Issues During Construction Phase: Acceptance Period/Withdrawal

Acceptance Period/Withdrawal
In formal competitive bid, the timing of activities has legal implications.
Issues During
Construction Phase
Prior to bid opening, contractors can withdraw bids without penalty. No

such prerogatives after bid opening.
Procedures to reconcile bid mistakes: If clearly a mathematical error,
owner usually rejects the bid; if the mistake appears contrived to establish
a basis for bid withdrawal, the owner will not reject. Contractor must enter
into contract or forfeit his bid security.
Bid security protects owner from failure by contractor to enter into a formal
construction agreement
Contractor is protected by an acceptance period, after which contractors
can withdraw or adjust bids.
Owner must send written notice of award to the selected contractor during
the acceptance period or bidders are released from their original proposals.
Award of Contract/Notice to Proceed

Notification of award: indicating selection and directing to proceed work
Implications: (1) consummates contractual relationship; (2) site is free of
encumbrances and contractor can occupy the site for work purposes; (3)
reference date for project start and damage calculation.
Time extensions
Damages for failure to complete the project on time is referenced to the
date of the notice to proceed.
Project duration: Calendar days or working days
Chronology of bid procedure
Encumbrances to entry of construction site

Letter of intent: (1) selection and acceptance of proposal, (2) nature of
encumbrance to entry of construction site; (3) owners intent to enter into
contract as soon as barriers have been removed.
Contract Agreement
Notice to proceed establishes the elements of a contract.
Contract agreement formalizes the contract.
In a legal sense, formal contract agreement is the single document that
binds the parties and by reference describes the work to be performed.
Contract agreement covers (1) drawings, (2) general conditions, (3)
supplementary conditions, (4) technical specifications, and (5) addenda
Standard forms of contract agreement for a variety of contractual
formats are available from various professional organizations.
Time Extensions
Circumstances beyond contractors control could lead to delays.
Procedures for time extensions are established in general conditions.
Claims for time extension must be based on delays that are caused by
the owner, owners agents, or on delays due to acts of God.
Design errors or changes are typical of owner-assignable delays.
Weather delays are typical of act of God type delay.
Time Extensions
Time Extensions
What constitutes project completion?
The Date of Substantial Completion of the Work or designated portion
thereof is the Date certified by the owners representative when construction
is sufficiently complete, in accordance with the Contract Documents, so the
Owner can occupy, or utilize the Work or designed portion thereof for the
use for which it is intended.
Beneficial occupancy date (BOD).
Owner relinquishes a large portion of the legal leverage he has in making the
contractor complete outstanding deficiencies once owner occupies the facility.
Mutually acceptable date and joint inspection when seems substantially complete
Recording deficiencies and noting items for correction.

Punch list: list of deficiencies to be corrected.
Correcting these items will satisfy owners requirement for substantial
completion.
Turnover phase can lead to claims for damages on both sides if no good
rapport exists between owner and contractor.
Rework
Rework, and particularly field rework, is one of the major sources of
unplanned cost growth on construction projects.
According to Construction Industry Institute, if field rework alone can be
significantly reduced, or even eliminated, as much as 10% of overall
project costs can be saved.
Field rework is not caused solely by construction site activities in isolation. A
substantial effort must be made to improve the effectiveness of prior project
phases with a view to prevent all to frequent catch-up work during the site
construction and commissioning phases.
Change Orders
Contract documents are included by reference in the formal agreement.
Therefore, all aspects of the contract documentation are legally binding.
Any alteration of contract documents constitutes an alteration of contract.
Unit-price contract has a degree of flexibility whereas lump-sum contract
has no leeway for change or interpretation.
Change Orders
Procedures to implement change orders are specified in general conditions.
Change orders are minicontracts. Major difference is no competition.
A formal communication of the change that includes scope and
supporting technical documents should be sent to the contractor.
Contractor responds with price quotation.
Changes during construction represent an alteration of a legal arrangement

and must be formally handled as a modification to the contract.
Usually, contractor is justified in increasing price to recover costs.
Modifications to the original contract are called change orders.
If original contract documents were poorly scoped and prepared, the

project can turn into a patchwork of change orders.
Too many change orders can disrupt job activities, cause adversary
relationships, and increase costs and construction duration.
Changed Conditions
Value Engineering
Engineering designs are based on site conditions as perceived by A/E.

