6310 Class Notes

Contract Administration
CNST 6310
____________________________________________________
Prepared by:
Dr. Neil N. Eldin, PhD, PE, CPC
Director
Construction Management Program
Nothing Will Work...Unless You Do!!
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This manual was prepared by Dr. Neil N. Eldin, PhD, PE for the purpose of student training©
Introduction
Contract administration is a primary function for project managers. A comprehensive understanding of

contract administration requires the understanding of the following:
1. Contract classifications
2. Contract formation
3. Contract Ending
4. Contractual Relationship
5. Significant Issues in Contract Administration
6. Contract Documents
The following modules describe each of the above six aspects of contract administration.
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Module 1
You must complete the reading materials scheduled (see syllabus) before you start this module
Upon completion of this module and the reading assignments you should be able to answer the
following questions:
1. How contracts are described and classified?

2. What are the main characteristics of each type of contract?
3. What are the main differences among the different types?
4. What are the advantages and disadvantages of each type?
5. How do you determine the proper type of contract for a certain project?
Please utilize other sources (web searches, references, and other textbooks) if you feel the course
modules and textbook did not satisfy your curiosity in the subject matters. You may also contact your
instructor to discuss your questions further.
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Module 1
CONTRACT CLASSIFICATIONS
What are the bases on which we group/classify/describe contacts?
There are five bases common to classifying contracts. Contracts can be classified based on:
1.
2.
3.
4.
5.
The following provides more elaboration to further explain each classification …
1. Based on method of payment

There are 3 methods of payment common in the construction industry:
The owner will select one of these methods as the basis for paying (compensating) the
contractor for its efforts. Therefore, a lump sum contract informs us that the contractor’s
compensation is an agreed up amount (lump sum/fixed price) for the work specified in the
contract. A cost plus contract on the other hand informs us that the contractor will be paid its
costs…plus additional amount to cover fees/profit to compensate the contractor for the work
performed. A unit price contract informs us that the contractor is paid according to an agreed
upon unit price list for each item included in the scope of work.
2. Based on arrangement of project delivery

There are several methods to deliver a project in the construction industry:
-
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The owner will select one of these methods to deliver the project. Therefore, a
Design/Bid/Build contract informs us that the owner decided to complete the project design
before it sends it to bidders and the winning bidder will build the project. A Design/Build
contract informs us that the owner decided to award the project to a contractor that is in charge
of designing and simultaneously building the project. In other words, eliminate the bidding
efforts and time. A turn key contract informs us that the owner decided to not be involved in the
project design, construction, or interim financing. An example of such is a buying a house on
the market…you pay the check and get the key. A construction management contract informs
us that the owner decided to hire a third party to oversee the project design and/or construction
for a fee.
3. Based on method of selection and award

There are two methods of selecting the contractor. This can happen through:
The owner will chose one of these methods to select the contractor. Therefore, a negotiated
contract informs us that the owner negotiated the price with one or more contractors and
selected the contractor upon the completion of such negotiation. On the other hand, a
competitively bid contract informs us that the owner decided to let more than one contractor
compete for the lowest price and the owner will select the lowest bidder.
4. Based on number of primes

