Www.NAEPnet.org. Construction & Renovation Contracts, Liens, Schedule of Values & Payments Stan Scott Director of Project Management – Texas Hill International,

www.NAEPnet.org

www.NAEPnet.org

Construction & RenovationContracts, Liens, Schedule of Values &

Payments

Stan ScottDirector of Project Management –

Texas

Hill International, Inc.

Facilities InstituteJuly 9 - 12, 2012Houston, Texas

Construction & Renovation

SchedulerContracts

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StructuralEngineer

PlumbingEngineer

ElectricalEngineerIT

Consultant

Parking Consultant

TrafficEngineer

CivilEngineerSpace

Programmer

Cost Consultant

Interiors Architect

Food Service Consultant

DesignArchitect

NetworkEngineer

Graphics & Signage

Audio VisualConsultant

Code consultant

Life Safety Consultant

Testing & Inspection

Security Consultant

Geotech Engineer

Hardware Consultant

Landscape Architect

MechanicalEngineer

Acoustical Consultant

Owner’sPM

CM

AEPM

LegalAcounting

Executives

Board

Demolition

Clearing & Stripping

Fencing Erosion Control

Termite Control

StructuralSteel

Concrete Formwork

Sealants and Caulking

Soil Treatment

Concrete Supply Plumbing

Elevators

Roofing

Glass & Glazing

Mechanical

Roof Hatches

Electrical

Rough Framing

Grading & Excavation

Paving

FlooringFire Stopping

Window WallFlashing & Sheet Metal

Ductwork

Block & Brick

Hardware

Control Wiring

TileSkylights

Fire Protection

VacuumSystems

Stucco

Millwork

Cabinets

Hauling

ToiletAccessories

Signage

Casework

Wall coverings

Carpeting

Moisture Protection

Insulation

Doors & Frames

Ornamental Iron

Drywall

Lockers

Flagpoles

Window Coverings

Cleaning

Kitchen Equipment

Landscaping and Planting

RO Water

ConcreteReinforcing

Pools & Fountains

OverheadDoors

Acoustic Ceilings

Metal Fabrications

Glass & Glazing

Insulation

Millwork

Building Specialities

Counter Tops

Sprinklers

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Estimating

StandardsUtilities

O&M

Plan Review

ProjectControls

ParkingPrograms

DirectorFacilities

Slide Courtesy of 3D/International

Capital Projects = Many People, Multiple Teams


So… How do you get them on the same page?The Contract Documents are to The Contract Documents are to Construction…Construction…

What the Sheet Music is to a SymphonyWhat the Sheet Music is to a Symphony



The Contract Documents

• Contract Documents are a ‘suite’ of complementary documents, typically including:o Contract Agreemento General Conditionso Special Conditions

o Division 1 General Requirement Specificationso Technical Specificationso Construction Drawings

Alignment is Critical !



Contract Documents

• Other documents, often not considered “Contract Documents”, but just as critical to project success:o Owner Design Standards

• Consistency Desired, Should be “Enterprise – Wide”

• Certain Preferred Equipment / Systems (proprietary)

• May vary with type of projecto Housing, Parking Structures, Classroom, Research …

o Project Programo Feasibility Studyo Owner’s Project Requirements (OPR)



Contract Documents - Hierarchy

• At Enterprise Level

Across All Institution’s Projects

o Agreements (some tailoring to each project, but basic parameters of agreement are consistent)

o General Conditions• Those Things Common to All Projects

• Institutional Policy / Regulatory & Legal Parameters

• Concept of Rotation / Standardization / Uniformityo Add Division 1 Specifications ??



Contract Documents - Hierarchy

• At Project Level o Those Things Particular to a Certain Project

o Special Conditionso Division 1 General Administrative Specifications (why not

rotate to enterprise level?)o Technical Specifications (possible rotation?)o Contract Drawingso Permits, Easements, Etc.

