apply to warranty work?Answer:If a material supplier, manufacturer or carrier undertakes toperform a part of a construction contract as a subcontractor,its laborers and mechanics employed at the site of the workwould be subject to DBRA requirements in the samemanner as those employed by any other contractor orsubcontractor. This would include warranty and/or repairwork. Employees of a material supplier who are required toperform more than an incidental amount of constructionwork (20%) in any workweek at the site of the work wouldbe covered by the DBRA and due the applicable wage ratefor the classification of work performed. 147
  148. 148. 19. How are truck drivers covered on "split-trip"operations where a portion of the trip meets thecriteria for DBRA coverage and theother portions of the trip do not.Answer:DBRA coverage is for "laborers and mechanics" fortime "employed on the site of the work". If thetruck driver spends more than de-minimis (20%)of their work week on the site of work, the timehe is on the site of work is covered by Davis-Bacon. 148
  149. 149. OWNER’S INTERFERENCE• Micromanagement of the Project• Interference with - Planned sequence - Manpower deployment - Means & methods or performance• Owner’s separate contractors - Asbestos or Hazardous Waste abatement 149
  150. 150. INSPECTION• Required changes• Code criteria and interpretation• Opening Work to permit inspection Clauses: Owner pays if not required to redo Work 150
  151. 151. ARTICLE 12 UNCOVERING AND CORRECTION OF WORK§12.1 UNCOVERING OF WORK§12.1.1 If a portion of the Work is coveredcontrary to the Architect’s request or torequirements specifically expressed in theContract Documents, it must, if required inwriting by the Architect, be uncovered for theArchitect’s examination and be replaced at theContractor’s expense without change in theContract Time. 151
  152. 152. ARTICLE 12 UNCOVERING AND CORRECTION OF WORK§12.1.2 If a portion of the Work has been covered which the Architect has not specifically requested to examine prior to its being covered, the Architect may request to see such Work and it shall be uncovered by the Contractor. If such Work is in accordance with the Contract Documents, costs of uncovering and replacement shall, by appropriate Change Order, be at the Owner’s expense. Is such Work is not in accordance with the Contract Documents, correction shall be at the Contractor’s expense unless the condition was caused by the Owner or a separate contractor in which event the Owner shall be responsible for payment of such costs. 152
  153. 153. §13.5 TESTS AND INSPECTIONS§13.5.1 Tests, inspections and approvals of portions of the Work required by the Contract Documents or by laws, ordinances, rules and regulations or orders of public authorities having jurisdictions shall be made at an appropriate time. Unless otherwise provided, the Contractor shall make arrangements for such tests, inspections and approvals with an independent testing laboratory or entity acceptable to the Owner, or with the appropriate public authority, and shall bear all related costs of tests, inspections and approvals. The Contractor shall give the Architect timely notice of when and where tests and inspections are to be made so that the Architect may be present for such procedures. The Owner shall bear costs of tests, inspections or approvals which do not become requirements until after bids are received or negotiations concluded. 153
  154. 154. §13.5.2 If the Architect, Owner or public authorities having jurisdiction determine that portions of the Work require additional testing, inspection or approval not included under Section 13.5.1, the Architect will, upon written authorization from the Owner, instruct the Contractor to make arrangements for such additional testing, inspection or approval by an entity acceptable to the Owner, and the Contractor shall give timely notice to the Architect of when and where tests and inspections are to be made so that the Architect may be present for such procedures. Such costs, except as provided in Section 13.5.3, shall be at the Owner’s expense. 154
  155. 155. §13.5.3 If such procedures for testing, inspection or approval under Sections 13.5.1 and 13.5.2 reveal failure of the portions of the Work to comply with requirements established by the Contract Documents, all costs made necessary by such failure including those of repeated procedures and compensation for the Architect’s services required for the convenience of the Contractor in its scheduling and performance of the Work, and the cost of testing services related to remedial operations performed to correct deficiencies in the Work shall be borne by the Contractor. 155
  156. 156. PRICING THE CHANGE: ACTUAL COSTS • Detailed and documented • Fair, reasonable and authorized by Contract • Labor, material, equipment and direct costs efficient and not excessive • Overhead, profit and markup • Contractor responsible for costs? 156
  157. 157. PRICING BY ESTIMATES• Detailed breakdown• Take-offs based on quantities and hours for labor, materials, supplies and equipment• Indirect cost estimates• Subcontractor, vendor or supplier bids or quotes• Prices and mark-ups authorized by Contract 157
  158. 158. COST PER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES• Contractor Cost Accounting System• Consistent tracking of changes and costs• Reliability of system and records• Change and related costs contemporaneously recorded 158
  159. 159. EQUIPMENT PRICES• “No payment shall be made for the use of tools which have a replacement value of $200 or less”• Equipment rental rates shall not exceed local rates• Equipment in good working condition• Maintenance, breakdown and repair costs• Published rates 159
  160. 160. UNIT PRICES• Stipulated in Contract by Owner and Contractor• Submitted by Change Order Bid Form or Proposal by Contractor• E.g. earth excavation at specified sum per yard• Unit price inclusive of labor, material, services, equipment, overhead & profit 160

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