Projects may have more than one general contractor working on site simultaneously. Therefore,
it is common to describe a contract as:
The owner makes that choice depending on the size and nature of the project and the
capabilities of the available contractors. Therefore, a single prime contract informs us that the
owner intends to let only one general contractor to building the project. On the other hand, a
multi-prime contract informs us that the owner decided to let more than one general contractor
to building the project.
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5. Based on legal description
Legal descriptions of contracts can reveal significant information that may affect the execution
of the contract and the liability of each party. The following are common legal descriptions that
should be clear in the minds of project management teams.
- Entire:
- Severable:
- Voidable:
- Sub-contract:
- Expressed contract:
- Implied contract:
- Bilateral:
- Unilateral:
- Joint:
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- Several:
- Executed:
- Executory:
- Quasi/constructive:
It should be apparent now that to fully describe a contract one needs to have more than one
description attached to the contract. For example, one may describe a contract as: a fixed-price,
design-bid-build, competitively bid, single prime, entire contract. Similarly, one may describe a
contract as: a cost plus, design-bid, negotiated, multi-prime, joint contract. As one can see there
are endless combinations of the above contract descriptions.
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Which contract type is the best?
All the above types of contracts are equally good when selected for the right project. To determine the
proper type of a contract for a specific project one should consider the characteristics of the project and
the owner risk attitude. For example, when time to market is the highest priority the design-build
delivery method should be the choice since it will reduce the bidding time (e.g., 3-9 months) and will
allow fast tracking of design and construction activities. When the project activities are repetitive and
quantities cannot be accurately determined the unit price payment method is advantageous since the
owner only pays for the quantities in place, not the in accurate estimated quantities. If the owner is a
risk-taker the cost-plus is advantageous because it puts the owner in control of the contingency
allowances and control of change management. If the owner is risk-aversion, a fixed-price payment
method is advantageous because it places the entire financial risk on the contractor instead of the owner.
Do all contracts have to be in writing to be enforced in a court of law?
Although contracts do not have to be written it is prudent to do so. However, many states require certain
types of contracts to be in writing. The Statue of fraud is the law that enforces the written requirement of
the following contracts:
1.
2.
3.
4.
5.
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Module 2
1. What are the elements that make a contract enforceable at a court of law?
2. What does each of the contract element mean…in detail?
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Module 2
Contract Formation
Definition: A contract is an agreement to do or not to do certain thing…
For any contract to be enforceable in a court of law it must have the following 4 elements of
legally enforceable contracts:
1.
2.
3.
4.
1. Capacity to contract
The parties must be legally competent. This means that each party is able and does not fall in
certain legal status as explained below:
a. Ability-
b. Legal Status- certain people are protected by the law because of their age, mental
capacity, etc. For example, a minor can walk out of a contract without any penalties.
Similarly, a mentally handicapped and intoxicated person can be excused of his/her
obligations on the basis of the lack of proper judgment. An owner can nullify a contract
with a felon upon the discovery of this information. However, if the owner accepts this
fact and did not nullify the contract, then the contract is enforceable in a court of law.
Similarly, an owner can nullify a contract with a foreign corporation upon the discovery
of this information. A foreign corporation does not mean originating overseas…it means
an incorporation that does not have a license in the State where the work is executed, or
an incorporation that is working outside of its charter (scope of work as specified in its
legal paper).
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2. Legal subject matter
The parties must be contracting on matters that are legal and the scope of work should satisfy the
following:
a.
b.
c.
d.
3. Mutual consent
The parties must show evidence of meeting of the minds. Usually, an offer and acceptance is
enough evidence of the mutual consent. However, a counter offer is not acceptance and only the
offeree can accept the offer…not some one else. It should be noted that during pure negotiation
efforts either party should not present all the ingredients (i.e., price, schedule, and scope of work)
for a binding acceptance. Otherwise, the negotiation could end a lot sooner than desired.
The following elaborates on such mutual understanding of the agreement:
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4. Consideration
Consideration is defined as something of value that each party furnishes to the other. Courts do
not get in evaluating fair and adequate considerations unless the case involves fraud. Otherwise,
courts view it as a risk taken, willingly. However, courts differentiate between “Valuable
Consideration” and “Good Consideration”. Examples of valuable consideration include:
promises, money, property, waiving of legal right. Good consideration is specific to blood
relatives.
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Module 3
1. Is the owner entitled to strict? Is that feasible? How does the court settle entitlement vs.
feasibility?
2. What are the definitions and differences between substantial completion and final completion?
3. What are the benefits of termination clauses?
4. What types of termination are common in construction documents?
5. What options are available to the non-breaching party? Which ones you should be avoiding?
6. What are the various damages allowed by courts for parties to a construction contract?
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Module 3
Ending a contract
The two conditions for ending a contract are:
1.
2.
These terms are explained below.
Performance of Contracts
Once the work/service under the contract is fully completed/performed, the contract automatically ends.
However, a less obvious question has to do with the owner’s rights. The question is:
Is the owner entitled to strict compliance with the terms of the contract?
Certainly, the owner is entitled to strict compliance. However, the construction industry is unique in
differentiating between strict compliance and substantial compliance, which may appear
contradicting. The substantial compliance is based on the fact that it is unrealistic in construction
contracts to conform to every minor detail. This notion gave birth to the doctrine of “substantial
completion”. This doctrine decrees that the construction contractor is deemed to have fulfilled its
obligations by reaching substantial completion. The substantial completion is defined as the
completion stage at which the owner can have beneficial occupancy of the project. On this basis any
work items that does not result in denying the owner from using the constructed facility for its
intended use may not be enforceable at a court of law. Examples of such items could include trim
work, touch up, decorative items, superficial defects, and alike. In addition, noncompliance that
results in major economical loss to the contractor may not be enforceable at a court of law unless it
jeopardizes public safety. For example, courts will not enforce strict compliance if the contractor
placed 5.5 inches of asphalt instead of the specified 6 inches. The rational would be that ½ inch
could not be placed by itself (not enough materials to withstand the placing operations) and digging
up the 5.5 inch layer and placing a new 6 inch layer will be financially devastating to the contractor.
The deviation form the strict compliance is not without a cost to the contractor, nevertheless. The
remedy that would be enforceable by courts would be to withhold sufficient funds to compensate the
owner for the noncompliance. The funds would be determined based on:
1.
2.
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Termination of Contracts
Contracts include termination clauses to impose some order and predictability of the conditions that
could lead to premature ending of a contract. The benefits of termination clauses include:
1.
2.
3.
There are two types of terminations to a contract:
1. Termination for convenience:

It is a contractual right given to the owner to end the contract at no fault of the contractor. This right
is usually exercised when owner faces financial problems or the need for the project is eliminated.
This termination entitles the contractor for a notice before termination, and full compensation for
work completed prior termination, any penalties incurred by the contractor for canceling orders and
subcontracts.
2. Termination for default:

It is a contractual right given to the owner to end the contract because of contractor’s breach
(violation) of contract terms. This termination entitles the owner to withholding all money due to
contractor, ceasing contractor’s materials and equipment on site, and holding contractor liable for
increased costs. However, owners have to be careful in declaring contractor’s breach. Courts
distinguish between “Material” and “Immaterial” breach.
A “Material Breach” is a major violation of terms and conditions of contract and it entitles the owner
for termination of the contract and suing the contractor for damages. Examples of that include
contractor’s failure to show up week after week, significantly falling behind planned progress,
consistently failing to pay workers/subs/suppliers, persistent failure to adhere to plans and specs, and
alike. An “Immaterial Breach” is a small violation of terms and conditions of contract. This breach
does not entitle the owner for termination of the contract but it entitles the owner for resulting
damages. Examples of that include contractor’s failure to clean up at the end of the day, falling
behind planned progress only by a few %, poor quality reports, and alike. Utmost caution should be
exercised when making this judgment call (material vs. immaterial breach).
Case study
Silliman Company vs Ippolito & Sons Inc.(467 A.2d 1249 CONN.APP.1983)
Prime refused to pay sub until work is complete. Sub stopped. Prime claimed refusal to work is a
material breach. Appellate Court ruled holding progress payment was a material breach. Sub was not
liable for breach.
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Case study
Burras Canal Const & Design Co. (470 N.E. 2d 1362 IND.APP. 1984)
Owner was dissatisfied with workmanship…considered that a material breach justifying changes in
payment terms. Court disagreed because work was complex and decreed that contractor was entitled
to notice and time to correct. Defective workmanship is material breach only if contractor fails to
correct in reasonable time.
What are the options available for the non-breaching party?
The non-breaching party has three choices:
1.
2.
3.
Excuse of a breach
If a party repeatedly overlooks a breach it runs the risk of waiving that contract requirement. For
example, if an owner consistently ignores the slow progress it may be ruled that the owner has waived
the right to enforce project schedule. However, a savvy owner can repeatedly excuse a breach without
waiving the right to enforce it. This can be done by declaring it as a one-time excuse. This should be
documented in writing and stating clearly that this is one limited breach only excused for this time and
should not be interpreted as owner’s intention to waive this right.
Rescission of a contract
Rescission is a trap for the unwary party. It often results out of the frustration of the non-breaching party
by communicating statements similar to: “If you do not do ……..…., then consider the contract null and
void”. The non-breaching party looses the right to sue for damages because there is no contract in place
any more, by that party’s choice. A party must have an executory (i.e., on going) contract to be able to
sue the other party.
Termination for default and suing for damages
The proper remedy for a non-breaching party is to terminate for default and seek damages.
Ramifications for default termination are severe. Therefore, courts entitle the contractor to a written
notice and time to cure default. Clauses that list the defaults that are considered material breach and
therefore justify termination are always stated in the General Conditions documents of the contract.
Although most of the termination clauses protect the owner, the contractor also has the right to terminate
the contract and sue the owner for damages. However, this is limited to basically one of two conditions:
1) owner withholding payment unjustifiably, or 2) owner stopping work at no fault of the contractor for
more than a specified time period (usually 30 consecutive days).
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Case study
Albert Saggese, Inc. vs Town of Hempstead (474 NY S.2d 542 N.Y.A.D. 1984)
Contractor was terminated for poor work appealed on basis of entitlement to hearing prior to
termination. Supreme Court of NY ruled not entitled to administrative or adversary hearing
before termination when termination is supported by enough facts.
What are the bases for evaluating damages for breach of contracts?
Courts recognize three types of damages:
1.
2.
3.
Compensatory Damages
To compensate for loses incurred by the non-breaching party and place it back in the same
economical position prior to the breach. Depending on the nature of the breach these damages are
calculated based on either: 1) Cost of Completion or 2) Fair Market Value. If the breach is due to
lack of performance, “Cost of Completion” will be the basis for the damages. For example, if the
remaining balance of the contract is $30,000 (original contract price $100K less paid to contractor
$70K) and the cost to complete the work is $40K, the compensatory damages will be (i.e., contractor
owes the owner) $10K. If the breach is due to defective (sub-quality) work, “Fair Market Value” will
be the basis for the damages. For example, if the delivered project lost $50K of its anticipated
market value due to looks/function/useful life/etc, the compensatory damages will be (i.e., contractor
owes the owner) $50K.
Liquidated damages:
These damages are unique to construction contracts. They compensate the owner for losses due to
late completion of the project caused by contractor. Liquidated damages (LD) are always stated as
$/day for every day past the contract completion date. For these damages to be enforceable by a
court of law they have to meet two conditions:
1.
2.
It is important to realize that LDs are not a penalty or an element of intimidation to contractor. They
are not enforceable if presented as a penalty. The reason for this “no-penalty” stance is that
Construction Law does not allow punitive damages in construction contracts, unlike civil and
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criminal laws. LDs have to be included in the contract prior to contract execution and by the consent
of the two parties. The owner can recover no more/no less than the stated amount per day. LDs
cannot be forced on the contractor by the owner after the contract execution. Once stated in a contact
the owner cannot waive the LDs and sue for actual damages. However, having LDs does not stop
owners from suing for other damages not related to delays (e.g., defective work, non-compliance,
etc…).
Although liquidated damages may sound like unwanted/undesirable feature in contracts, they have
many advantages:
1.
2.
3.
Case study
Aetna Casualty & Surety Co. vs B-M Sanitary Water District (500 F. SUPP. 193, 1980)
Contract called for liquidated damages $/day contract was completed 1138 day behind schedule
delays were caused by both owner & contractor. Contractor argued that owner could not assess
L.D.’s against contractor since owner contributed to them. US District Court ruled apportionment of
delay. Contractor was liable for delays caused by contractor.
Actual damages
- It is a misconception to think that if there are no LD clauses in a contract then the contractor
cannot be held liable for scheduling delays. Without LDs owners can sue for actual damages
based on delays. Such actual damages could be even higher than reasonable LDs. In calculating
recoverable actual damages a basic rule is to consider only foreseeable loses at the time of
contract execution. For example, the contractor has a good idea about the intended use of the
completed project. This makes contractor liable for lost revenue resulting from inability of
timely use of the facility. Typical foreseeable loses include: cost of completion, increased costs
of construction loan, lost rent due to delays, extended supervision, etc. However, contractor is
not liable for unforeseeable losses such as: lose of credibility in the business community,
business prospects, etc.
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Module 4
1. What are the common contractual relationships in construction contracts?

2. What is the role of each party?
3. How the parties are obligated to each other contractually?
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Module 4
CONTRACTUAL RELATIONSHIP
It is important to understand the relationships among the parties under the contract arrangements
commonly used to deliver construction project. These arrangements include:
1.
2.
3.
4.
Design-Bid-Build
Design-Bid-Build Arrangement - (Traditional Contractual Relationship)
In this delivery system the owner contracts directly with a designer (Architect/Engineer) to produce
the project design documents. The designer starts with preliminary design (mainly conceptual
drawings and very minimum key specifications). Upon the owner’s approval the designer moves to
detail design (production of working drawings and specifications). The designer may/may not be
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given a contract to supervise the installation of its design. In either case, the designer is always kept
during construction for assistance in understanding/interpreting the design.
Upon reaching certain percentage of completion in the design phase, the owner presents a conceptual
estimate with a feasibility study to a lending institution to secure the construction loan (short-term
loan) and the mortgage (long-term loan) for the project.
Upon the completion of the design documents, the owner sends the documents to bidders and
receives sealed bids. The owner evaluates the bids and contract with a Prime/General Contractor
(GC). The GC seeks construction bonds from a Bonding Company (Surety) and name the owner as
beneficiary on those bonds. The owner does not have a direct contract with the Surety; rather the
owner is named as beneficiary.
GCs usually self perform 0-20% of the total scope of work; the rest is performed by the
subcontractors. Therefore, the GC involves a large number of subs and suppliers to perform the work
and complete the project. The GC’s functions are primarily:
1. Serves as one point of responsibility to the owner
2. Interpretation of documents for subs
3. Coordinating the work and the schedule to ensure timely completion of the project
4. Fully responsible for the jobsite safety
Subcontractors are mainly the specialty trades (e.g., Mechanical, Electrical, Fire, Glazing, Painters,
etc). Subcontractors may subcontract parts of their scope to other subs and suppliers (known as
lower tiers of subs and suppliers). The owner does not have contracts with the GC’s subs and
suppliers. However, the owner always has the right execute work with his own forces and to engage
others (other GCs, subs and suppliers) to work directly for the owner on the same project.
Design-Build
Copy the diagram displayed on screen in this space