Each Project Each Project Each Project



Contract Documents – Form Documents

• American Institute of Architects (suite)• Consensus Docs (suite)• Associated General Contractors• Professional Engineers• Various Other Associations• Institutional (in-house)


Form Contracts• AIA Bookstore lists 27 various documents at:

• http://www.topfloorstore.com/software_h/sft-dwn-g70.shtml• From Agreements to Applications for Payment to Waivers of

Claim to Certified Payroll forms

• Consensus Docs lists 6 Series of Documents at:• https://www.consensusdocs.org/Catalog OR through• https://www.coaa.org

• COAA Members get a 20% Discount• The “General Contracting” Series includes 25 separate

forms plus instructions.• Other “Series” include Collaborative Contracting, Design –

Build, Construction Management, etc.

• In both cases, these are Copyrighted documents, each sold individually for ONE-TIME USE



Form Contracts

• AIA Documents tend to enhance Designer’s Positions

• Consensus Docs tend to focus on COMPROMISE between the partieso Because they were collaboratively

developed by large committeeso COAA has it’s “Gold Standard” of comments

and suggested modifications for Owners

• So… what’s best for the Owner ??



Form Contracts

• Owners should NEVER use form contracts from ANY source withouto Modifying them to suit their unique needs and

processeso Ensuring that they align with the Owner’s regulatory

environmento Assessing them for appropriate allocation of Risks

• Each party to an agreement is uniquely positioned to address specific risks – a good contract allocates Risks to those most suited to handle them



Institutional Contracts

• Practically ALL institutions with repetitive building programs utilize IN-HOUSE documents created by their legal counsel.o Often patterned after AIA Documents, buto Addressing the unique needs of a particular

institution• Federal & State Governments

• Municipalities

• Higher Education Systems

• Large Corporate Owners



Contract Agreements

• Generally the same across projects of the same owner, and cover basic terms at a relatively high level…o Scope of Work (* this would be tailored to project)

o What Constitutes “Contract Documents”o Definitionso General Responsibilities of the Partieso Overall Price and Time Period for Performance (* this

would be tailored to project)

o Time, Payments, Changes (General Parameters)



Contract Agreements

• Continued…o Bonds & Insuranceo Dispute Resolution & Venue for Litigationo Terminationo Indemnity o Special Certifications (* this may be tailored to the project)

o Other Terms & Conditions



Contract General Conditions

• Again, generally the same across projects of the same owner, and cover the same basic terms as the Agreement, but with a little more detail…o Definitionso Laws Governing Constructiono General Responsibilities of parties (more specific)o Sub-contracting Plans (HUB / MBE) o Bonds & Insurance (type of policy; amounts of

coverage)



Contract General Conditions

• Continued…o Contract Documents (what are included?)o Safety Requirementso Quality Controlo Project Scheduling (Time), Payments, Changeso Completion & Acceptanceo Warranty & Guaranteeo Suspension & Terminationo Dispute Resolution (process identified)



Contract Special Conditions

• Generally tailored specifically to the project, may differ from project to project, focus on issues particular to the project and/or administrative procedures to be followed. Typically includes issues such as…o Owner’s Separate Contractso Prevailing Wage Rates & Determinationo Weather Data and Conditions at Siteo Owner Special Cash Allowances




• Continued…o Temporary Field Office Structures, Improvements and

Temporary Utilities for construction durationo Project Fencing and /or Signageo Builder’s Risk Endorsementso Site Access and Limits of Construction, Parking and

On-Site Activity Limitationso On-going Activities / Operationso Security & Responsibility for Workforce




• Continued…o Administrative Processes for Communications, RFIs,

Submittals, Payments, Changeso Protection of Site Amenities & Work in Progresso Project Surveying, Shoringo Cutting and Patching of Sleeveso Asbestos Abatemento Sustainability Issueso Environmental Controlso BIM and Technology Requirements



Contract Document Relationships

• Each Document Addresses an Issue in ever-increasing level of detail o Some Institutional Owners seek to combine their General

Conditions within their Contract Agreements• Nothing wrong with that, in some ways it is easier

• However, the parties that execute a Contract Agreement are NOT NORMALLY the parties that implement the Work…o That’s one reason separate documents are often

developed. o A basic understanding is needed for the Parties to Agree,

but more detail is required to implement the Work




• Concept of “Rotation”o Many Owner Institutions seek to eliminate re-creating

documents for every project – they “rotate” them up to an Enterprise (or Program) Level

