Contract documents

The administrative aspects of a project are crucial to a successful outcome. There are five crucial areas for a contractor to consider.

Producing an Accurate Construction Schedule

Owners prefer seeing activities on a construction schedule broken out in detail to gauge approximate dates for major activities. This helps their internal coordination, especially in a manufacturing or industrial facility where the owner’s employees must shut down lines for the contractor to perform work and make tie-ins. A detailed schedule also aids the contractor in organizing its work and supporting its progress payments.

A detailed construction schedule should provide an orderly sequence of the work within the allotted contract time and include the following important dates:

•       a date for commencement of the work (this could be the date of the contract, a date set forth in the Notice to Proceed, or another date that the parties select),

•       interim milestone dates, and

•       Substantial Completion. (The construction contract should designate whether Substantial Completion is the number of calendar days from commencement of the work or a date certain. Substantial Completion can also be defined by portions of the work.)

Be sure to revise the schedule as project conditions dictate, apportion work by construction activity, and account for the time required to complete each portion of the work.

Schedule of Values

For Fixed Price or Guaranteed Maximum Price contracts, the contractor will likely be required to submit its Schedule of Values before the first payment application. A Schedule of Values allocates the entire contract sum to various portions of the work that are detailed in the construction schedule. It is then used as a basis for reviewing the contractor’s monthly payment applications.  The contractor should show the percentage of completion for each activity as of the end of the period covered by the payment application. Any change to the Schedule of Values should be supported by data to substantiate accuracy.

Prior to submitting the actual payment application, it is a good practice to submit an itemized draft payment application about a week in advance that assigns the percentage of work (and corresponding dollar value) projected to be complete by the actual submission date. Also account for any retainage.

On many projects, an owner will require its contractor to provide an Affidavit of Payment and/or a Release of Liens form with each payment application. The executed forms are the contractor’s affirmation that it has received payment, and in turn, paid all employees, subcontractors, suppliers, and any others with whom it contracted and who performed work or provided equipment and materials through a specified date. An owner may require the contractor to obtain similar documentation from each of its subcontractors and suppliers to ensure that they will not file a lien, security interest, or claim against the contractor, owner, or the owner’s lender for unpaid amounts.

Submittals

The purpose of submittals is to illustrate how the contractor intends to implement the design. Prior to sending a submittal to an architect/engineer for review, a contractor should develop a submittal schedule – a list by specification section plus chronological numbering, as well as a name of the item required by the specifications.  It is key to include the submittal schedule on the construction schedule to account for submission dates, a review period, and correlation with installation. Additionally, always submit submittals in accordance with the approved submittal schedule to avoid delays to your work, the owner’s activities, or any work being performed by the owner’s other contractors. By submitting shop drawings, product data, and samples, the contractor represents that it (1) reviewed and approved them, (2) determined they are consistent with other materials, measurements, and field construction criteria, and (3) checked and coordinated information in the submittals with the contract documents.

A contractor should not proceed with performing any work that depends on approval of a submittal when that approval is outstanding. If a submittal has been returned for correction and resubmission, it’s likely that the architect/engineer will only check previously noted items to see if they have been corrected. When resubmitting a submittal that contains changes the architect/engineer wouldn’t be looking for, be sure to call attention to that in your resubmittal.  Don’t assume that it will be seen and that the entire submittal will be re-reviewed.  For Informational submittals, the architect/engineer is not expected to take responsive action.

RFIs

Any time after contract award and before final completion, it may be necessary for a contractor to submit a Request for Information, or RFI, in writing to the architect/engineer to obtain clarification on how to proceed to with the construction of an element of the project. The need to submit an RFI may result from any of several things including discovering an error, omission, or inconsistency in the specifications or drawings. The architect/engineer will review the RFI within the time allotted by the contract and provide a written response with clarification or direction on how to proceed. If needed, the architect/engineer will prepare and issue supplemental Specifications and/or Drawings.

Changes

Changes to the work can be issued as a change order, construction change directive, or minor change.

A change order requires agreement among the owner, architect/engineer, and contractor. The change order describes the change to the work; any increase or decrease in cost; and any increase or decrease in the contract time. When determining a cost increase or decrease, it is appropriate to include overhead and profit. Note that, even if the contract sum or time remain unchanged, this fact should be recorded by indicating a “no net change” on the change order. This helps avoid disputes as to whether an adjustment to the contract sum or time was intended, particularly if such changes were suggested by the contractor.

A construction change directive, or CCD, may be used when there is limited time to implement the changed Work or disagreement regarding costs and time. With a CCD, there only needs to be agreement by the owner. When the parties agree on a cost and/or time adjustment, a change order is then issued. If the parties can only agree on a cost and time for a portion of the work under the CCD, a change order can be issued for that portion.  When those amounts are settled and a portion of that work is complete, payment can be requested.

A minor change in the work can be issued by the architect/engineer alone.  Minor changes do not carry a cost or time increase or decrease.

AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.