Design -Build Arrangement
In this delivery system the owner contracts directly with one firm that has both design and
construction capabilities (E-C firm). Under this arrangement the E-C firm acts as the designer and
the GC in the same time. The main advantage is to shorten the duration of the project by: 1.
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eliminating the bidding time and efforts, 2) starting construction before completing the design (fast-
track), and 3) engaging construction experts in the design as it is produced for feedback on
constructability and improvement ideas. This delivery system also eliminates the possible adversary
relationship (pointing fingers attitude) that frequently develops between the designer and the
contractor as omission/errors are being discovered or rework/changes being requested. In its role as
the GC, the E-C firm goes through the same process and bare the same responsibilities explained in
the Design-Bid-Build (traditional delivery system) arrangement above regarding surety, subs, and
suppliers. The owner has the same relationships with the lender and the surety.
CM Agency

CM-Agency Arrangement
In this delivery system the owner contracts directly with a CM firm that has relevant expertise and
supervision capabilities to oversee the design and/or the construction activities. The CM may/may not be
involved in the selection of the designer and/or the GC. In either case under this arrangement, the CM
firm acts as the owner’s consultant or representative. As such, there are no direct contracts between the
CM firm and any of the other parties. Under CM agency arrangement, the owner has the same
relationships with the designer, lender, GC and the surety as described in the traditional delivery system.
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CM at Risk

CM-at-Risk Arrangement
In this delivery system the owner contracts directly with a CM firm that has relevant expertise and
supervision capabilities to oversee the design and/or the construction activities, and is also willing to
accept the risk for delivering the project on time and within budget. In this arrangement the CM firm is
not expected to self-perform any of the work; but rather be seriously responsible for ensuring the
deliverables of the other parties. Therefore, the CM firm has direct contracts with all parties involved in
the project delivery (i.e., designer, GC, subs, suppliers, etc). Under CM at risk arrangement, the owner
has the same relationships with the lender and the surety as described in the traditional delivery system.
Turnkey Arrangement

Turnkey Arrangement
In this delivery system the owner contracts directly with a firm that is willing to assume all the risk for
designing, financing, and delivering the project. In this arrangement the owner has no direct contracts
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with any entity but the turnkey firm. The turnkey firm may assume the responsibilities of the owner,
CM, and/or the GC as explained in the traditional contractual arrangement. The clearest example of this
project delivery method is the purchase of a home. The buyer sees the end product (the house), pays the
price, and turns the key to open the door. Of course such a delivery system is not as simple when it
comes to larger and more involved projects. However, the general picture presented holds true for any
application.
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Module 5
1. What are the common challenges in contract administration?

2. What are the controversial issues related to invoicing, billing, and payments between GCs and
subs/suppliers, and owners and GCs?
3. What are the disputed issues related to progress payments and final payments?
4. What are the differences between payment to subs and payments to suppliers?
5. What is the mechanism by which subs can get direct access to owner’s money?
6. What is the legal instrument that protects GCs from unreliable subs?
7. What are the legal instruments that forces GCs obligations on subs?
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Module 5
SIGNIFICANT ISSUES IN CONTRACT ADMINISTRATION
What are some of the most common challenging issues in contract administration?
1.
2.
3.
4.
5.
6.
7.
8.
9.
10
11.
12.
The above is not an exhaustive list of the challenging issues facing project managers; but rather a sample
of the many challenges inherent in contract administration. The following briefly elaborates on each
issue:
1. Communication and Coordination Problems

Coordinating the timely flow of information among the large number of independent entities on a
construction site is a continuing challenge. Although progress/communication meetings are
common practice the amount of information, the interdependencies, and the necessary relentless
efforts to follow up on the large number of action items can easily become overwhelming. The
task of devising and implementing protocols and procedures for meetings, minutes distribution,
information dissemination, listing/advertising/sharing action items, follow-ups on action items,
balanced focus on immediate needs and not-so-immediate needs, and similar items should be
taken seriously early in the project initiation time.
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2. Payment Process
The process of invoicing and receipt of payments involves many hands. The process starts by the
GC preparing and submitting an invoice to the owner, the owner’s rep verifies the payments and
may adjust the amount with justification, retainage is deducted form the invoiced amount, the
owner submit the approved amount to its bank, the bank issue a check to the GC, the GC collects
the amounts, the GC determines the distribution of that amount among the subs and suppliers
that contributed to the work included in the invoice, the GC issues checks for each entity, the
checks are received and cashed by each entity. Normally, such a process takes between 30-60
days if there are no disputes or problems detected. Determining what work items were covered
by the paid amount and % of whose work got paid or deducted is not always easy to untangle.
See Appendix 22- for Payment Applications examples.
However, the following sections provide some insight on the more controversial issues than just
the distribution of the payments received from owners. These issues include:
1.
2.
3.
4.
3. Payment Obligations to Subs and Suppliers

