General Contractor should not rely on the Owner’s contract to define the terms and obligations between the Contractor and his subcontractors. Rather, the GC should specifically state any and all of their sub-contractor terms (including payment obligations) independently of the Owner’s obligations to the GC. The Contractor should adhere to those terms independent of what may or may not be happening between the Contractor and the Owner.
Typically I try to announce speaking engagements in advance, but as you know, I’ve been a little off from my normal routines lately.
Regardless, I recently participate in a virtual event hosted by Worldwide Business Research (WBR) creators of the ProcureCon series.
The event was hosted and moderated by Ryan Kulp (Program Director for ProcureCon Facilities). The three hour event included panel discussions, presentations, and fireside chats with 9 leaders in Facilities Procurement.
The segment I participated in was a fireside chat between Ryan, myself and my friend and colleague Michael Beauregard.
In an article posted on Lexology by the law firm of Gordon Rees Scully Mansukhani, Brenda Radmacher a partner and construction law expert writes about the new jobsite safety measures that Companies will have to observe in light of COVID-19.
Radmacher does a great job of identifying the new norms, both on and off the jobsite, Workers will need to observe in order to avoid spreading the disease.
Some of these new norms are common widespread recommendations such as washing hands and observing social distancing, but some are very specific to construction and some are likely to impact costs and schedules.
I recommend reading Radmacher’s article, but I wanted to address a few specific recommendations.
Ever since the CoronaVirus landed on the United States it’s impact has been uncertain. Having witnessed the impact it had in China, we collectively braced for impact, but I don’t think anyone thought it would have the effect that it has.
Two week’s ago, I reported that New York, New Jersey, and Pennsylvania had been placed under lock-down by the Governor’s of each state. Since then several states have followed suit.
According to Business Insider.com 36 states plus Washington DC and Puerto Rico are under stay-at-home orders.
A federal directive has yet to be issued as the number of infected persons in the US reaches over 300,000 cases.
Each of the 36 states have generally ordered everyone to stay home and avoid physical contact by observing social distancing of 6 feet or more. All gatherings of 50 or more have been cancelled and areas where people typically congregate like beaches and state parks have been closed. I have heard some anecdotal stories of police breaking up “Corona Parties” of 50 or more people defying the order.
For the most part, businesses have been shuttered and over 3 Million people have filed for unemployment, but some businesses have been allowed to continue operations.
Businesses that can operate remotely and businesses deemed “essential” have been allowed to remain open, but determining whether a business is “essential” has proven to be more difficult than expected.
The construction sector has had an especially difficult time determining how to proceed. This is due in part because of the disparity from state to state and a lack of a federal mandate.
If you have been reading this blog consistently for the past few weeks, you probably were expecting this week’s article to be the fourth and final installment detailing my talk from the ProcureCon Conference this past January.
That article will publish next week. Given the massive impact the Corona virus has had on our lives globally, I could not go on with this blog without addressing it.
So this week, we will talk about the impact the virus could have on ongoing bids and active projects.
Over the last two weeks we have been exploring collaborative agreements.
Two weeks ago, I gave you a brief overview of the difference between the AIA’s two collaborative delivery contract models. Last week, I shared some of the most pivotal clauses that shift the relationship of the parties from adversaries to collaborators.
This week, I want to share some of the case studies I have read from projects that used some form of collaborative agreements and share some of the anecdotal comments I have received from friends and colleagues that have worked under one of these models.
Last week I provided a brief overview of the two contracting models the AIA classifies as collaborate delivery.
We reviewed the nuances between Integrated Project Delivery (IPD) and Single Purpose Entities (SPE). I even correlated SPE agreements in the United States with Alliance Agreements in the United Kingdom
This week, I wanted to share with you some of the contract terms these agreements require you to accept in order to implement the model.
No matter how many times I counsel against using a contractor to lead design-build projects there is always someone who rationalizes away all of the negatives.
I have written about General Contractor led Design Build (GC led DB) a number of times, but I continue to encountered Stakeholders who simply insist on this model. Quite frankly there is little that I find redeeming about this model and I remain steadfast against it.
With respect to every other contracting model, I can honestly say that I hold a neutral point of view. I see viable applications for everything from Multi-prime T&M to Stipulated Sum GMP and everything in between, but I honestly feel that GC Led DB is the most despicable form of contracting in the market.
