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ConstructionPro Week, Volume: Construction Advisor Today - Issue: 123 - 09/02/2011

Owners Try to Have it Both Ways with Project Representations

Construction contract documents frequently contain a contradiction. The project owner and design professional include a number of affirmative representations regarding the job site and the nature of the work. This information is intended not only to inform bidders, but to encourage tight, competitive pricing which will benefit the owner.

 

The contradiction arises when the documents go on to disclaim the accuracy of this information. It is provided for general background purposes only; it can’t be relied on; bidders are responsible for making their own independent assessment; etcetera.

 

On a recent federal project, a contract of this nature was construed against the government. The contractor was entitled to rely on an affirmative representation notwithstanding the broad exculpatory language that accompanied it. But this contractor was fortunate. The government had omitted the standard Site Investigation clause. The contractor had not been obligated to conduct a pre-bid site inspection which might have alerted the contractor to the inaccuracy of the government’s information.

 

What is your opinion regarding contract language of this nature? Does it make sense for owners and designers to make affirmative representations while disclaiming responsibility for those representations? Where do contractors stand when faced with this contradictory language? I welcome your comments.

 

Featured in Next Week’s Construction Claims Advisor:

  • “Pay-if-Paid” Clause Modified by Claim Liquidation Provision
  • State Had No Recourse after Final Acceptance
  • Limited Repair Warranty Not Expanded by Broad Subcontract Language

 

 

Comments

In the case of our Architectural firm, the exculpatory language is a necessity for a simple reason:If the Owner wantes full, detailed and rock-solid specifications that eliminate interpretation and wiggle room (ensuring consistency in bidding), they need to pay for that.

Detailed Specifications are time-consuming and a substantial portion of design time costing. As such, Owners are willing to forgo paying us and instead 'hope' that either (A) nothing goes wrong, or (B) that the problem can be worked out in the field at 'no cost' to them.

Clever GCs know where these 'loopholes' are and skillfully exploit them, as they allow for initial underbidding that can be recouped later thru Change Order and blamed on the design folks.

This is nothing new, of course, and occurs in both good markets or bad. We hear the same thing from Owners now in a genuinely 'bad' market that we heard at the top of the market - "more, better, faster cheaper".

P.-

I think the owners have a right to demand that all bidders visit the site. Having said that, the best way to handle something like this question is to look at who should bear the risk. I have always felt that if the architect/engineer makes a representation, that should be the final word. Asking a contractor to visit a site is not the same as giving him a structural design based on borings and hold him responsible if the soil in one spot proves poorer than the plans anticipate.

If this is going to be the case, contractors will have to put in massive contingencies and that will drive up the cost of construction, for the most part needlessly, when it is likely that the architect and engineer were correct.

In my mind, the owener should be responsible for the architect and engineer, who in turn carry insurance. The owner alone should cover unforseen conditions, and the contractors should be responsible for the means and methods of construction.

Contracts are written to protect against the incompetent and dishonest. Unfortunately, it is more often used as a tool for dishonesty and incompetency.

The two previous posts are excellent. They come from reasonable, fair-minded folks. Unfortunately, not everyone is fair-minded. Some people are in business only for money and power. Two cases that should have had better contracts: 
1. A senior engineer who taught me some of my first real engineering lost his retirement fund defending himself in a lawsuit filed by a wine grower. He designed some tilt-up walls. The walls were perfect. However, the contractor who leveled the floor created very subtle waves, which caused the bottles on forklifts to rattle. The owner sued everyone involved to recoup lost production because the forklift drivers had to move very slowly not to break bottles. 
2. A local firm designed a milking farm in Utah. It was innovative and amazing. The owner asked for more and more projects to be completed by this principal, who flew several times to Utah, met government officials, and developed specific processes to manage water on the dairy. When all was complete, the owner refused to pay for the additional jobs, claiming they were never "contracted". The local principal forgave it. However, years later, the Utah owner wanted to sell. In order to remove his liabilities (he had not payed virtually everyone, including GCs), he sued everyone to whom he owed money, claiming problems. Several months into his court action, he sent out offers to drop all litigation in exchange for a waiver of any claimed debts.