The basic legal precondition to entitlement to payment is substantial compliance with contract
requirements. The sub has to finish work as per plans and specs to be entitled to payments.
However, this entitlement gets legally controversial when the contract between the GC and a sub
makes payment contingent on receipt of payment from owner for the work completed by the sub.
Clauses such as: “Contractor shall pay sub within 10 days from the date contractors receives
payment from owner for work performed by sub” can create problems. GCs argue such clauses
are fair and reasonable since GCs depend on the flow of contract funds from the owner to the
subs. Subs argue that they have no contractual relationship with owner; have no leverage to force
the owner to release funds, and they counted on GCs line of credit to perform the work.
Therefore, GCs must bear the risk for funds disruptions and should be prepared to pay the subs
upon completion of their work. Courts tend to agree more with subs and force GCs to pay subs
within a reasonable time after payment is due. Courts do not allow indefinite payment delay even
if the amount due will never be paid by the owner.
The only exception to this court position is when the contract between the GC and a sub makes
payment by owner a “Condition Precedent” to payment obligations to the sub. With such legal
verbiage a sub may not get paid due to issues other than its own performance.
Case study
Grossman Steel Corp. vs Samson Window Corp. (426 N.E. 2nd 177, NY 1980)
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Contractor awarded a subcontract with: “Retainage will be paid to sub as and when contractor
receives such payment from owner L in same proportions”. Owner failed to release payment to
contractor. Contractor refused to pay sub relaying on contract language. Appellate Supreme
Court ruled in favor of sub. Contract language was not explicit enough to make payment by
owner “condition precedent”.
4. Progress Payment, Final Payment and Retainage

Subs usually receive a single payment for their work if the time of executing their work is short
(less than a month). For long times, subs receive progress payment based on their work %
complete. The process of invoicing and payment follows a procedure similar to the process
between the GC and the owner. However, there are controversial issues regarding final payment
and release of retainage. GCs like to keep retainage until final payment is received from owners.
GCs argue that final inspection may show problems in sub’s work and the GC needs protection
against that. Withholding the final payment and retainage also helps the GCs cash-flow during
construction. Subs argue that the GCs could carefully inspect their work upon completion to
ensure work quality and completion. They also argue that it is a major hardship especially for
early subs that would be forced to wait months/years for the balance of their contracts. In
addition, what guarantee does a sub have against others causing harm to its work after the sub is
gone. Courts enforce either side of the arguments as long as it is clearly stated in the contract.
5. Payments to Suppliers
It should be noted that payments to suppliers is a different matter than payments to subs.
Suppliers provide goods while subs provide services. Payments to suppliers therefore are
governed by a different set of laws (the Uniform Commercial Code-UCC). The UCC is a statute
adopted in every state to govern sales of goods. The UCC establishes the rules for offers,
counter-offers, contract formation, implied warranty and disclaimers of warranties. The set of
rules imposed by the UCC differ greatly from construction contract rules. The UCC does not
apply to construction contracts because construction contracts cover sale of services; not sale of
goods.
Under the UCC, a payment is due within 30 days and retainage is not applicable. The GC has the
right to inspect the goods/materials before accepting the goods. Once accepted, the GC is
obligated to pay. Problems observed after acceptance are covered only by implied and expressed
warranties of such goods.
For purchasing off-the-self items, suppliers provide buyers with price list. Purchase orders (POs)
are placed to procure such materials using price lists. Contractors usually receive trade discount
(5-10%) for being repeated customers. Sellers may have boilerplate terms printed on the back of
the sale receipts or invoices. That is usually the extent of the documentation involving the terms
and conditions of the transaction.
Purchase of equipment and customized products is a lot more involved process. The process
starts with a Purchase Requisition (specifications for the equipment/product and a request for
price). The supplier/vendor/fabricator responds with a price. The contractor negotiates a price
and issue a PO. The PO contains terms and conditions that the contractor seeks to impose on the
supplier. When the supplier furnishes the product, its invoice usually contains different terms
that supplier seeks to impose on the contractor. Each requests the other to acknowledge its terms
and conditions. Each claims that the terms and conditions on its form take precedence in case of
28
conflict. This creates confusion as to the provisions that were really intended to govern the
purchase.
6. Remedies for Unpaid Subs and Suppliers (Lien Laws)

The best remedy for an unpaid sub or supplier is to recover by the payment bond of the GC or to
place a lien against the owner’s property. Lien statutes (mechanics & materials liens) were
enacted to allow parties providing labor or material to obtain security interest in the owner’s
property. The rational is labor and material has improved the value of owner’s property, and
therefore the providers should look to the property as the security for their eventual payments. A
fully perfected lien (i.e., a lien that satisfied all the required steps by the statute) is like a
mortgage on a property. It must be paid before a clear title to ownership is provided to the
project owner.
7. Maintaining Proper Chain of Command

Authority must be given fully to the GC on site. Tremendous confusion occurs if owner’s rep deals
directly with subs. The confusion is caused by the fact that the sub does not know whether the work
discussed with the sub is a part of the GC’s scope or is an additional scope. If the work discussed
with the sub is not a part of the GC’s scope, then the question becomes: is the owner contracting
directly with the sub on the additional scope? If the work discussed with the sub is a part of the GC’s
scope, then the question becomes: is that part of the work assigned by the GC to this sub? These
questions create confusion regarding the scope, change orders, responsibility for payments
(contractor vs. owner). Once this confusion takes place, the GC could not be held responsible
because the GC was kept out of the loop. Owner’s reps should also refrain from interpretation of
documents, comments on shop drawings issues, feedback on material samples and other submittals.
Case study
Thatcher Corp. vs Bihlman - (473 N.E. 2nd 1022 Ind Appl 1985)
On a dike project contractor subcontracted a part of the scope. Because of differing site conditions
owner’s engineer issued directives to sub after completion, subbed requested additional $$$$$ from
contractor. Court of appeal of Ind. ruled: contractor is not liable because it was bypassed by owner’s
engineer.
8. Lack of Contract Formality