• They also seek to reduce the influence of the A/E in outlining Administrative Procedures, and thereby minimize conflicts with provisions of their contracts and General Conditions, so they…

o Create standard / “uniform” Division 1 Specifications




• Concept of “Rotation”oHINT: This Concept can be applied to ALL

Institutional Processes, not just Contract Documents • Whatever is done the same way, repeatedly on

multiple occasions, can be performed, or “established” across the Enterprise Level and not re-developed for each project or each occurrence.

• This can even work for Technical Specifications where the same materials / systems are desired – “big-box retail”, for example, uses this approach with great success.




• Metaphor for Relationship of Contract Documents – “Layers of an Onion”o Two Examples

• Time & Schedules

• Payments



Contract Document Relationships - Example 1

• Time / Project Scheduleso Contract Agreement

• Time Limits are of the Essence of this Agreement

• Owner & Contractor to perform expeditiously …

• Prior to commencement…Contractor shall submit CPM Schedule

• Develop a CPM for Team Review & Owner approval

• Identify major milestones & Owner-managed work

• Comply with specified requirements




• Time / Project Scheduleso General Conditions

• Contract Time is Essential Element of Contract• Schedule Requirements and Updating• Meaning / Limits of Acceptance by Owner• Ownership of Float• Completion of Work & Owner recourse if not on schedule• Modification of Contract Time, Concurrent & Excusable Delay• No Damages for Delay (?)• Liquidated Damages




• Time / Project Scheduleso Special Conditions

• Weather allowances if applicable

• Project Float Requirements

• Type of Computerized Software

• Any deviations and/or amendments to General Conditions or Specifications due to unique nature of project, such as phasing or minimal requirements for very small projects.

o Requirements included in Special Conditions are dependent on having a separate Schedule Specification




• Time / Project Scheduleso Division 1 General Requirements Specification

• Includes most provisions of Agreement & General Conditions

• Levels of CPM Development at Phases of Project

• Logic Approach of Schedule, Naming Conventions, Activity ID, Time Limits of Activities, Sorting Capabilities

• Types of Reporting, Report Layouts & Timing of Submissions

• Baselines & Targeting, Float Management




• Payments – Contract Agreemento Relation to Schedule of Valueso Allowable Expenses including Travelo Retainage, Taxes, Assessment of Liquidated Damageso Reasons for Withholding Paymentso Partial Payment does not construe acceptance by Ownero Right to Audito Issues specific to payment at various phaseso Meaning of Acceptance of Final Payment by Contractor




• Payments – General Conditionso Relation to Schedule of Values; no payment without accepted

SOVo Preliminary Pay Worksheet (Application); Site Reviewo Required Attachments (CPM, HUB/MBE Status)o Application includes Affidavit of Payment of Debtso Certification of A/Eo Owner’s Duty to Pay; Rights to Withhold Paymento Stored Materials provisions for paymentso Retainage provisions including time of release




• Payments – Special Conditions o Wage Rates for Payment of Laboro Certifications and Affidavits included with Payment

Requestso Administrative Requirements unless such is covered in

Division 1 General Requirements Specifications (*)




• Payments – Division 1 Specifications o Generally a Project Administration Spec or equivalento Administrative Requirements unless such is covered in

Division 1 General Requirements Specifications (*)• Detailed Process for Initial and Monthly Payments

• Contract Price Breakdown (SOV); how to organize it?

• All attachments required for Payment

• Process of Review, Correct and Submit; Number of copies, etc.

• Where to submit, who takes action, what timing constraints on payment process…




• Payments – Division 1 Specifications o Continued…

• Notarized Signatures, Certifications

• Release of Lien & Claim

• Affidavit of Debts Paid

• Backup Documentation required for General Conditions Cost Items, Stored Materials

• Certified Payroll requirements

• Conditions pertaining to Release of Retainage

• Conditions pertaining to Final Payment



Liens

• Liens, more often referred to in legal context as “Mechanic’s Liens”:o Serve to support payment of contract funds to the

actual subcontractors and suppliers that furnish material and labor to the project.

o Mechanic’s Lien laws vary from state to state and can be quite complex

o Generally result in a “lien” or an “encumbrance” placed on the property being built or improved.



