Material volatility coupled with ever increasing labor costs, have made navigating the current market extremely difficult.
Extending payment terms is not without consequence and we must be informed on these risks in order to make a sound decision.
As we continue our recovery from the impacts of the pandemic, inflation rates across the globe are on the rise.
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.
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.
A couple of weeks ago, I published an article discussing some of the additional costs Owners might see in the wake of the global CoronaVirus outbreak and government ordered quarantine.
In that article, I made the statement, “Contractually, this event falls under the Force Majeure clause…”
While I still believe that the COVID-19 epidemic meets the definition and the intention of a Force Majeure clause, I recently read several articles that further refine my understanding of Force Majeure and how it can be applied.
As with any article where I address legal terms, such as Force Majeure, I defer 100% to professional legal advice and recommend you contact an attorney to discuss your specific circumstances before you take any action.
That advice notwithstanding, I did want to share with you some interesting points of view.
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.
In late January of this year, I attended and spoke at the ProcureCon Facilities Conference. You can read my review of the conference here.
The subject I addressed during my talk was Collaborative Delivery.
For several years the industry has been abuzz about Collaborative Delivery models. I have yet to encounter an Owner who showed interest in collaborative delivery, but the interest from the industry was so strong, that I was curious to learn more. When the opportunity to speak at ProcureCon came, I felt it would be a great topic for that audience.
To deepen my understanding of the topic; I soaked up all of the content available on the American Institute of Architect’s website, read commercially available sample contracts, reviewed case studies, read articles on the subject, and spoke with colleagues that have worked under the model.
The most helpful piece of information I found is a document called the AIA Integrated Project Delivery Guide. I also took the added step of reviewing the standard terms in the contract templates offered by AIA.
I was surprised to find that under the heading of collaborative delivery the AIA includes a contract template for Integrated Project Delivery (IPD) contracts and also for Single Purpose Entity (SPE) contracts.
In this article, I will document the basics of both models. I will follow this article with a deeper dive on the terms that form these agreements.
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?