The Private Meeting
Supplemental to the Preconstruction Jobsite Conference
Arthur O'Leary, FAIA, MRIAI
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In the last issue of Design Cost Data™ we discussed the pre-construction jobsite conference, a meeting before the start of construction where all the construction participants can meet and get to know each other. They can discuss scheduling, project characteristics, and the contract requirements. They can find out what is expected of them and get their questions answered. The object is to improve communications and cooperation among all those involved on the construction site.
An additional meeting is needed among architect, owner, and contractor to discuss other contractual matters that are of no direct concern to the subcontractors and suppliers. This meeting could be held at the time of signing of the contract documents or at the beginning or end of the preconstruction jobsite conference. Various matters need to be discussed in the interest of avoiding future misunderstandings and mutual distrust. See sidebar for a suggested agenda for this meeting.
Owner's Financial Capability
The contractor has the right prior to signing the agreement and from time to time during the construction to request the owner to furnish promptly reasonable evidence that adequate financial arrangements have been made to fulfill the owner's obligations under the contract. (A201, 2.2.1) Should the owner fail to furnish promptly the requested reasonable evidence, the contractor may exercise its option to refrain from executing the agreement or commencing the work or to stop the work and terminate the contract. (A201, 220.127.116.11)
The contractor and owner should be reminded that any unit prices quoted in the bid proposal or later negotiated before the contract was signed are subject to change under certain circumstances. If the quantities originally contemplated are so changed by a change order or construction change directive that the original unit prices become substantially inequitable to owner or contractor, the unit prices are equitably adjusted. (A201, 4.3.9) Such would be the case if too few units were actually required in which case the contractor would be under-compensated. If there were an exceptionally large number of units it would be to the disadvantage of the owner. If the owner and contractor cannot agree on new unit prices, the architect will have to decide the matter, subject to appeal in arbitration.
Contractor's invoices for allowance items should be prepared using the general principles of Paragraph 3.8 AIA Document A201. Arguments and misunderstandings will be alleviated if both parties are aware of these provisions for the billing of allowances. The owner should be reminded that selections of materials, equipment, and vendors for allowance items should be presented promptly to the contractor to avoid being the cause of construction delay. All items for owner's selection should be entered in the contractor's construction progress schedule or submittal schedule. If the architect is to make these selections for the owner, then the architect should conform to the schedule.
Contractor's Overhead and Profit
According to Subparagraph 7.3.6 of A201, the contractor is entitled to add a reasonable amount for overhead and profit when submitting prices for extra work. Each of the subcontractors will include their overhead and profit in quotations to the contractor for changes in their contracts. The architect is charged with determining what is reasonable. Future misunderstandings could be minimized if the contractor's expectations and the architect's opinions in this matter were discussed with the owner. The owner should realize that subcontractors normally use a higher mark-up than do general contractors. This discussion would not be necessary if the contractor's and subcontractors' overhead and profit percentages were specified by the architect or required to be submitted by the contractor as part of the bidding procedure.
It is the owner's prerogative under the contract to engage separate contractors to perform other parts of the work. The contractor is obligated to cooperate with the owner and separate contractors. It is the owner's responsibility to coordinate the separate contractors with the work of the contractor. (A201, Article 6) The owner should disclose to the contractor the likelihood and extent of separate contractors being on the premises during the work of the contractor so that related problems and costs may be anticipated.
Owner-Furnished Materials and Equipment
In the event that the contract provides for the owner's furnishing of materials or equipment, the owner must conform with the contractor's time scheduling or risk financial responsibility for construction delay.
