Chapter 4

Issues During Construction Phase.

INE 529
Project Contracting
 Acceptance Period/Withdrawal

❑ In formal competitive bid situations, the following timing are as follows:

1. The issuance of the notice to bidders opens the bidding period.

2. The date and time at which the bid opening is to take place marks the formal
end of bidding.

❑ Prior to the close of the bidding, contractors are free to withdraw their bids
without penalty. Also, If they have noted a mistake, they can submit a correction
to their original bid.
 Acceptance Period/Withdrawal.
Cont’d

❑ After all bids have been opened and the low bidder declares a mistake in bid,
Procedures are available to reconcile this problem.

1. If it can be clearly established that a mathematical or clerical error has occurred

within a Grace period ( 4 to 5 days) set by the authorities, the owner usually will
reject the bid.

2. If the mistake appears contrived to establish a basis for withdrawal of the bid,
the owner will not reject. Then the contractor must enter into contract or forfeit
bid security.

NOTE: No submitted bid after the grace period may be withdrawn for a period of
60 days after the scheduled closing time for the receipt of bid.
 Award of Contract/Notice to Proceed.

❑ Notification of award of contract is normally accomplished by a letter indicating

selection of the Contractor formally. The content of the letter usually requires the
selected contractor to provide with the necessary documents asap such as:

1. Signed contract by the contractor.

2. Performance and payment bonds.
3. Liability Insurances.

❑ After receipt of all the above required documents, the owner will coordinate with
the contractor date and time for the Pre-Construction meeting.
 Award of Contract/Notice to Proceed.
Cont’d

❑ A notice to proceed will be issued by the owner usually after the Pre-Construction
meeting directing the contractor to proceed with the work. The letter also implies
that the site is free and contractor can occupy for work purposes.

❑ Provisions of the contract usually direct that the selected bidders commence work
on site within a specified period of time, such as 10 days.

❑ The date of notice to proceed establishes the reference date from which the
beginning of the project is calculated. Therefore, based on the stipulated duration
of the project as specified in the supplementary conditions, the projected end of
the project can be established.
 Award of Contract/Notice to Proceed.
Cont’d

❑ In some projects, after the award of contract, the site is not yet ready for the
the contractor to occupy due to other issues that owner has to reconcile.
In such cases, the owner will issue a Letter of Intent to indicate selection and
acceptance of the proposal. This letter will indicate the nature of these issues
and establish the owner’s intent to enter into contracts as soon as barriers
to the site availability have been removed.
 Contract Agreement

❑ In a legal sense, the formal contract agreement is the single document that binds
the parties and by reference describes the work to be performed for a consideration.

❑ It pulls together under one cover all documents to include:

1. The drawings.
2. The general conditions.
3. The supplementary conditions.
4. The technical specifications.
5. Addenda if any.
 Time Extensions

❑ Often circumstances beyond the contractor’s control, which could not have been
reasonably anticipated at the time of bidding, lead to delays. Such as; 1) design
problems, 2) owner modifications, 3) weather, 4) strike, and 5) others.

❑ These delays make it difficult or impossible to meet the project completion date.
In such cases the contractor will request an extension of time to offset the delay.
These time extensions, if granted, act to increase the duration of the project.
 Time Extensions. Cont’d.

❑ Procedures for dealing with time extensions are established in the general conditions.

❑ Claims for extension of time must be based on delays that are caused by the owner or
his agents, or on delays due to Acts of God.

❑ Time extensions are added to the original duration.

❑ If contractor exceeds the original duration plus the time extension granted, Liquidated
damages are assessed on a daily basis for each day delayed.
 Change Orders

❑ Changes that are dictated, for any reason, during construction represent an
alteration of a legal arrangement and, therefore, must be formally handled
as a modification to the contract. These modifications to the original contract,
are called Change Orders.

❑ Procedures for implementing C.O. are specified in the General Conditions.

❑ When preparing a C.O., there would be No Competition, since the contractor

has been selected.
 Change Orders. Cont’d

❑ Normally, a formal communication of the change to include scope and supporting

technical documents is sent to the contractor, is called Proposal Request P.R.

❑ The Contractor responds with a price quotation for performing the work, which
constitute the offer. The owner can accept the offer or attempt to negotiate.

Note: If the original contract documents were poorly prepared, the project can
turn into a patchwork of change orders. This can lead to substantial
disruption of job activities.
 Changed Conditions

❑ In some cases, a condition may not be detected during design, and the
assumption is that it does not exist.

❑ For example, an underground water flow may go undetected during site

studies. The condition requires dewatering so as to construct foundation.
This condition could not reasonably have been foreseen by the
contractor.
Hence, no allowance for it was considered in his bid. This situation would
cause the contractor to claim a changed condition.
 Value Engineering

❑ Value Engineering ( VE ) is a process of a FUNCTION ANALYSIS to produce low-cost

products without impacting functional characteristics or reducing Quality.

❑ The owner might request VE during the design or the construction phase seeking
cost savings.

1. During the design phase, the design professionals use various procedures such as
brainstorming, prioritization, research, matrix analysis, and scoring system
to evaluate design alternatives.

2. During the construction phase, Contractors are typically more knowledgeable

about field conditions and construction methods than design engineers. Then,
Contractors would be in a better position to know what materials are easiest to
install. This knowledge can greatly influence cost.
 Suspension, Delay, or Interruption.

