|
|
|
The Comprehensive Guide to Construction Contract Administration Keyword Search: Simply select the topic you wish to review and "click"
INTRODUCTION ROLE OF THE CONSTRUCTION ADMINISTRATOR This material has been prepared as a guide for the office standards and procedures for the construction administration services offered by The Mozeleski Group, Inc. The services described in the following pages shall be performed by the Construction Administration Consultant, while representing the Project Architects and/or Owner. For clarity, the manual is written specifically for the Construction Administration Consultant and hence limits project authority on the construction site to that enumerated in the Owner/Contractor and Owner/Consultant Agreements. Project Architects and Project Managers who have a larger range of responsibility and authority, are encouraged to consider the ramifications involved with on-the- spot decisions, made at the Contractor's insistence. Although the following standards represent general office policy, they are, in fact, subservient to the Owner / Architect Agreement, Owner/Contractor Agreement and General, Supplementary, and Special Conditions of each individual project. The Project Administrator should attempt to include the standards and procedures established in this manual in the Contract Documents for each project. The Administrator shall thoroughly review the complete set of documents, collectively referred to as the Contract Documents, and modify the construction administration procedures for each project accordingly. The Administrator is responsible for the comprehensive and timely administration of all project related documentation and information. The primary role of the Administrator is to represent the Owner and/or Architect in all project meetings and other field matters relating to the construction of the project. The Administrator will make periodic site visits to the project, record observations and report to the Project Administrator all observations related to status of completion, quality of workmanship and compliance with the Contract Documents. The authority and responsibility of the Administrator shall be as described in AIA Document B352. In addition to AIA B352 (Figure 1-1) the Administrator will adhere to the following company policies for Construction Administration:
The role of the Administrator is to periodically visit the job to observe the work. The person responsible for supervising the construction is, in fact, the Construction Manager or General Contractor. That entity has contracted to complete the work and legally assumes primary responsibility for the work. The Administrator is not an "inspector". His duties do not encompass the time nor the effort required to provide a comprehensive or exhaustive "inspection" of the work. The Administrator's responsibilities include the transmission of large quantities of paper work and project documentation, particularly AIA standardized documents. The Administrator is encouraged to take advantage of the time savings involved in producing computerized Master Forms for each individual AIA document for the project. Proposal Requests, Change Orders, Transmittal Letters and A.S.I.s should be prepared in advance with all consistent project information ( i.e. project name, project address, project number etc.) included and ready for specific information to be inserted. The traditional construction triangle often places the Owner, the Architect and the Contractor in adversarial relationships. The Administrator must defend the rights of the Contractor as well as those of the Owner. The Administrator is charged with the impartial administration of the Contract Documents. Since a good deal of the Administrator's time is spent reviewing, and then evaluating the Contractor's work, it is wise to remember to complement the Contractor on work well done as quickly as you point out his errors. The Administrator should take every opportunity to cultivate a "partnering" style relationship between the Architect and the Contractor. The Contractor, Owner and Architect must remember that they share a common goal which is the successful completion of the project.
PHASE 1 - SCOPE OF PRE-CONSTRUCTION SERVICES In the Bidding or Negotiations Phase the Owner and the Architect, respectively, following the Owner's approval of the Construction Documents and of the most recent Statement of Probable Construction Cost, shall provide those services designated in the Schedule of Designated Services necessary for the Architect to assist the Owner in obtaining bids or negotiated proposals and in awarding and preparing contracts for construction. In the case of phased construction, the Owner may authorize bidding and/or negotiation of portions of the Work prior to completion of the Construction Documents Phase. The following descriptions shall apply to those services assigned in the Schedule of Designated Services as the responsibility of the party indicated therein. 1.01 Project Administration services consist of the following bidding or negotiation administrative functions:
1.02 Disciplines Coordination / Document Checking services consist of bidding or negotiation activities for:
1.03 Agency Consulting/Review/Approval services during the Bidding or Negotiations Phase relating to applicable laws, statutes, regulations and codes of regulating entities relating to the Owner's interests before construction begins. 1.04 Owner-supplied Data Coordination services consisting of activities relating to bidding or negotiation including:
1.05 Bidding Materials services consisting of organizing and handling Bidding Documents for:
1.06 Addenda services consisting of preparation and distribution of Addenda as may be required during bidding or negotiation and including supplementary Drawings, Specifications, instructions and notices(s) of changes in the bidding schedule and procedure. 1.07 Bidding/Negotiations services consisting of:
1.08 Analysis of Alternates/Substitutions services consisting of consideration, analyses, comparisons, and recommendations relative to alternates or substitutions proposed by Bidders or proposers either prior or subsequent to receipt of Bids or proposals. 1.09 Special Bidding Services consisting of:
1.10 Construction Contract Agreements services consisting of:
PHASE 2 - SCOPE OF CONSTRUCTION CONTRACT ADMINISTRATION SERVICES In the Construction Contract Administration Phase the Owner and the Architect, respectively, shall provide those services designated in the Schedule of Designated Services necessary for the administration of the construction contract as set forth in the General Conditions of the Contract for Construction. Unless otherwise provided in the Schedule of Designated Services, the Administrator's duties and responsibilities during construction shall be as set forth in the Agreement between Owner and Administrator for Designated Services. The following descriptions shall apply to those services assigned in the Schedule of Designated Services as the responsibility of the party indicated therein. 2.01 Project Administration services consisting of construction contract administrative functions including:
2.02 Disciplines Coordination/Document Checking services consisting of construction contract administration activities for:
2.03 Agency Consulting/Review/Approval services
2.04 Owner-supplied Data Coordination services consisting of activities relating to construction contract administration including:
2.05 Office Construction Administration services consisting of:
2.06 Construction Field Observations services consisting of visits to the site at intervals appropriate to the stage of construction or as otherwise agreed in writing to become generally familiar with the progress and quality of the Work and to determine in general if the Work is proceeding in accordance with the Contract Documents, and preparing related reports and communications. 2.07 Project Representation services consisting of selection, employment and direction of:
2.44 Inspection Coordination services relating to independent inspection and test agencies, consisting of:
2.45 Supplemental Documents services consisting of:
2.46 Quotation Requests/Change Orders services consisting of:
2.47 Project Schedule Monitoring services consisting of monitoring the progress of the Contractor(s) relative to established schedules and making status reports to Owner. 2.48 Construction Cost Accounting services consisting of:
2.49 Project Closeout services initiated upon notice from the Contractor(s) that the Work or a designated portion thereof which is acceptable to the Owner, is sufficiently complete, in accordance with Contractor Documents, to permit occupancy or utilization for the use for which it is intended, and consisting of:
PHASE 3 -SCOPE OF POST CONSTRUCTION SERVICES In the Post construction Phase the Owner and the Architect, respectively, shall provide those services designated in the Schedule of Designated Services necessary to assist the Owner in the use and occupancy of the facility. The following descriptions shall apply to those services assigned in the Schedule of Designated Services as the responsibility of the party indicated therein. 3.01 Project Administration services consisting of post construction administrative functions including:
3.02 Disciplines Coordination/Document Checking services consisting of postconstruction activities for:
3.03 Agency Consulting/Review/Approval services relating to applicable laws, statutes, regulations and codes of regulating entities that require compliance during postconstruction use, occupancy and operation. 3.04 Owner-supplied Data Coordination services consisting of postconstruction activities during occupancy and operation relative to Owner-supplied furniture, furnishings and equipment. 3.05 Maintenance and Operational Programming services consisting of:
3.06 Start-up Assistance services consisting of:
3.07 Record Drawings services consisting of:
3.08 Warranty Review services consisting of:
PRECONSTRUCTION PRE-CONSTRUCTION MEETING AGENDA Following the acceptance of the successful bid and subsequent award of the contract for construction, the Owner, Contractor and Administrator shall schedule and attend the Pre- Construction Meeting. The purpose of the Pre- Construction Meeting is to discuss the specific requirements of the Contract Documents and how they relate to the daily operation of the construction project. The following is a sample agenda for the Pre-Construction Meeting and should be edited to conform to the specific requirements of each project. Items listed in the sample agenda are more comprehensively discussed later in this manual. AGENDA FOR PRE-CONSTRUCTION MEETING
PRE-CONSTRUCTION DOCUMENTS Following the Pre-Construction Meeting and prior to beginning construction the Administrator or Owner and/or Architect, will verify that the following documents have been properly executed between the Owner and the Contractor:
The Notice of Commencement is a legal document which is prepared by the Owner's attorney or financial lending institution and recorded with the Clerk of the County Court. A recorded copy must be posted by the Owner at the project site. Financing institutions will require the filing of a Notice of Commencement as a provision of the loan agreement. The Owner and/or Architect should obtain a photocopy of the Notice of Commencement for his project files. The purpose of the Notice of Commencement is to provide at the project site and on public record the name of the Owner, Contractor and Surety, so that those wishing to file Notice to Owner may do so to the appropriate parties. Work performed at the project site prior to the Notice of Commencement is not covered by the lien laws. Although the Notice of Commencement is the Owner's responsibility, the Owner and/or Architect should so advise the Owner of both the need and benefits of such a document. The Owner/Contractor Agreement should stipulate that the work shall not commence until the Notice of Commencement has been filed. Work to be performed under the Owner/Contractor Agreement generally commences on the date specified in a Notice to Proceed, as established in the General Conditions of the Contract for Construction. The Notice to Proceed should not be issued until the following documents (or copies thereof) have been received and reviewed by the Owner and/or Architect:
The Owner and/or Architect shall recognize that the "Date of Commencement" is the official date for the start of the construction project and is specifically identified in the Notice to Proceed. The Contractor should not necessarily be expected to commence work on the very date the Notice to Proceed is issued unless the Contractor has had adequate time to mobilize his resources and equipment to the site. The Administrator will receive and review the following schedules from the Contractor prior to processing the first Application for Payment:
4. Shop Drawing Review Schedule (Figure 1-5)
SHOP DRAWING REVIEW PROCEDURE The following procedure shall be used by the Administrator for the processing of all shop drawings and related product data for the project:
The following steps should be taken in the shop drawing review process to avoid any unnecessary work or assumption of responsibility by the Administrator:
CONSTRUCTION OWNER/CONTRACTOR MEETING The Administrator will represent the Owner and/or Architect at the Owner/Contractor meetings held on the site as provided in the Contract Documents. The project meeting should be held once per week and attended by the General Contractor, Owner and the Administrator. The Administrator will establish who will take minutes of the meeting and verify that all persons are copied with the minutes. The project meeting is a useful forum for discussions involving Owner requested changes, problems with construction and/or field observations which the Administrator feels require correction. All items which may directly impact the completion of the project should be addressed at this meeting. The Administrator will schedule field observation visits to the project as required to properly monitor the progress and quality of the work. The project scope and budget shall determine the frequency of the field observations. One beneficial arrangement for the site observation is directly prior to the project meeting. This schedule allows for the Administrator to verify that directions from the previous meeting have been followed and also to update himself with the current status of the project before the present meeting takes place. Regardless of the schedule for project observation and project meeting, the Administrator should set a regular time and date for the site observation, this will allow the Contractor to prepare questions and receive directives crucial to maintain construction progress. At each site visit the Administrator will tour the entire project and note activities in each building or area of the project. The Administrator will photograph the project at regular intervals, not to exceed one month, and also keep photographic records of all construction deficiencies from discovery through the final correction. The Administrator should not allow himself to be summoned to the project site more frequently than once per week. The Contractor will come to rely on the constant presence of the Administrator if he is allowed to do so, and will attempt to have the Administrator resolve all of the project problems for him no matter how large or small. The Administrator will prepare an Administrator's Field Report each time he completes a site visit. The Field Report will include current status of the project, work in progress, weather, time, special instructions given the Contractor and questions from the Contractor. The Field Report will be consecutively numbered and a copy will be entered into the Project Log Book and the Central File System. (See Figure 1-7 Administrator's Field Report) The Administrator will establish a schedule for site observations by the consultants, based upon the consultant's opinion regarding when they should review each stage of the construction. The consultants shall prepare a written field report each time they visit the project, the field reports will be filed in the Project Log Book and a copy sent to the Contractor and Owner. Following site visits the Administrator will return to the office and prepare Architect's Supplemental Instructions for any verbal directions given the Contractor. The Administrator will maintain a list of all construction deficiencies observed on the project in numerical order. When a defect is observed, verbally notify the Contractor and record on the list of construction defects. Unless urgent action is required do not make a formal record of the deficiencies until the second week the defect remains uncorrected. Record the date that the defect was corrected and what action was taken. PROJECT PHOTOGRAPHY The Administrator shall take photographs of the project at regular intervals, not to exceed (1) one month. The purpose for project photography is to record the quality of the work for items which are to be covered, provide documentation regarding the proper sequence of the work and to record the progress of the work. Project photography has proven to be extremely beneficial in dealing with latent defects which were not discovered prior to covering and also in improving original design concepts when re- issue of project drawings is required for another project. The project photography shall be included into the Project Log Book and displayed in chronological order. Major items which should be photographed include:
PROJECT SAFETY The Administrator, Owner and/or Architect nor any field representative are responsible for safety on the construction project. This does not mean that any major safety or life- threatening conditions are to be ignored. An unsafe condition is one that would be recognized as unsafe by the average architect or construction personnel. Situations which may be considered life-threatening, are any one in which there is immediate danger of physical harm present. In the event that an unsafe or life-threatening condition is observed by the Administrator, he shall take the following action, with ABSOLUTELY NO EXCEPTION: Unsafe Project Condition - The Administrator shall notify the Project Superintendent verbally of the unsafe conditions and leave the project immediately. The Administrator shall confirm his observation of the unsafe conditions, in writing to the Contractor's Project Manager with a copy of the notification to the Owner. Life Threatening Conditions - The Administrator shall notify the Project Superintendent verbally of the condition and leave the project immediately. The Administrator shall confirm his observation of a Life Threatening safety condition, by telegram to the Contractor's Project Manager with a copy of the notification to the Owner. The Administrator shall follow the telegram with written confirmation of the observation. In the event of a construction accident, the Administrator shall verify that the Owner and/or Architect has been notified and recommend that he notify both his liability carrier and the Owner. The Administrator shall immediately take extensive photographs of the area and shall make extensive written notes of his observations. Under no circumstances shall the Construction administrator make any statement regarding the accident to any media, or construction personnel. PROJECT LOG BOOK The Administrator will prepare and maintain a Project Log Book for the project while under construction. The Project Log Book will contain the following documentation:
The Administrator will maintain (1) one copy of all documents related to the project in the Project Log Book for his reference, a second copy of all important documentation such as A.S.I.s, Proposal Requests, Field Reports, Change Orders etc., will be filed in the Central Filing System. The Project Log Book will be divided into the required divisions and separated by indexed tabs. Each section will begin with a summary sheet as required for reference. (See Figures 1-8 thru 1-11 Change Order Log, Proposal Request Log, A.S.I. Log etc.) It is imperative that the preparation of all Proposal Requests, Change Orders, A.S.I.s and Field Reports begin at the Project Log Book so that the proper consecutive numbering may be assigned by the Administrator. The Administrator will list each new document on the appropriate summary sheet to avoid any duplication of the consecutive numbering system. Project photography may be included into the Project Log Book if this additional service has been retained. At lest (10) ten days prior to the date for each payment established in the Owner- Contractor Agreement, the Contractor shall submit to the Administrator an itemized Application for Payment draft for review. This "pencil copy" review will take place prior to the preparation of the actual Application for Payment by the Contractor. At the beginning of the project the Administrator will establish a set time to meet with the Contractor and the Owner to review the Application for Payment. This meeting may coincide with the weekly Project Meeting. The Administrator will make a complete site observation prior to the Application for Payment review. The Contractor shall break down the Schedule of Values into items or quantities of work which can quickly and easily be evaluated by the Administrator when reviewing the work in place. This breakdown is separate from the Schedule of Values and does not replace it. The sole purpose of the breakdown is to avoid disagreements between the Contractor and the Administrator as related to quantities of work completed. The Contractor shall bring to the review meeting all materials required to properly evaluate the Application for Payment, including stored material invoices, Release of Liens, etc. The Administrator, Owner and the Contractor shall review the current project status and the Application for Payment and agree on the proper amounts of compensation due the Contractor as stipulated by the Contract Documents. (See Figure 1-12) The Contractor will then proceed to prepare the certified copy of the Application for Payment in the format outlined in the Contract Documents. The Administrator shall retain his copy of the "pencil copy" and verify that the certified copy of the Application for Payment is correct as per the review meeting. If the Administrator and the Contractor cannot agree on the appropriate amount for the Application for Payment, the Contractor has the right to prepare and submit an Application for Payment which he considers correct . The Owner and/or Architect will then, following consultation with the Administrator, formally recommend to the Owner what amount he feels should be certified for payment. Following receipt of the formal Application for Payment and all supporting documentation from the Contractor, the Administrator shall:
The Contract Document describe (5) five reasons the Owner and/or Architect may recommend withholding payment from the Contractor. If these conditions exist, in whole or in part, the Administrator must advise the Owner and/or Architect of the situations and request that he make the recommendation to withhold payment. The basic premise to follow in processing the Application for Payment is that enough money remain in the Contract Sum to ensure that the project could be completed by another Contractor for the remaining funds should the original Contractor default. In the event that payments are withheld for defective work, the Administrator shall recommend that the Owner and/or Architect withhold (3) three times the value of the defective work. The normal 10% retainage is not to be considered as sufficient retainage to cover deficient work. Amounts must be withheld in addition to the normal retainage should deficient work be discovered. The normal retainage specifically covers defects which are not observed and may be discovered at a later date. The retainage ensures that adequate funds are available to make corrections to these defects. If an error is discovered in the formal Application for Payment, the entire Application for Payment must be returned to the Contractor accompanied by a letter from the Administrator explaining the reason for rejection and requesting that the Application for Payment be corrected and resubmitted. When the formal Application for Payment is correct and properly certified by the Owner and/or Architect, the Administrator will ensure that a copy of the Application for Payment is directed to the Central File System. The Construction Change Directive is not formally accepted by all Owners. Contracts utilizing the 1978 version of the General Conditions do not address the Construction Change Directive at all, however, since it is a part of the AIA General Conditions of the Contract for Construction (1987 Edition) it has been included in this manual for your informational use. In most cases, changes in the Contract Sum or Contract Time may be handled by the issuance of a Proposal Request and subsequent preparation of a Change Order. 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 and stating a proposed basis for adjustment, if any, to the Contract Sum or Contract Time, or both (See Figure 1-13). The Owner may, by issuance of the 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. A Construction Change Directive shall be used in the absence of total agreement on terms of a Change Order. If the Construction Change Directive provides for an adjustment to the Contract Sum, the adjustment shall be based on one of the following methods:
If none of the above methods for establishing the proper adjustment to the Contract Sum are acceptable to the Contractor, the method for adjustment of the Contract Sum shall be determined by the Owner and/or Architect on the basis of reasonable expenditures and savings of those performing the work attributable to the change, including, in the case of an increase to the Contract Sum, a reasonable allowance for overhead and profit. In such a case, the Contractor shall furnish to the Owner and/or Architect, an itemized accounting of the additional costs involved in the change, together with all substantiating documentation. Prior to the commencement of construction, a set of Contract Documents should be submitted to the construction testing agency for their review. The testing agency should provide a copy of their current rate schedule for such test work and a budget estimate for the particular project for the Owner's review and information. After the Owner's acceptance and approval, the Owner and/or Architect will authorize the testing agency to proceed, in writing, prior to any testing performed. The Administrator will review the billing with the Owner and/or Architect and transmit the bill to the Owner for payment. It shall be the Contractor's responsibility to coordinate and schedule all testing activities for the project. The testing agency shall provide test reports within 48 hours to the Architect, designated engineering consultants, Contractor, and Owner. The Administrator will act immediately, in writing, in response to any test reports which indicate that the work does not conform to the Contract Documents. Since the Contractor is responsible for the construction means and methods, it is the Contractor's responsibility to propose a method to correct construction deficiencies. It is the Owner and/or Architect's responsibility to review and act on the Contractor's proposal. ARCHITECT'S SUPPLEMENTAL INSTRUCTIONS (ASI's) The Administrator will prepare and issue an Architect's Supplemental Instruction for any additional work which is not included in the Contract Documents and will not increase the Contract Sum or extend the Contract Time. The Architect's Supplemental Instruction (See Figure 1- 14) will be consecutively numbered and recorded in the Project Log Book. The Administrator may prepare the Architect's Supplemental Instruction for the Owner and/or Architect's signature. The Administrator is encouraged to attempt to resolve small incidental items by means of the Architect' s Supplemental Instruction whenever possible. The Architect's Supplemental Instruction shall be forwarded to the Contractor for signature as an acknowledgment that the work described will not change the Contract Sum or Contract Time. When changes to the Contract Documents are needed or desired, which involve a substantial change to the Contract Sum or Contract Time, the Administrator will prepare and issue a Proposal Request using AIA Document G709. (See Figure 1- 15) The Proposal Request will be recorded in the Project Log Book and issued a consecutive number. The Proposal Request Summary Sheet will be located at the beginning of the Project Log Book section for Proposal Requests. The Administrator will issue the Proposal Request using the following procedure:
When the Owner's review of the Proposal Request is complete and approval for the Change Order obtained, the Administrator shall prepare a Change Order, as provided in the Contract Documents, utilizing AIA Document G701. (See Figure 1-17) The Change Order will be prepared in (3) three copies and forwarded to the Contractor for signature. The Contractor's signature on the Change order acknowledges that he will complete the work described in the Change Order for the stated amount in the Change Order. Additional time, if any, required for the Change Order work will be included in the Change Order. Failure by the Contractor to request additional days for the Change Order work will prohibit the Contractor from requesting additional time extensions related to the Change order work at a later date. Following the Contractor's signature of the Change Order all (3) three copies will be returned to the Administrator for the Owner and/or Architect's signature and certification. The Change Order will then be transmitted to the Owner for final signature and distribution. The Owner, Contractor and Owner and/or Architect will receive (1) one signed and certified copy of the Change Order for their records. The Change Order will then be included in the next monthly Application for Payment. The Change Order will be recorded in the Project Log Book and a copy of the Change Order included in the Log Book. A copy of the Change Order will also be directed to the Central File System. Some owner's prefer to pay for Change Orders separate from the Application for Payment. The Contractor may request assurance that the owner has adequate funds to pay for the Change Order before executing the work. Financing and lending institutions generally require that all Change Orders be processed through their office before executing the work. Contractor's Performance and Payment Bond, and Builder's Risk Insurance must be adjusted to reflect substantial changes to the Contract Sum. The Contractor is obligated to execute any Change Order authorized by the Owner even if there is a dispute regarding the actual cost of the Change Order work or it's impact on the Project Schedule. These matters can be resolved by exercising other provisions included in the Contract Documents. During the course of the construction process the Contractor may request an extension in the contract time for one of the following reasons:
The Administrator shall carefully review the contract for the definition of items which constitute a legitimate time extension. For a situation to be considered a legitimate extension in the contract time, it must be absolutely beyond the control the Contractor. Remember that the Contractor may choose to be the broker of construction services, but he is still responsible for the building schedule. It is not unreasonable to require the Contractor to resolve a scheduling problem with a subcontractor or material supplier by replacing them with another company. When time extensions are requested because of late material shipments, the contractor should be asked to furnish verification of the original date of which the material order was placed. In most cases, the Contractor or the subcontractor, did not place the order in sufficient time to ensure the delivery of the material on schedule. The most common request for time extensions is for bad weather. The Contractor must make allow for a normal amount of bad weather in his schedule. Time extensions are granted only for abnormally bad weather, defined as weather which was both detrimental to construction activities and more frequent than usually experienced during that time of year. On the last day of each month, the local newspaper generally publishes weather statistics which can be used to evaluate the weather conditions experienced during the previous month in comparison with the statistical average. Except in unusual circumstances, it is a good idea to attempt to retain all time extension requests until the end of the project. Although the Contractor may have experienced abnormally bad weather during one month, he may have benefited from several months of abnormally good weather. It is important to remember that bad weather during certain phases of construction can affect the construction schedule more adversely than good weather can benefit the construction schedule during other phases. The Contractor is required by the Construction Documents to notify the Owner and/or Architect of any potential claim for additional time, due to delay, within twenty days of the commencement of the delay. When reviewing claims for time extensions, the Contractors daily log should be reviewed to verify that the bad weather occurred and that lost time for that period was actually experience by the Contractor.