After the contract has been awarded and before any work is commenced, the contractor should promptly submit to the owner through the architect all specified submittals including the following documents required by A201:
List of subcontractors and suppliers proposed for each principal portion of the work. The architect should respond in writing if the owner or architect, after due investigation, has reasonable objection to any proposed person or entity. Failure to promptly respond constitutes notice of no reasonable objection. (A201, 5.2.1) Should a subcontractor or supplier be eliminated, the contractor is required to submit an alternate not objectionable to the owner and architect. The contract sum and contract time must be adjusted, up or down, to account for any difference in subcontract cost, if any. (A201, 5.2.3)
Schedule of Values. This is a detailed cost breakdown allocating values to each trade and division of the work to be used as a basis for the contractor's payment requests. The contractor's overhead and profit may appear as a segregated line item or may be proportionally distributed among each of the work items. This should be submitted by the contractor to the architect for review before the first application for payment. (A201, 9.2 and 9.3)
Construction Progress Schedule, prepared by the contractor, showing all construction operations and completion within the time limits of the contract. It should be revised as necessary during construction to reflect changes in conditions and should be kept current. The schedule and updated versions are to be submitted to the owner and architect for information only, not for their approval. (A201, 3.10.1)
Submittal Schedule. This is submitted for the architect's approval and should be in synchronization with the construction progress schedule. It will show when all submittals are to be forthcoming from the contractor and when the architect is expected to return them after reviewing. (A201, 3.10.2)
Certificates of all required insurance. (A201, 11.1.3) The architect should refrain from offering any opinions as to the adequacy, terms, or suitability of insurance certificates or the underlying insurance policies. These are matters that the owner should take up with insurance advisors and legal counsel.
Surety Bond. Bonds covering faithful performance of the contract and payment for labor and materials, each in the full amount of the contract, if required by the owner. (A201, 11.5) If the owner required the bond before bidding, the contract bid price will include the bond premium. If the bond requirement was imposed by the owner after bidding, the premium can be billed as an extra to the contract. The owner should submit the bond to its insurance advisor or legal counsel for review.
The owner, if it wishes the coverage, must carry its own liability insurance. (A201, 11.2.1) The owner is required to carry property insurance to cover the perils of fire and extended coverage and physical loss or damage, boiler and machinery insurance, and loss of use insurance, including the interests of the owner, contractor, subcontractors, and sub-subcontractors in the work. The owner is required by the contract to furnish a copy of all required insurance policies to the contractor before any losses occur. Therefore, it must be done prior to start of construction. (A201, 11.4)
The owner should be advised to review the entirety of Article 11, Insurance and Bonds, of A201 with its insurance advisor or legal counsel.
If the contract contains a liquidated damages provision, the contractor and owner will benefit from an open discussion of the matter. The length of time allocated for construction will in most cases have been established or accepted by the contractor and this could usually be considered as realistic, if not too optimistic. A prudent contractor will apply for all justifiable time extensions as the construction progresses to avoid the possibility of having to pay any liquidated damages to the owner. Conversely, the owner will often take a hard line on the granting of time extensions. The architect should make it clear to the parties that all decisions on this and other matters will be fair to both parties.
Some owners will have specific requirements for the release of information about the project purpose, scope, cost, and scheduling to the press. The architect and contractor should acquiesce to the owner's wishes on this matter.
In the event of even a minor dispute between owner and contractor during these initial conferences, the architect must make the final decision as provided in Paragraphs 4.3 and 4.4 of A201. The architect can give the parties a feeling of security in the architect's hands if all such decisions and contract interpretations are handled firmly, fairly, and skilfully. To start with, both sides must always be given the opportunity to fully express their positions. The architect must set aside all perceptions of pressure from either party and make all decisions in accordance with the written provisions of the contract. All interpretations and decisions must be fair, just, and equitable, siding with neither party.
If the disagreement is based on ambiguity or errors in the contract documents produced by the architect, the decision is that much more difficult. Faulty documents must usually be construed against the owner in favor of the contractor. The economic consequences of the architectural or engineering error must be taken up separately between the architect and client.
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For a fuller discussion of the Preconstruction Jobsite Conference, see Chapter 7 of "A Guide to Successful Construction - Effective Contract Administration," by Arthur F. O'Leary, FAIA, MRIAI, published by BNi Publications, Anaheim, California. This title and others by Athur F. O’Leary are available at
www.bookworkz.com, now featuring nearly 20,000 titles.
Agenda for the Owner-Architect-Contractor Meeting
1. Duties of Owner, Architect, and Contractor
2. Owner’s financial arrangements
3. Unit prices and allowances
4. Contractor’s overhead and profit
5. Change Order procedure
6. Owner’s separate contractors
7. Owner-furnished materials and equipment
8. Preconstruction submittals
9. Owner’s insurance
10. Contractor’s insurance
11. Liquidated damages
12. Public Relations
13. Architect’s decisions
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