I know how strong that statement sounds, but I’m taking the gloves off for this one.
Before I go on (and alienate all of my contractor buddy’s) let me clarify that none of what follows is meant to suggest that ALL contractors are bad, nor am I suggesting that there are No contractors capable of delivering a good project under GC-led-DB.
For clarity, I feel I must take a moment to describe how GC led Design-build works.
GC led Design build is a variation of design-build where the General Contractor takes a prime contractual relationship with the Owner. All other parties (including the Architect) are sub-contracted to the GC.
This means that the Owner hires the General Contractor and then the General Contractor hires the Architect, the Engineers, and all the trade contractors. In its worst form this model also allows the GC to subcontract the commissioning agents and maybe even buy the furniture.
This is your classic one-throat-to-choke turn-key design-build model. Yes, all of those terms mean the same thing.
So why is GC-led DB so bad?
In an article posted January 29th, 2020, Mark Cavitt writing for the Oakland Press tells us about a new resolution adopted by the County of Oakland Michigan which impacts the way the County awards construction projects.
Resolution 19416 states that performance of public construction and maintenance in the County of Oakland will be performed by Contractors that meets the “Responsible Contractor and Best Value Bid Evaluation Standard for Construction Project Policy”.
The standard states that “best value will be determined by looking at a variety of criteria including: quality, references, experience, proposed schedule, safety, time and cost. The responsibility of a bidder will be determined by looking at: experience on projects of similar size and complexity within the past 5 years, references from owners, credit worthiness/financial condition and bonding capacity among other criteria.”
The resolution establishes that the county shall create, “a standard measurement of responsibility qualifications for each, construction project bid.”
The resolution goes on to identify the information that may be required as;
Experience on projects of similar size and complexity within the past 5 years.
References from owners.
Credit worthiness/financial condition and bonding capacity.
Proof of Insurance and/or Certificate of Insurance.
Certification from the bidder that construction workers will not be misclassified.
Disclosure of any debarment by any federal, state or local governmental unit.
Disclosure of any violations of any federal, state, or local laws, including OSHA/MIOSHA violations.
If required by bid standards, ensure there is a criminal record check for each employee the bidder proposes to use on a construction site or alternative security clearances approved by the County.
For far too long public sector procurement has strictly observed the practice of awarding contracts to the lowest “responsible” bidder. Lawmakers have relied on the interpretation of the word “responsible” as a form of qualifier, but that single word created vagueness and ambiguity that allowed too broad of an interpretation. Often this interpretation translated into “any” bidder with insurance and a license was deemed “responsible”. This left public sector works exposed to unqualified or barely qualified suppliers instead of in the hands of “Responsible Contractors”.
The issue that will likely come up from a policy like this will be award challenges from Contractors who fail to meet the County’s standard.
The success of this policy will be tied to establishing clear and objective scoring methodologies. This can be challenging, so in support the move by Oakland County, I wanted to spend some time discussing the keys to establishing sound and objective scoring methodologies for evaluating supplier qualifications.
With the start of the New Year, I’ve jumped right back into the deep-end with several projects that began towards the end of last year and grew hot over the break.
Each of these projects have required some amount of re-write of contract terms. Coincidentally all of these agreements started on Vendor paper (or the Vendor’s form of agreement).
As I have completed my reviews (all around the same time), it became evident that the vast majority of these were lacking some of the same things.
Some were vague in their description of scope of work, others had poorly defined payment terms, others simply offered no contractual remedy in the event of a breach.
In previous articles we reviewed the differences between a scope of work and a scope of services. Collectively these two pieces of information convey the scope of the agreement.
Of course this is the number one part of an agreement that needs to be right, but there are a few others:
AR5 establishes stricter criteria for classifying workers as Independent Contractors. In order to qualify as an Independent Contractor AR5 requires the employee to pass the “ABC test”.
The test states that the hiring organizations must prove the worker; (A) is free from the control typically exercised
Throughout the world legislative actions are transforming the way the construction industry behaves. These legislations are not only protecting trade contractors from unfair practices, they are protecting Owners too.
Surprisingly, some of the world’s most sophisticated markets have yet to enact similar protections. In those parts of the world, certain common and persistent practices continue to put the supply chain and Owners at risk.