MANAGING PROFESSIONAL LIABILITY We are presently witnessing what some people term a " litigation explosion." In this environment, the private practice of a Administrator can be particularly vulnerable, because of the damage that even an unfounded lawsuit can do to reputation and financial stability. What steps can the Administrator take to minimize his risks to litigation? We will begin by looking at the five major areas of the interaction between the Administrator and the other members of the project team. These are the areas where the Administrator can do the most to protect himself from liability:
The purpose for this discussion is to provide a solid understanding of the basic reasons claims and litigation occur, and the best methods to either prevent or deal with those claims. The success of any advise depends upon its implementation. Your loss prevention and business management efforts can not only reduce damaging claims, but will result in a more profitable operation as well. I. PROFESSIONALISM It take more than an education in engineering science or architecture to be a true Administrator. While "design", of course, means work in a conceptually, visually and structurally oriented business, "professional" implies a higher level of performance, commitment and knowledge than most people possess. Design programs at the University level should be restructured to reflect the current conditions of the design profession and its real opportunities and responsibilities. Students should develop the ability to analyze, synthesize, evaluate, choose and implement corrections to the problems which arise during the project. The first people truly considered professionals were lawyers, physicians, clergymen. Disciplines such as architecture and engineering slowly joined the ranks of the professionals through legal statues establishing minimum standards and hard-won public acceptance. The average person may see his lawyer or doctor many times each year and therefore is reasonably aware of the scope of services provided by each of these professionals. Not so with the architect, the average person may only deal with an architect once or twice in his entire lifetime. This lack of familiarity between the Administrator and his client could lead to unreasonable expectations on the part of the client. For this reason the Administrator should be comprehensive when explaining the nature and scope of all services to be provided, with special emphasis on services which are not provided but could be necessary. Design professionals are highly vulnerable to claims from clients, owners and users. This vulnerability stems partly from failure by some architects and engineers to understand the demands of professionalism. Design professionals must be above reproach in every aspect of dealings with others and in the management of the firm. This will not only prevent claims but also attract clients. II. WORKING WITH OTHERS Litigation of any type results from a breakdown in understanding between the parties involved, either in the communication of the professional endeavor itself (the contract documents) or in the practical working communications between the Administrator and others on the construction scene. Minor disputes are cumulative. They build up to a final breakdown. When the final straw occurs, serious but otherwise forgivable errors can result in litigation. Efforts to maintain an atmosphere of trust and cooperation between the Administrator and the builder are rewarded in this scenario. Communication failures are often at the center of lawsuits. When this happens, the courts are called upon to decide what was communicated based upon case law. The plaintiff's attorney will build their case utilizing the Dictionary of Words and Phrases (West Publishing, 1971, 1987-88 ppt.) This comprehensive dictionary contains 100 volumes each consisting of 700 pages, a total of 70,000 pages of definition. Some words require considerably more definition than others, the word "final" for example, accounts for a mere 500 pages. Clearly a word to avoid in your communications. Dangerous words can be categorized into three basic groups:
These words should be avoided, and if not possible the content of phrases containing these words should be reviewed very carefully. Design professionals may need to concentrate more than most professionals on maintaining good relationships with colleagues and co-workers. They often work with highly complicated concepts on very expensive projects. When the stakes are this high, they need the extra advantage that a professional image, a level head and solid training in crisis management provide. It is these attributes that separate the superior Administrator from the rest. III. BUSINESS PROCEDURES It is extremely important to know who your client is, and what kind of business he runs, before agreeing to perform work. Discover the answers to these questions:
These questions should be thoroughly review and answered, even if the answer indicates that the client should be avoided. Design professionals need to choose their clients, their projects and their personnel carefully to protect themselves from costly professional liability problems. In dealing with clients, it is critical that both the Administrator and the client be absolutely clear on the contractual provisions that govern their working relationship, and on what their job-related obligations are. Signing a contract without careful analysis can result in serious problems. Also important to remember, is that your personnel are your most valuable asset. When you select them carefully, set high standards for them, provide clear direction and treat them fairly, they will reward you by helping your firm grow and prosper. IV. TECHNICAL PROCEDURES Obviously, technical mistakes cause embarrassment and cost time and money, more importantly they can cost lives. The true professional regards checking aids, handbooks and other sources of information enthusiastically - not resentfully -recognizing that anything that produces a better final product has great value. A design manual should be created and utilized for each project. The manual should contain check lists for each stage of the drawing and specification development. The manual should be considered a dynamic documents and should be updated and include notes for improvement for product and/or services for the next project. Owner's expectations are that the Architect will render a perfect set of design and contract documents. Design professionals know this is a virtual impossibility, but hesitate to discuss the potential of errors and omissions with the client. This discussion must take place, for the design professionals protection. An acceptable method for dealing with errors and omissions should be worked out between the Owner and the design professional in advance. The client should also be advised of the increased potential for errors, omissions, and concealed conditions, which are inherent to certain types of construction, ie. renovation, fast-track. The potential for errors and omissions is always present in design work. The prudent Administrator, therefore, provides himself with "safety nets" to make sure mistakes are corrected before they cause major difficulties. Checklists are very valuable, as is construction review. However, perhaps the most important thing the Administrator can do to control professional liability in this area is to reach a clear understanding with his client that errors will occur, and that you will work together to correct them in a timely manner.