Liens

• Public Owners:o Generally a lien on a public project serves no real

purpose - sense there would be little intent to sell that property

o But Public Owners still have a duty to see that payments reach their intended target

• Payment Bonds normally required for Public Projects in Texas (often in association with Performance Bonds)

• Retainage of earned funds serves as protection to Owner and helps assure subs are paid



Liens

• Private Owners:o Much more at risk of liens against their propertyo Same risk mitigation techniques are available to

them:• Payment Bonds

• Retainage (normally 10%) of earned funds from payment to Prime Contractoro If a private owner does withhold 10% retainage in

Texas, then their obligation to any/all subs is legally limited to the amount of retained funds

o If multiple subs file liens, this still gets very tricky



Liens

• All Owners:o Should get an Affidavit from the Prime Contractor with

each and every progress payment attesting to payment of debt and claim

o Should get a Release of Lien and Claim from the Prime and ALL SUBCONTRACTORS prior to issuing Final Payment

o Should pay attention to Notices of Non-Payment from Subcontractors & Suppliers

• Should understand what these mean & respond to them

• Should confirm their resolution prior to continued payment



Schedule of Values (SOV)

• Otherwise known as “Contract Price Breakdown”o Along with the CPM Schedule, is one of the 2 most

important documents in managing a construction project• The SOV should align with the CPM, using

common nomenclature and organizationo Is a line-item listing of the various work items,

equipment, materials and labor required to complete a project; each with a monetary value

• The total of the individual line item prices must equal the total contract amount




• Otherwise known as “Contract Price Breakdown”o Is used:

• As outline for generating progress payments,

• To determine the value of various systems and building components for facility maintenance / renewal programs

• For reporting of values to certain agencies where required. THECB Componentization for example.

o Is applicable to all Contracting Methods, from lump sum to GMP and/or Cost – Plus contract amounts.

o Should identify both labor and material costs for every aspect of the work that has both components.




• Includes the entire scope of the contracto Preconstruction services / Design services if applicable o General Conditions costs of field operations,

management & supervisiono Cost of Work activities, systems, materialso Contingencies & Allowanceso Fees

• Is Best Developed on a Spreadsheet




• Is Organized byo Classification of Work (CSI / MasterFormat)

• With Subtotals for Classificationso Building and/or Area

• If project includes Multiple Buildings, that should be the first level of organization – so you can tell at a glance the building completion status

o Floor and/or Section/Quadrant of the floor

• The Guiding Principle Should Be:o Each Line Item of Work is observable in its entirety from a

single location




• Example Spreadsheet



Payments

• The Progress Payment Form is Developed from the Schedule of Values Spreadsheeto With Additional Columns for:

• Prior Amounts Earned and Percentage

• This Period’s Amount Earned and Percentage

• Total as of This Period’s Amount Earned and Percentage

• Retainageo The Organization and the Guiding Principles are the

same as for the Schedule of Values



Payments

• General Conditions Cost Items should be supported by invoices for equipment / services and by payroll reports for management / supervision expenses

• Cost of Work Items should be reviewed in the field to determine percent complete for each line item

• Contingencies are paid only via change order as approved by Owner

• Fees Paid should represent the Percent Complete of the entire Project



Payments

• Percent Complete on the Pay Application should equate to the Percent Complete on the CPM Schedule o Both for each individual line item, ando For the project as a whole

• Contracts normally identify cause for Owner to reduce and/or withhold payments

• Owners should obtain release of lien and claim with each payment



Payments

• Example Spreadsheet



Www.NAEPnet.org. Construction & Renovation Contracts, Liens, Schedule of Values & Payments Stan Scott Director of Project Management – Texas Hill International,

Documents

project slide

project level o

o contract drawings

series of documents

facilities institute

various documents

type of project o housing

copyrighted documents