Lack of contract formality- During competitive bidding, contractors obtain quotations from subs
orally, over the phone, by fax, etc. All these methods lack the ingredients of an enforceable contract
(price, schedule, and scope). In addition, quotations are usually given at the last minute because of:
1) time constraints and 2) fear of “bid shopping”. Bid shopping is a term describes the exercise in
which a GC is pitting bidders against one another to get each to lower its price. Of course during the
bidding time no subcontracts are executed. Subcontracts are executed later only after the contractor
is awarded the contract. This can create problems because the contractor committed itself in a
binding offer on the basis of the subs’ quotations.
The doctrine of “Promissory Estoppel” protects contractors from the harm of key subs backing out.
The essence of the doctrine is that if a party relies to its detriment on the promise of another party,
the other party must be held responsible to its promise to avoid harm to the first party. As a result, a
sub will be forced to honor its price or pay the resulting extra cost if it backs out of an offer. This is
not based on breach of contract, since there was no contract formed at the time of the offer (price
29
quotations). However, the problem in enforcing this doctrine is to prove reasonable reliance on the
sub’s price. The sub may have not submitted an “unequivocal” bid/price by making it conditional on
some contingencies. To lock in prices received from subs a prudent contractor should promptly send
a written notification to the subs confirming receipt of price, informing that the price is used in the
bid, and stating reliance on the price. However, a prudent contractor should not promise execution of
subcontract at this time. The contractor is still not obligated to the subs.
See Appendix 20- for examples of sub-bids and subcontracts.
Case study
Preload Technology vs AB&J Construction Inc. (696 F.2d 1080, 5th Cir. 1983)
Contractor received an oral quotation from sub in preparation of bid. Later, contractor requested
written breakdown. Contractor was awarded the contract, sub refused to enter contract because of
changes in workload. Contractor sued for increased $$$$$ in subcontracting this portion. The U.S.
Court of Appeal ruled: Sub was liable under the doctrine “Promissory Estoppel” because contractor
had reasonably relied on sub’s price.
30
9. Use of Filed Sub-bids
On public contracts, a system has been established by statutes in many States to award subcontracts.
This came as a response to the political influence of subs and trade organizations demanding more
direct access to public works funds. In this system, subs submit sub-bids directly to the awarding
authority (public owner). The awarding authority send the list of sub-bids to interested GCs.
Contractors must use these sub-bidders for work they do not intend to self perform. An exception to
this rule is acceptable if the GC proves that it cannot work harmoniously with a particular sub.
Interestingly, “filed sub-bids” don’t address the general conditions under which subcontracts will be
executed.
Case study
Robin Hope Inc., vs J.A. Sullivean Corp. -(413 N.E. 2nd 1134, MASS. App. 1980)
Contractor prepared a bid for public school project using filed subbids as a statutory requirement.
For metal windows, contractor listed itself instead as the lowest bidder. Sub sued based on loss profit
expected & court agreed. Only if contractor customarily furnish this type of work with its own
qualified personnel, contractor could refuse to award subcontract to lowest filed sub-bidder.
10. Imposing Contractor’s Obligations on Subs and Suppliers

Contractors attempt to make subs and suppliers assume the same obligations that they assume with
the owner. Contractors can accomplish this with the following legal instruments:
a.
b.
c.
Flow-Down Clauses
These are clauses stating that the sub agrees to adhere and be bound to contractor by all
provisions of prime contract dated ……. and executed by contractor and owner. Although,
this does not expand sub’s scope of work it however imposes the administrative
requirements of the general contract on the sub. Examples of such administrative
requirements include notice for differing site conditions, request for the time extension,
change order (CO) requests and procedure, submittals, etc. Subs should be very careful in
such situation and carefully read the conditions of the prime contract.
Case study
Sime Const. Co. vs Washington Public Supply (621 P2d. 1299, WASH.APP. 1980)
Subcontract contained flow-down clause stating that conditions of prime contract were
incorporated in subcontract by reference. Sub was delayed due to late drawings. Sub
claimed delay damages. It was denied based on failure to give written notice within 15 days
as per the terms of the prime contract. Court enforced the flow-down clause and denied
sub’s claim on same basis.
However, Federal courts (for federal projects) took a different stand. They did not expand
the obligations to the administrative requirements. They limited obligations to the sub scope
of work.
31
Warranties
Contractors have to carefully see that warranty on subs’ works do not expire before contractor’s
warranty expires. Contractor’s warranty usually last for one year and begins at the project final
acceptance. Problems are more likely to occur when a contractor is forced to use certain subs or
suppliers due to proprietary spec or law requirements. Generally, suppliers do not extend the same
warranty as committed by the contractor. Suppliers often use standard disclaimer clauses which are
enforceable by the UCC. The best a contractor can do is not to acknowledge the supplier’s terms and
to create uncertainty regarding what terms really govern the sale to have a chance to recover.
Construction bonds
Key subs should be bonded as protection for contractor against non-performance. However, it should
be realized that bond premiums for subs are additional expenses to the contractor and will affect its
price/bid. Therefore, it is usually limited to key subs only. Subs’ bonds work the same way as bonds
between the contractor and owner. The contractor is named obligee in this case. Suppliers are rarely
bonded. See Appendix 21- for examples of subcontract bonds.
11. Scheduling Issues