THE PAYMENT AND PERFORMANCE BOND The most treacherous phase of the delivery of a new project is the actual construction. The construction phase, due to the infinite number of inherent risks associated the activity, towers over the other phases of the project delivery when it comes to claims, failures, problems and ultimately defaults. The Administrator must be painfully aware of not only the Owner's rights under the Contract but also the obligations necessary to protect those rights. Should the Administrator, while acting as the Owner's agent in the Administration of the new project, fail to properly ensure the rights of the Owner through negligence of the requirements, incorrect documentation or the untimely issuance of notice, the Administrator may certainly expect the Owner to hold him responsible for all loses both morally and financially. No other situation holds more potential for this devastating scenario then the default of the Contractor during the construction of the project. For this reason, the successful Administrator must exercise both caution and diligence while reviewing the types of Payment and Performance Bonds required by the Contract. The easiest method of protection is to specify the standard AIA Bond forms A312 (Performance and Performance Bonds), these documents are not only respected by the Surety industry, but have been thoroughly tested and generally upheld through the judicial process. While the Payment and Performance Bonds offer the Owner the ultimate in protection against countless scenarios of Contractor default, subcontractor non-payment, material or supplier non-payment and liens, the Administrator must recognize the Surety and its agents for what they are and not what he wishes them to be. By the time the Surety becomes involved in a construction project, the relationships between the Owner, Contractor and Administrator may be very strained to say the least. The Administrator that believes the Surety to be a deep pocketed, sympathetic benefactor that rolls on to the project doling out money to those who deserve it most, just because there is a Payment and Performance Bond, is in for a startling realization the first time he dashes headlong through the gauntlet of Contractor default or major claim litigation. At this time he will come to know the Surety and its agents for what they are, extremely sharp and intelligent businessmen who will live up to all obligations and responsibilities under the bonds, provided all aspects of the default, are in fact, the Contractor's responsibility. Where the Surety is relieved from their obligations, in whole or in part, by the erroneous actions of the Administrator or the improper actions of the Owner, the Surety may be expected to mitigate their losses to every extent possible under the law. As previously stated, these gentlemen are extremely sharp businessmen, a uniquely hybrid blend of insurance salesman, accountant and attorney with just a dash of prestidigitator thrown in to help with the strategically placed magic trick. The Surety and its agents can be the most formidable of adversaries or the most gracious of financial saviors, depending upon the particular situations involved and the ultimate causes for their involvement in the project. The statements and opinions expressed herein reflect the general attitude of the Surety and its posture when confronted with differing construction situations. Be aware, that these opinions are generic and are not legal advise. The Administrator must read and become familiar with the wording and requirements of each type of Bond, for as every project is unique so is every situation involving the Surety. There can be no substitute for studying the requirements of the bond to ensure that each and every action required by the Administrator is not only completed but completed within the specified time frames outlined in the Bond documents. FUNCTION OF SURETY The basic function of the Surety is to pre-qualify the Contractor for each individual project to ensure that there will be as limited an amount of problems as possible related to lack of experience with a particular type of project, lack of financial ability to complete the project and demands of other current projects on the Contractor which could detrimentally effect the successful completion of the new project. Based on the Surety's ability to pre-qualify the Contractor they are then prepared to back their decision with their own money and ultimately pay dearly for any miscalculations in their assumptions. The standard method of pre-qualification utilized by the Surety consists of the following criteria:
Like any insurance underwriter, the Surety has two major objectives when writing a bond for the Contractor. Since the Surety is a business and depends upon the bond premiums for income they sincerely want to write as many bonds as possible, however the Surety must carefully consider each project and evaluate the probability of loss vs. the possibility of loss. The successful Surety balances the risks of loss equally with the potential for premium income. No Surety could last in the industry if they were forced to pay major claims on each bond written. The premiums charged for bonding are insignificant compared to the actual dollars paid out in the event of a failure. When construction failures do occur, neither the Owner, Administrator or Surety come out ahead. The Surety industry has recovered from a state of elitist fragmentation in the 80's, the older more established companies are slowly moving away from bonding the smaller more risk prone Contractors. These Contractor are forced to utilize smaller more local companies and only involve the larger Surety when the construction value is more than the local carrier can ensure. This process seems to benefit the Contractor in two ways, by making the bond more accessible and at the same time decreasing the actual premium cost for bonding by increased competition between the local bonding companies. When a potential failure and claim is identified on the construction project the Surety will not attempt to mediate the dispute. The Surety will be the first to state that they are not construction experts, the Surety will monitor the progress of the dispute resolution and stand ready to cover all Owner costs, above the established Contract Sum, to complete the project and deliver a lien free facility to the Owner. When separate Payment and Performance bonds are established, both for the total amount of the Contract Sum, it is hypothetically possible for the Surety to be required to pay on each obligation the full Contract Sum. For this reason, the Administrator is advised to always require separate Payment and Performance bonds with separate Power of Attorney letters. When the Contractor defaults in the middle of the project, the Owner may be required to pay the Surety the remaining Contract Sum while the Surety pays the replacement Contractor to complete the project. No other scenario demonstrates the importance of the Administrator accurate monthly review of the work completed prior to certification of the Contractor's Application for Payment. If the Contractor default occurs at a point in the project where more money has been paid to the Contractor than the value of the improvements completed, the Owner may be faced with paying additional money to both complete the project and pay all outstanding debts. Again this occurs only when the total of both Payment and Performance bonds are exceeded. In summary, the function of the Surety is to pre-qualify the Contractor and make calculated judgments regarding his ability of complete the work in question, basing those judgments upon his financial status, work in progress and expertise in the particular type of construction. If successful in his task the Surety controls the growth of the Contractor and in some cases actually forces shrinkage of the Contractor when his plans for growth are unrealistic. The Surety offers two standard types of protection for the Owner in the construction process, the Payment and Performance Bonds. Each obligation covers a different potential problem which could be encountered during the construction process. The Payment bond assures the Owner that all of the qualified creditors, subcontractors and materialmen for the project will be fully paid upon completion of the work, provided the Contractor is properly paid by the Owner. To be qualified, the creditors located outside the "sphere of privity", or not in direct contract with the Owner, must file the proper Notice to Owner within the time frames outlined in the laws of the state where the project is constructed. In Florida this time frame has been established as being within forty-five days of the first furnishing of work on the project. Subcontractors, suppliers and materialmen who do not properly file the Notice to Owner will have no recourse in the event of non-payment other than through the Equity Court system. The Surety will not make payment to even legitimate creditors who has not ensured their lien rights on the project. The Performance Bond ensures the Owner that the Contractor will complete all obligations of the Contract, again provided that no action by the Owner or his agents prevents or inhibits the Contractor from the completion of the specific Contract requirements. In the event of Contractor default, the Surety will take one of the following actions:
The Surety will generally chose option #2 since the financing of the Contractor to completion may end up costing the Surety more money than simply finishing the project with another Contractor. The face value payment of the bond is another option that is usually not acceptable to the Owner. Most bonds written to the Contractor involve some sort of personal indemnity on the part of the Contractor. In the event of default the Surety will attempt to recover any moneys possible through legal action to mitigate their losses. The process of attaching personal assets to offset the losses is referred to as salvage. The Surety will readily admit that they recover little if any money in the salvage process. Due to the amounts of money at stake when defaults occur, the Surety will generally subjugate the rights of the Contractor during dispute resolution and make all attempts to either deflect the responsibility for the default or mitigate the expense of the default. The maximum mitigation of default expense is to avoid any allegations of frivolous settlement of the part of the Surety which may impact their ability to recover funds in the salvage process. The Administrator is most acutely aware and rightfully afraid of the deflection of responsibility posture. The initial reaction of the Administrator when confronted by the Surety regarding the design of the project is self-defense, this results from the Surety's ability to assign excellent lawyers and professional witnesses to a case in an attempt to redirect the responsibility for the default. At this point, there is no better defense for the Administrator then comprehensive and accurate construction documentation. EVOLUTION OF THE SURETY The Surety industry may be utilized by the Administrator as a good indicator of the current construction atmosphere. More a thermometer of the industry than a barometer, the Surety is best used to monitor the current effects of the economy on the construction industry. By monitoring the continuous defaults of small, medium and larger subcontractor, the Surety is painfully aware of the ripple effect caused by the default of the smaller subcontractors. The Surety industry has recovered fully from a devastating run of defaults which occurred between 1974 and 1980. In the six year period between 1974 and 1980 the Surety industry took in 1.2 billion dollars in bond premiums while paying out over 1.7 billion dollars in construction claims and defaults. The construction industry was severely effected during this period by high interest rates and a depressed economy. Surety companies, anticipating the continuation of a strong economy and high interest rates, competed heavily for the business of each Contractor. The lessons learned by the Surety companies during the late seventies and early eighties account for their rigid criteria for issuance and approval on bonding capacity today. REQUIREMENTS TO ENSURE BOND PROTECTION The Administrator should be aware of all requirements which are necessary to ensure the protection of the Payment and Performance bonds. As a construction expert, the Administrator's role in the administration of the construction contract requires he verify all notices are made and all prerequisites are followed by both the Owner and Contractor. This process begins with the selection of the type of bonds required for the project. The Administrator should specify standard AIA bond forms A312. Separate Payment Bond and Performance Bond with separate bond numbers and Power of Attorney offer the Owner protection equal to twice the face value of the construction project. The use of combination Payment and Performance Bonds should be avoided due to recent legal precedents which have held that the Surety was obligated to pay only the face value of the construction project through a combination of claim against both sides of the combined bond. The next precaution, exercised by the Administrator is to ensure that the Owner files the proper Notice of Commencement at the beginning of the work. This legal document, files with the Clerk of the Court, informs the subcontractors, materialmen and suppliers who is the Owner, the Surety, the Administrator and gives the legal description of the property. This information is mandatory when the subcontractors and/or materialmen attempt to file their Notice to Owner. Changes in the Florida Lien Law, effective 1/1/92, required that the Notice of Commencement be posted in a conspicuous location, adjacent to the Building Permit, prior to the first inspection or signature by the building inspector. During the course of the project the Administrator should receive copies of all Notice to Owner filed on the project. The Administrator should then require the Contractor to provide documentation with each Application for Payment showing that the qualified lienors have been properly paid. The preferred method of receiving Lien Releases is to require Full and Final Release of Liens through a particular date. The Contractor may attempt to provide Inducement Release of Liens, which may also be referred to as Conditional Lien Releases. The operable word here is "conditional", the Administrator should not accept any Release of Lien which is contingent upon events which he has no control over. Should the Contractor fail to make payment to the lienor who signed the conditional release, the release is voided and subsequently worthless. The Administrator should insist on Full and Final Releases which release Owner for any work completed through a particular date, even after listening to the Contractor's lamentful pleading to avoid being forced to fund the Release of Liens process through his own resources. Contractors who demonstrate their willingness to properly and timely make payment to their subcontractors and material suppliers will have little problem securing Full and Final Releases through the end of each payment period. The Contractors who protest the most regarding conditional lien releases, may be the ones who are reluctant to pay their subcontractor and suppliers until forced to do so. During the course of the construction project changes in the scope of work may be requested by the Owner and/or Administrator. The changes in the scope of work may or may not effect the total Contract Sum or Contract Time, in any event the Surety should be made aware of all changes in the contract which do effect the Contract Sum or Contract Time. The Surety will qualify the Contractor for the scope of work described in the bid documents, the Administrator has no way of knowing if the Contractor was qualified by the Surety as marginally qualified or extremely qualified. The Surety may not wish to extend the coverage for a particular Contractor based on his ability, capacity or other information to which the Administrator is not privileged. As part of the Change Order process, the Administrator should request and receive verification from the Surety that the Payment and Performance Bond have been increased to include the recent change in the scope of work. At the first sign of serious trouble on the construction project, the Administrator should be prepared to advise the Surety of a potential situation which may or may not evolve into a claim. The Surety is not offended by the advisement, rather they appreciate the opportunity to become involved at a time when there may still be some hope of resolution. The Surety generally believes that the earlier they become involved in a problem the greater their chances are to mitigate their losses. The Contractor, however, will not appreciate any letter copied to his Surety agent. Contractors have threatened to sue Design Professionals for merely advising the Surety of potential problems with the project. The Contractor may be at his bonding threshold and desperately requesting additional bonding capacity, an advisement of potential problem at this stage would not enhance his efforts. The Administrator should exercise caution when advising the Surety of a problem yet not be afraid to do so if situations warrant. One good way to deal with this situation is to establish a good business like relationship with the Surety agent, remember, he is there to serve not only the Contractor but the Owner. At the close of the project, the Administrator will request the single most important documents from the Surety since the bond itself, the Consent of Surety to Reduction in Retainage and the Consent of Surety to Final Payment. These documents verify that the Surety has been given adequate opportunity to review the position of all qualified lienors, suppliers and materialmen and agrees that the Contractor may be paid the remaining moneys due him under the contract. The receipt of both documents are an important part of the Administrator's close-out procedure for the project. Should the Owner reduce retainage or make final payment without the Surety's consent, and the consent is an established obligation in the bond, the Surety could use this breech of obligation to negate their responsibilities to the Owner, in whole or in part. The standard AIA bond forms do not require Consent of Surety to Retainage Reduction or Final Payment as part of the standard language, however, if these requirements are added under the modification section, they will certainly be enforceable. The final aspect of the relationship with the Surety is the advisement by the Owner or Administrator of a problem following the completion of the project. For the first year, minor warranty items are generally handled by the Contractor, but, what happens if a major problem occurs related to the installation work under the Contract. The standard bond forms require that notice to the Surety or claims made upon the Surety, must be filed within (2) two years of the completion of the project. In this case, completion of the project shall be the making of final payment to the Contractor. In the event the problem involves a latent defect, not readily observable, Florida law allows for the Owner to pursue the Contractor for a period of (5) five years. Needless to say, the Surety and the Contractor should be notified immediately in the event that problems arise with a new project.