Superstructure is constructed in a highly predictable environment.
VE was developed during World War II in USA.
Subsurface and topographical portions are difficult to predict.
Functional analysis produced low-cost products without reducing quality.
Ability of below-grade area to support weight is often established by a

grid of test piles. If investigation is not adequate, the design can be
inadequate.
Necessity is the mother of invention.
Subsurface investigation is contractors basis to estimate excavation

and foundation work and to claim a changed condition.
Some conditions (e.g., underground river) may not be detected during
design, and failure of bid documents to reflect such conditions would
cause the contractor to claim changed conditions for addition costs.
If owner accepts changed conditions, extended scope of work will be
included in the contract as a change order.
If owner does not accept changed conditions claim, this has to be solved
through litigation or arbitration.
In early 1960s, VE was introduced in the construction industry by NACE.

VE incentive clause allows contactor to share net savings.
VECP allows owner to harvest innovative ideas from contractor.
In DBB contract, contractors seldom have input to the design process.
Construction methods have great impact on cost. Contractors are more
knowledgeable than designers of field conditions and construction methods.
Value Engineering
VE encourages contractors to improve design during construction. Guiding
principal: reducing costs while maintaining/improving functionality.
VE can also be implemented during the design phase.
Procedures: brainstorming, prioritization, matrix analysis & scoring
Multi-criteria evaluation: aesthetics, performance, safety, etc.
Weighted system is often used for final analysis.
Government agencies have led the way in using value engineering
incentive clauses in construction contracts.
Criteria Evaluation Matrix
Suspension, Delay, or Interruption

Liquidated Damages
Standard SDI provision:
The Contracting officer may order the Contractor in writing to suspend,
delay, or interrupt all or any part of the work for such period of time as he
may determine to be appropriate for the convenience of the government.
The purpose and function of a project requires it to be completed by a certain

point in time, which is tied to the utilization/occupancy date.
SDI may be very costly
Nonavailability may incur damages to the owner:

e.g., lost revenues, cost of administration and supervision of contract
Demobilization-remobilization, inflated labor & materials

Provisions on LDs are given in special/supplementary conditions.
SDI compensation provision

An adjustment shall be made for any increase in cost of performance of
this contract necessarily caused by such unreasonable suspension, delay,
or interruption and the contract modified in writing accordingly.
Amount of LD should reflect the actual damage incurred.

LD vs penalty-bonus clauses
Possible lengthy litigation
Progress Payments and Retainage

Contractor is reimbursed on a periodic basis.
Retainage: owner typically retains a portion of money due the contractor
as an incentive for the contractor to properly complete the project.
Progress Reporting
Contracts require the contractor to submit a schedule of activity and
periodically update the schedule reflecting actual progress.
Why retainage? A carrot.

Example provision:
In making progress payments, there shall be retained 10 percent of
the estimated amount until final completion and acceptance of the
work.
Various retainage formulas can be used, based on the owners experience
and policy.
S-curves or bar charts: based on either activities or percentage

completion of various work categories.
Work categories: concrete, structural, mechanical, electrical, etc.
Purpose: basis for progress payments; ensuring satisfactory progress.
(a) planned and (b) actual rate of progress.
Acceptance and Final Payment

Final acceptance of the project is important to all parties concerned.
Final acceptance of project is implemented by a joint inspection.
The owners representative notes deficiencies that should be corrected,
and the contractor makes note of the deficiencies.
The detailed deficiency list generated by the joint inspection is called
the deficiency, or punch, list.
A similar procedure is utilized between the prime contractor and the
subcontractors.
Bar chart progress models: (a) bar chart schedule (plan

focus) and (b) bar chart updating (control focus)

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Acceptance Period/Withdrawal

In formal competitive bid, the timing of activities has legal implications.

Prior to bid opening, contractors can withdraw bids without penalty. No

Award of Contract/Notice to Proceed

Chronology of bid procedure

Encumbrances to entry of construction site

Recording deficiencies and noting items for correction.

Changes during construction represent an alteration of a legal arrangement

Usually, contractor is justified in increasing price to recover costs.

Modifications to the original contract are called change orders.

If original contract documents were poorly scoped and prepared, the

Engineering designs are based on site conditions as perceived by A/E.

VE was developed during World War II in USA.

Subsurface and topographical portions are difficult to predict.

Functional analysis produced low-cost products without reducing quality.

Ability of below-grade area to support weight is often established by a

Necessity is the mother of invention.

Subsurface investigation is contractors basis to estimate excavation

In early 1960s, VE was introduced in the construction industry by NACE.

Criteria Evaluation Matrix

Suspension, Delay, or Interruption

The purpose and function of a project requires it to be completed by a certain

SDI may be very costly

Nonavailability may incur damages to the owner:

Demobilization-remobilization, inflated labor & materials

SDI compensation provision

Amount of LD should reflect the actual damage incurred.

Possible lengthy litigation

Progress Payments and Retainage

Why retainage? A carrot.

S-curves or bar charts: based on either activities or percentage

(a) planned and (b) actual rate of progress.

Acceptance and Final Payment

Bar chart progress models: (a) bar chart schedule (plan

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