There are many challenges related to construction schedules concerning the incorporation of subs’
schedules into the GC’s master schedule. These challenges include:
a. Dividing work among subs - The GC is solely responsible for dividing work among subs to ensure
no omission or overlap. Owners and subs have no obligation in this matter. Contractor must NOT
solely rely on specifications divisions in assigning work to subs because that may lead in overlap or
omission of scope. For example, wiring of equipment is in Division 15-Mechanical. Therefore, the
electrical sub will not be obligated to perform this work if its scope is limited to Divesion16-
Electrical. Also, the mechanical sub may not include the wiring, as it limits its scope to the
mechanical part of Divsion15. Such omissions can cause costly claims, confusion, interruption of
work, and liability to perform due to trade jurisdiction/turf.
Case study
Lamb plumbing & Heating vs Anderson Inc. - (296 N.W. 3rd 859, MN 1980)
Contractor awarded 2 subcontracts. Both referenced certain division. Responsibility of a
gate valve was not clear. Sub A performed and sued. Supreme Court ruled sub must be paid
for valve. Contractor responsibility is to clearly divide work.
b. Coordinating schedules among sub - The GC is solely responsible for determining and coordinating
schedules among sub to ensure proper sequence and minimum overall time for completion. Owners
and subs have no obligation in this matter. Wrong scheduling dates may not only harm a sub, but
also delay the entire project. Ideally, each sub should be given its schedule (start – finish dates) and
a copy of the overall schedule. Unfortunately, such start-finish dates are usually omitted because the
contractor fears that subs may claim delay damages if these dates are not met. Usually, subcontracts
state that the sub agrees to work at the direction of the general contractor and that certain amount of
delays and disruptions should be expected. These clauses are generally enforceable by courts, but
since the subcontract does not contain specific dates the contractor cannot hold subs responsible for
delays. However to protect themselves, GCs often include statements in the subcontracts stating
that the sub shall be liable to the extent that its slow performance results in subjecting the GC to
liquidated damages. Such clauses are enforceable, but the GC has to prove that sub caused late
completion of the project. If it is proven courts will pass the LDs to the sub.
32
Module 6
1. What are the documents that make the bidding documents?

2. What are the documents that make the construction contracts?
3. What is the purpose, function, and content (details) of each document?
4. How do the above documents relate/govern to each other?
33
Module 6
CONSTRUCTION COCUMENTS
The enclosed Figure summaries the construction documents and groups them according to the common
practice. As can be seen in the Figure:
- The Project Manual consists of the Bidding Requirements documents, Contract Forms, Contract
Conditions, and Specifications.
- The Bidding Documents consist of the Project Manual, Drawings, and Addenda
- The Contract Documents consist of the Project Manual (less the Bidding Requirements
documents), Drawings,
Addenda, and the Contract
Modification instruments.
Each of these documents is

discussed in the following
sections.
34
BIDDING REQUIREMENTS
The bidding requirements block (as seen in the previous Figure) is made of the e following
documents:
1. Invitation to bid
2. Instruction to bidders
3. Pre-bid information
4. Bid form
5. Bid bond
Each of these documents is discussed individually in the following sections.
Invitation to Bid
Purpose of Invitation
1. For owners to solicit bids
2. For bidders to decide whether they have:
a.
b.
c.
d.
Methods of Invitation
Open Invitation
- Open to all responsible bidders
Responsible means having financial ability, experience, and required resources
- In the private sector, both prequalification (i.e., before bidding) and post-qualification (i.e., after
bidding) are common.
- In the public sector, only pre-qualification is acceptable to avoid possible disputes with the
apparent lowest bidder that is missing other requirements.
- The invitation is usually posted as an advertisement in newspapers, national journals (e.g., ENR,
Dodge report, AGC Daily News, etc), regional journals (e.g., construction news).
- State laws dictate: where, how many times, how long each ad should run.
Closed Invitation
- Only open to selected bidders
- Selection could be based on personal contacts in the form of a letter
- More frequently, invitation is sent to all names on the prequalified bidders list. This list contains
the names of bidders that were prequalified already by the owner and proven to have the
necessary credentials to bid work with the owner. To be included on such a list, a bidder needs
to complete certain documentations. Appendix 1 provides an example of a form used for
prequalifying bidders.
35
Whether the invitation is composed in the form of a letter or an advertisement it should contain the
following 10 points:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10
Appendix 2 provides an example of a letter format of a complete invitation to bid.

Appendix 3 provides examples of public advertisement.
36
Instructions to Bidders
Purpose
-
This document must be closely coordinated with the Invitation to Bid and the General Conditions
documents since items mentioned in the Invitation are detailed further in the Instructions and item
mentioned in the Instructions are detailed further in the General Conditions. Many professional and
trade organizations have developed preprinted documents to be used as Instructions to Bidders. The
American Institute of Architects (AIA) is a good source for many of the preprinted documents
suitable for building type projects (Appendix 4: AIA Doc. A701 instruction to bidders). In addition,
other organizations such as the Engineer’s Joint Contract Document Committee (EJCDC) is a good
source for many of the preprinted documents suitable for non-building type projects (Appendix 5:
Doc #1910-12 Guide to the Preparation of Instruction to Bidders).
Contents of Instructions to Bidders

