In of this article, published in late April, we discussed the performance risk and time risk involved with construction and design contracts, and in Part II, we will cover cost risk and political risk.

Cost Risk

School budgets are limited for many reasons, and the construction budget is no exception. As a result, contracts should guard against unwarranted cost increases and claims. In the absence of a written change order signed by the appropriate officer, the contract should absolutely prohibit additional compensation for changes in the work. It should forbid claims for all events except those within the school authority’s sole control. Even for permitted claims, the contractor must provide written notice so that the authority might alleviate the problem and control its costs. To encourage the contractor to limit costs and claims, the contract could include a shared-savings clause, which grants an incentive payment for completion within the budget.

Political Risks

School authorities generally are political bodies that must respond to the wishes of voters and taxpayers. So they ignore political risks at their peril. While in all cases, the authority must follow any competitive-solicitation requirements, there are some instances in which they can or must give preference to local bidders. To the extent local bidders are awarded a contract, the bid or proposal and final contract should require affirmative representation that the contractor or designer qualifies for any such preference and will, to the extent permitted or required, use local goods and services.

Constituents also prefer designers and contractors that are good corporate citizens. As such, solicitation documents and contracts could include affirmative representations that they will pay all taxes, comply with all laws, and satisfy all applicable DBE requirements. In some parts of the county, political risk includes the use of undocumented workers on the project. Some public works projects have been doomed by bad press when undocumented workers are discovered working on the site. When applicable, the contract could include provisions regarding undocumented workers, including E-Verify requirements.

Many authorities are able to generate goodwill with their constituents by engaging in energy savings performance contracting (EPSC), which is a method of procurement that is paid for by energy savings or revenue enhancements resulting from the project. These savings and enhancements are guaranteed by the contractor. Constituents appreciate the budget-neutral and environmentally friendly aspect of ESPCs.

Lastly, since there is no way to predict when politics will negatively impact a project, the school authority should have an off ramp — a termination-for-convenience clause. When permitted by law, this clause allows the authority to terminate a contract for any reason or no reason.

Experienced facilities managers know that problems will arise on a construction project. They also know that one of the best defenses is a good contract. But a good contract is not one pulled off the shelf; it is crafted and fine-tuned by experience and a deep understanding of the authority’s goals and its constituents’ wishes. It incorporates all constitutional, statutory, and regulatory mandates applicable to school authorities. It balances the one-sided provisions of many industry form contracts and those proffered by designers and contractors. Finally, it provides just the right amount of incentives and deterrents to promote a timely, cost-efficient and high-quality project.

David R. Cook is a partner at the Atlanta-based law firm, . He practices in the firm’s construction law group, representing specialty contractors in connection with their contract negotiation and drafting, commercial and corporate transactions, and dispute resolution, litigation and arbitration of construction claims.  

The post Part II: Key Provisions of School Facility Construction & Design Contracts appeared first on ÐÓ°ÉÔ­°æÒ•îl.

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We all expect our school construction projects will go smoothly, on time and under budget. But despite our best efforts, some projects will encounter speed bumps, detours or outright roadblocks. While there are many precautions a school facility manager may take, one of the best precautions is to have solid construction and design contracts.

A good contract will account for the known risks and specify an outcome in favor of the school authority. School construction risks can be categorized into a few categories: performance risk, time risk, cost risk and political risk. Some risks are typical to all construction projects, while others are peculiar to the unique needs of school authorities.

At the outset, it should be noted that contracts provide protection only when they are enforceable. As a result, school facility managers must ensure proper formalities are followed for bidding, procurement and contracting. Failure to follow these requirements could render the contract unenforceable, and the school authority may be unable to recover from the other party or its surety.

In Part I of this article, we will discuss the performance risk and time risk categories, and in Part II, we will cover cost risk and political risk.

Performance Risks

Performance risk arises from a contractor or designer’s failure to properly perform their obligations. These risks can include:

• The designer’s failure to create plans and specifications that incorporate the facility manager’s project concept
• Faulty, incomplete, uncoordinated or inadequate plans and specifications
• The designer’s failure to incorporate mandatory requirements of laws, regulations and building codes, including particularly any state or federal administrative requirements for funding and disability laws
• The designer’s failure to inspect the work for defects
• The contractor’s failure to follow plans and specifications
• The contractor’s faulty or negligent work

Certain provisions of construction and design contracts can minimize performance risks. For example, the design contract should clearly express the school authority’s wishes for conceptual design, offer the facility manager multiple opportunities for reviewing the design, expressly require the designer to incorporate all legal requirements and clearly designate the designer’s responsibility for inspecting the work. Due to the importance of these obligations for project success, the design contract should not unduly limit the designer’s liability.

The construction contract should require strict compliance with the plans and specifications and should grant the facility manager and others the right to observe the work at any time. The contract should include a warranty that the work will be performed with good workmanship and compliant materials. (However, this warranty should expressly not be the school authority’s sole remedy for defective or non-compliant work.) If defects are suspected, the facility manager should have the authority to suspend the work for further observation. If defects are discovered, the contractor should be required to remedy them without additional compensation. If it fails to do so, the contract should permit the school authority to terminate the contract for cause, direct the performance bond surety to perform and remedy all defaults, and enforce other remedies.

In the event of a faulty design, the contractor may seek additional compensation based on a theory that the school authority implicitly warranted that the design was adequate (known as the Spearin Doctrine). To counteract such a claim, the construction contract should expressly disclaim any warranty concerning the design. Though, it should be noted that some states are reluctant to enforce such clauses, so the design contract should require the designer to indemnify the authority for Spearin claims.

Time Risk

Another important risk is delay in project completion. Because schools must adhere to a pre-set school calendar and they typically have limited alternate space, delays are particularly disruptive. As a result, contracts should expressly set the time for completion and could establish interim milestone deadlines. They should require the contractor to provide an initial schedule with periodic updates, both of which should be based on sound scheduling logic. These updates, if accurate, will alert the school authority of delayed completion and the need to secure alternative facilities.

To encourage timely completion, contracts could impose liquidated damages for delays and provide an incentive payment for early completion. They should address time extensions, but ultimately give the school authority the right to accelerate the work to ensure timely completion before summer ends. Lastly, if the contractor believes it has encountered a delay for any reason, the contract should require timely notice to the school authority so it can address the underlying problem and limit delays.

Stay tuned for Part II of this article to be published in the coming months.

David R. Cook is a partner at the Atlanta-based law firm, . He practices in the firm’s construction law group, representing specialty contractors in connection with their contract negotiation and drafting, commercial and corporate transactions, and dispute resolution, litigation and arbitration of construction claims.  

The post Part I: Key Provisions of School Facility Construction & Design Contracts appeared first on ÐÓ°ÉÔ­°æÒ•îl.

The post Part I: Key Provisions of School Facility Construction & Design Contracts appeared first on ÐÓ°ÉÔ­°æÒ•îl.