❑ The standard general conditions utilized for many government contracts provide that:

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 or she may determine to be appropriate
for the convenience of the government.
 Suspension, Delay, or Interruption.
Cont’d.

❑ Interrupting or Suspending work for an extended period of time may be costly

for the contractor, due to demobilization-remobilization cycle and may be confronted
with inflated labor and materials at the time of restarting.

In such cases, within the provisions of the contract, the owner ( i.e. the government )
is required to pay an adjustment for “ unreasonable “ suspensions as follows:

An adjustment shall be made for any increase in cost of performance of this contract
( excluding profit ) necessarily caused by such unreasonable suspension, delay, or
Interruption and the contract modified in writing accordingly.
 Suspension, Delay, or Interruption.
Cont’d.

❑ Usually the amount of this adjustment is contested by the contractor and can
lead to lengthy litigation. Normally, the owner will attempt to avoid
interruptions.

❑ Difficulties in obtaining continuing funding, however, are a common cause

for these suspensions.
 Liquidated Damages

❑ The Purpose and function of a project are often based on the completion of the project
by a certain point in time.

❑ A project duration is specified in the contract document. This duration is tied to the
date the project is needed for the occupancy and use.

❑ If the project is not completed on this date, the owner may incur certain damages
due to lacking the availability of the facility.
 Liquidated Damages. Cont’d

❑ In public works projects, the clause in supplementary/special conditions is typical

of the language used, and reads:

Liquidated Damages: In case of failure on the part of the

Contractor to complete the work within the time fixed in the
Contract or any extensions thereof, the contractor shall pay
The owner as liquidated damages the sum of $3000 for each
Calendar day of delay until the work is completed or accepted.
 Liquidated Damages. Cont’d

❑ The amount of the liquidated damage to be recovered per day

is not arbitrary and must a just reflection of the actual
damage incurred.

❑ The owner who is damaged must be able, if challenged, to

establish the basis figure used.

❑ The owner cannot specify an arbitrary high figure per day to

scare the contractor into completion without justification.
 Liquidated Damages. Cont’d

❑ The courts have ruled that such unsupported high charges are,
in fact, not the liquidated of a damage but, instead, a Penalty
charge.

❑ The legal precedent established is that if the owner desires to

specify a penalty for overrun ( rather than the liquidated
damages), he must offer a bonus in the same amount for
everyday the contractor brings the project early.
 Progress Payments and Retainage.

PROGRESS PAYMENT

❑ During construction period, the contractor is reimbursed

on a periodic basis.

❑ Normally at the end of each month, the owner’s rep. and the
contractor jointly make an estimate of the work performed
during the month and the owner agrees to pay a progress
payment to cover the contractor’s expenditures and markup.
 Progress Payments and Retainage.
Cont’d.
RETAINAGE
❑ The owner typically retains or holds back a portion of the monies
due from the contractor as an incentive for the contractor to
properly complete the project.

❑ The amount of retainage is stated in the contract documents:

In making progress payments, there shall be retained 10 percent

of the estimated amount until final completion and acceptance
of the work.
 Progress Payments and Retainage.
Cont’d.

❑ Various retainage formulas can be used based on the owner’s policy.

❑ The contract document may specify the following:

If the owner’s representative at any time after 50 percent of

the work has been completed finds that satisfactory progress
is being made, he may authorize any of the remaining progress
payments to be made in full.
 Progress Reporting.

❑ Contracts require the prime contractor to submit a schedule

of activity and periodically update the schedule reflecting
actual progress.

❑ The most common progress schedule program/software

used by the contractor to reflect all work activities and time
to complete such activities is called Primavera.

❑ The Critical Path Method which Primavera utilize, provides early

warning of the impact of delays on total project completion.
 Acceptance and Final Payment.

❑ Final Acceptance of the project is important to all parties concerned, in particular to

to the contractor.

❑ When Owner’s rep. files for substantial completion; it means that the owner has
accepted the project as final and a release of final payment including the retainage
will be released to the contractor.

❑ The basis the owner’s rep. use to determine for final acceptance will the submission
of all the close out documents as specified in the specification. Such as:

1. All the required tests have been completed and certified.

2. Punch List completed.
3. As built Drawings.
4. All warranties/guaranties.
 Punch List
❑ Prior the date filing substantial completion, usually an
inspection of the facility is conducted. The owner’s rep. and
contractor conduct this inspection recording deficiencies that
exist and representing items for correction. This list of
deficiencies is referred to in the industry as the Punch List.
 As Built-Drawings
❑ Changes arise during the construction process, they must be
recorded. This is typically done on a copy of the working drawings
kept in the job superintendent’s office at the jobsite.
This record drawings commonly called As-Built Drawings.

❑ As-Built Drawings reflect exactly how the project was built and
where the elements of the building were located.

❑ After the project is completed, the owner utilizes the As-Built

Drawings for maintenance, repairs, and modifications to the
building in the future.
 Substantial Completion
❑ The Punch list must be completed and other documents such as
warranties/guarantees and as built drawings must be submitted as
stated in the general conditions to the owner’s satisfaction for the
substantial completion to happen.

❑ The question of what constitutes completion can be answered as

follows:

The date of substantial completion of the work is the date certified by

the owner’s representative when construction is sufficiently complete,
in accordance with the Contract Documents, so the owner can occupy,
or utilize the work or designated portion thereof for the use for which it
is intended.