So, proper wording is necessary, not just to be clear on what is provided, but to protect oneself from the greed and corruption of others. It's simple wisdom.

This not only happens with the architects but also the engineers which I cannot understand. How can we bid a job when all of the specs cannot be fully understood.

It is almost like the are trying to pass the design responsibility off on the contractor.

IF you think us so called clever contractors recoup on change orders, i hate change orders and almost always LOSE money on them by the time you figure paperwork and delays not to mention set markups on change orders.

On a public project the design professional should be responsible for all of the design and not be able to pass off responsibility on the contractor, if the plans and specs are followed.

They bid to get the design job, and then in my opinion try and do the cheapest plans and specs possible and pass some of the design work off on the contractor.

It is like the submittals, why does the contractor have to get all of the information for products that were picked out by the designer. don't they know what they spec'ed out?

I wish everything i did was design-build, negotiated contract, but that is not the way the business works.

I do agree with the comment about the owners, Better ,Faster, and Cheaper. the problem with that is you only can have 2 of them.

Which 2 do you want???? LOL

The discussion seems to have moved away from the original topic some. In the site survey and existing conditions information that we provide, we try to be as accurate as possible. And when we gathered that information it may have been more accurate than it is at bid time, which might be a few months to over a year later. Or something might change about the same time drawings were sent out.

Maybe the site has changed, maybe an unhappy neighbor removed a property corner, maybe an old house shown on the survey has been burned and removed as part of a local fire department program, maybe an owner has just unknowingly bulldozed a designated wetlands, any variety of things could have happened.

All of the above are true events that we have had to deal with. None of these discrepancies were intentionally malicious on our part or the owner's part, but things happen. It seems like good common sense and prudent business sense that a contractor will want to see the building or site that his bid is dependent on. I would never prepare a proposal for A/E services without having first hand knowledge of the site or building involved.

We are a sign company, so our work is just a tiny drop in the bucket to everyone else, but obviously impacts us, 100 percent. Unfortunately, due to the ADA, which we do support, architectural sign systems right down to the smallest room ID sign are now part of construction contracts, especially for public works. We are the square pegs! We are held to the same boiler plate contract. How can inspecting the site prior to the bid tell us anything? Our sign installation can become twice as lengthy because of details and acts by other trades that do not show up on plans, and certainly aren't visible either on a piece of bare land, or even in a building that's going to be remodeled. Further, we are supposed to be following the codes and law (the ADA is really both), but the architect usually knows nothing of the very tiny details in the sign standards, but the contract makes him or her the final arbiter. We get held up for weeks and costs us untold dollars, because every correction requires an expensive RFI and a long wait for an answer from someone who doesn't actually know the answer. To do a job correctly almost always will require change orders and construction directives. There may be no money attached because the correct way won't be more expensive, but it still costs us time -- and that's money.

Profit is ethical because it involves risk... The owner may want to lessen his risk by having more costs involved in the planning and investigation thus lowering his profit. Designers and contractors must be aware of the risks they are assuming when they go to contact and ensure the profit is in line with the risk.

Knowing this, it seems right that the owner would bear as much of his risk upfront in hiring clear plans, since this should give the cheapest costs to build. Problem is there is a vast willingness to 'gamble' and owners that know this, know that they can save money on development and increase their profits. Their into the mix hat most contractors think estimates are free, not just to get but to give and you get ambiguous plans and conttacts.

It's a strange thing that some Owners think it's better to pay for for a lawyer to draft contract clauses that try to transfer the burden of managing risks than pay to manage it themselves. The transfer of risks associated with geotechnical issues is an illusion. Owners evacuate one risk and create another one for themselves, the risk of contractors failing to successfully manage them. For private Owners immersed in risk-reward businesses, maybe they think it is an easier risk to manage (with the help of the same lawyer). For public Owners, this is ethically indefensible : failing contractors mean failing buildings and failing public capital investment.

The goal should be "biddable documents". This is easier said than done. However, it would be nice if the A/E's avoided "gotcha notes" whether on the drawings or worse, buried in the specifications. This is not a good way to shift risk to the contractor and tends to go hand in hand with poor document quality, in my experience.

 

 

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