POST-CONSTRUCTION
The date of Substantial Completion is defined in the Contract Documents (GC 8.1.3) as the date which the Owner and/or Architect will certify that the work, or designated portion of the work, may be beneficially occupied or utilized by the Owner for it's intended purpose. The actual date of Substantial Completion will be as noted on the Certificate of Substantial Completion (AIA G704). (See Figure 1-18) When the Contractor considers that the work, or designated portion of the work as previously agreed to by the Owner, is substantially complete, he will prepare and submit to the Administrator a punch list of items which remain to be completed or corrected. The failure of the Contractor to include any items on the list, will in no way alter his responsibility to complete or correct these items per the Contract Documents. Upon receipt of the Contractor's punch list the Administrator will review the list and the completed work to determine that the list is both accurate and complete. Items which require correction and/or completion, that are not included in the Contractor's list, shall be added by the Administrator. The Owner should be advised that the items on the punch list shall be corrected and/or completed within the time limit set forth in the Certificate of Substantial Completion. The Contractor shall be advised that the correction and/or completion of all punch list items shall be conducted in a manner not to adversely effect the Owner's occupancy of the facility. The term "beneficial occupancy" shall be interpreted to mean that the project or portions thereof, are complete in nature to allow the Owner to utilize the project or portions thereof, for their intended usage. The mechanical systems, life safety systems, tele-communications systems and any other systems which are required to properly utilize the project or portions thereof, shall be complete and in good working order. The remaining items to be completed shall be such that the correction does not cause inconvenience to the Owner or disruption to the Owner's normal operations. The Owner should be consulted to confirm that there are no other construction deficiencies that he may be aware of which are not on the Contractor's punch list. It is very important to emphasize that the Contractor is the person who is responsible for preparing the original punch list. If the Administrator is requested to make a Substantial Completion inspection, and it is obvious that the Contractor's punch list is not comprehensive, the inspection shall be discontinued and the Contractor advised that his list is inadequate. Prior to issuing a Certificate for Substantial Completion, the Administrator should verify that the following conditions exist:
The Certificate of Substantial Completion shall be prepared by the Administrator and certified by the Owner and/or Architect, prior to being submitted to the Owner and the Contractor for their written acceptance of the responsibilities assigned them in the Certificate. The Certificate of Substantial Completion will also establish the dates and responsibilities of the following transitional arrangements which will be required between the Owner and the Contractor: The Contractor's time limit for completing the remainder of the work per the Punch List. Establish the responsibilities of the Owner and Contractor for security, maintenance, utilities, damage to the work and insurance. Establish date for the commencement of all warranties. Upon successful execution of the Certificate for Substantial Completion the Owner may make payments which reflect adjustments in the retainage amounts as provided in the Contract Documents. The reduction in retainage shall be made with the exception of amounts which have been determined to reflect the costs for remaining work to be completed and/or work requiring correction. In these cases, the Administrator, upon consultation with the Owner and/or Architect, shall establish the value of the remaining work and suggest that the Owner retain three (3) times the value of that work. The minimum amount retained for each unacceptable item should be the estimated cost to have another Contractor brought in to complete or correct the item. This includes any costs for mobilization and/or equipment required to correct or complete any outstanding construction deficiencies. Following Substantial Completion, the Administrator shall receive from the Contractor the following items and materials which shall be collectively referred to as the Close-Out Documents:
In addition to the items listed above, the Close-out Documents shall include proof that all equipment and maintenance demonstrations required by the Contract Documents, have been successfully completed by the Contractor for the Owner's staff. Equipment demonstrations shall be scheduled by the Contractor, with the Owner given adequate notice to ensure that proper personnel may attend. The Administrator will review, and transmit to the Owner, the Close-out Documents package. The Administrator will advise the Owner and/or Architect of the Close-Out Documents received by the Contractor and transmitted to the Owner, and any outstanding items which may prevent the Owner and/or Architect from recommending that the project be closed out and Final Payment made to the Contractor. Should all prerequisites for project close-out be satisfied, the Owner and/or Architect will then recommend to the Owner in writing that the Owner make Final Payment to the Contractor. The Administrator will advise the Owner and/or Architect when all Close-Out Documents have been properly transmitted to the Owner, all required punch list work is completed and all requirements of the contract have been satisfied per the Contract Documents. The Owner and/or Architect will, upon consultation with the Administrator, recommend that the Owner make Final Payment to the Contractor. The Final Payment Request from the Contractor will be for the remainder of retainage, should the retainage have been reduced, per the Contract Documents, at Substantial Completion. The retainage represents a substantial portion of the Contractor's profit for a project, therefore the retainage is excellent insurance that the Contractor completes the punch list work, properly executes all warranties and Close-Out Documents and assembles all required record drawings and specifications per the Contract Documents. Do not reduce the retainage amount, other than any reductions provided for related to the Substantial Completion, the retainage will ultimately become the final motivation for completing any outstanding work on the project or documentation. The final responsibility of the Administrator is to advise the Owner of the date for the One -year warranty inspection. The Administrator will advise the Owner in writing of the anniversary date of the warranty and instruct the Owner in how to handle warranty work in the first year of the facilities occupation. The Owner shall be advised that any warranty work or inspection required will be charged as an additional service on the part of the Administrator. The Owner should be advised that he may elect to resolve warranty items directly with the Contractor and avoid additional service charges from the Administrator. The Administrator should also take the opportunity, in the final letter to the Owner, to request a brief evaluation of the services performed for the Owner through the construction project. The information received from the Owner regarding the services performed, should be reviewed with the Owner and/or Architect and any improvements in the Administrator's services should be incorporated into the following projects.
Send mail to
Fmozeleski@verizon.net with questions or comments about this web site.
|