The document addresses the following issues:
1. Bidding Documents issues such as who can obtain a copy, no partial sets, deposit amount to
obtain a copy, how documents should be returned, and the amount of refunds when returned
2. Examination of documents issues such as location to examine documents, time limits on
examination, and arrangements for examination
3. Issues related to interpretation of documents during bidding such as who is authorized to receive
requests for interpretations, where to send requests, how requests should be sent, deadline for
sending requests, time limit on replies
4. Substitutions issues such as are they allowed, procedures for request, time limits on receiving
and responding to a request
37
5. Type of bid issues such as lump sum/unit price/cost plus/entire/segregated/etc
6. Preparation of bid issues such as the necessary # of copies, signatures required
7. Bid security issues such as requirements for security, amount, form of security (cashier/certified
check), who should it be payable to, time limit before owner returns security, conditions that lead
to return/forfeiture bid security
8. Performance and payment bonds issues such as requirement for bonds, bond value as % of bid,
time limit to furnish bonds
9. Subcontractors list issues such as the requirement for submitting a list and time limit on
submitting such a list
10. Bids identification and submittal issues such as how to ID the bid, submittal procedure, and
handling of late bids
11. Modification/withdrawal issues such as procedures and time limits or withdrawing and
resubmitting a bid
12. Disqualification issues such as determining the causes for disqualifying a bid/bidder
13. Laws & regulations issues such as permits, licensing for special requirements, tax exemption,
wage rates (if law requirement), local labor agreements, non-discriminatory hiring, etc
14. Pre- bid conference issues including requirements, where, when, and who must attend
15. Liquidated damages issues such as stating the required amount and specifying bonuses
16. Bid opening issues such as the detailed procedures
17. Bid evaluation issues including basis for evaluation and reserving the owner’s right to reject any
or all bids
18. Execution of contract issues involving the description of the procedure and the required
signatures levels
38
Pre-bid Information
Information classified as pre-bid is entirely optional, and offered for bidders’ convenience. It is not
part of the contract and does not relieve bidders from investigating its accuracy. Care should be
exercised in presenting such info to avoid misleading the bidders. Examples of such information
include preliminary construction schedule prepared by A/E, Geotechnical data and reports including
soil borings and other reports, and conditions of existing site and structures. This information should
also be coordinated with General Conditions since both documents mention it.
Bid Form
It is a form provided by the owner to carry the final bid figures. It is also known as “Proposal Form”.
Although provided by the owner, it is prepared in the form of “FROM: Bidder… TO: Owner”. It
incorporates many blank spaces to be filled by bidders.
Purpose:
It ensures the completeness and uniformity of the bids, and therefore promotes fairness in judging the
bids on the same basis.
Contents:
1. Bid ID- including Project ID/Title/# as well as owner’s name & address and bidder’s name &
address.
2. Acknowledgement of all documents including drawings, specs, addenda, as well as confirming the
correlation of site conditions to project documents.
3. Bidder obligations- confirming that bidders holds the bid price for certain time period (usually 30
days in private work and 60-90 days in public work) and agreeing to forfeit bid security if
defaults.
4. Basis of bid- specifying the payment method (i.e., Lump sum, unit price, etc) and requirements for
alternates (if any). An alternate is a definable scope (part of the project) for which the owner
requests a separate bid that could be added to or subtracted from the base bid.
5. List of attachments – often owners will require items to be attached to the bid form such as: the
bid security, subs & suppliers list, bidder’s qualifications statement, bidder’s financial statement,
and non-collision affidavit. The non-collision affidavit is a written document stating that the
bidder did not collaborate/cooperate/share any specifics of its bid with other bidders. Appendix 6
provides an example of a Proposal Form.
39
BID BOND
What does each of these terms mean?
Surety bond – written document given by principal & surety to oblige guaranteeing a specific
obligation
Principal – party under obligation (contractor)
Surety – party guaranteeing principal’s performance (bonding company)
Obligee – party benefiting from bond (owner)
Indemnity agreement – written agreement between principal & surety guaranteeing that the
surety will be held harmless and will incur no losses as a result of providing the bond
PURPOSE:
Assurance to owners, subs & suppliers of financial backing of the contractor’s obligations
TYPES:
Bid bond:
Submitted with bid, used if lowest bidder refuses contract; absence is a reason for
disqualification of bids; provided free of charge with other services; may include cost of re-
bidding
Performance bond:
Submitted with execution of contract, used if contractor defaults in performing obligations;
surety takes over or provides funds to complete project; costs 0.3-2% of bond amount (usually
100%)
Payment bond:
Submitted with the execution of contract, used if contractor defaults in paying labor, subs, or
suppliers; protects owners from mechanic’s liens; and claims against contract balance by unpaid
subs
Maintenance bonds:
Usually specified in a specification’s section to ensure that certain component/system of the
facility will run free of defects for certain number of years…commonly requested for roofs and
mechanical systems
- BOND FORMS:
Standard forms for federal, state, municipal projects (AIA A311) others by EJCDC (#1910-28)
and AIA (A312)
(Appendix 7 – Surety Bonds)
40
CONTRACT FORMS
These include:
1.
2.
3.
4.
AGREEMENT FORM
1. Background
- Mistakenly, referred to as the “ contract”
- Is the instrument that obligates the signing parties
- Binds the other documents firmly and permanently (incorporates by reference)
- Consult an attorney because of legal consequences
1. Contents
1.
2.
3.
4.
• Agreement Forms
- Standard forms are available from professional and trades societies, government agencies, and
institutes
- Standardization: save effort, assure completeness; acceptability; familiarity
- Modification must be coordinated with General Conditions
- AIA (A101) & EJCDC (#1910-8-A-1): Standard statements + blanks to be filled to reflect the
specifics of a contract
See Appendix 8 – lump sum contracts

See Appendix 9 – cost plus contracts
41
PROJECT CERTIFICATES
These certificates include:
See Appendix 10 – certificate of substantial completion)
INSURANCE
1. Worker’s compensation
- Statutory insurance
- Covers: medical expenses, wage loss, hardships
1. General liability
- Covers personal & property damage of third party
- “Exclusionary” i.e. every except specified
1. Vehicle liability
- Mandatory in most states
- Covers operator, passengers, property
1. Builder’s risk insurance

- Covers the property for construction time against: windstorms, hail damage, fires, floods,…,
materials & equipment installed only
2. All risk insurance
- Combines vehicle and builder’s risk policies in one
3. Owner’s liability
- Covers owner against a third party
4. Loss-of-use insurance
- Covers owner for delays through a mishap and no fault of contractor
42
CONTRACT CONDITIONS
Purpose
Define basic rights, responsibilities, and relationship of parties executing the contract
Contents
1.
2.
Is the A/E a party to construction contracts?
• Owner’s rep to visit & check site

No, but although the A/E is not a signatory the document describes its duties & responsibilities:
• Interpretation of documents
• Authorize progress payments
• Prepare change orders
• Approval/ disapproval of submittals
• Reject defective work
• Determine substantial comp date
• Determine final completion date
• Agreement between O & A/E

- The document must be coordinated with:
• Instruction to A/E field rep
43
GENERAL CONDITIONS
ARTICLE 1
- Contract documents/terminology
- A/E responsibilities: (see “B” above)
ARTICLE 2
- OWNER’S OBLIGATIONS:
- Evidence of financial arrangement
- Survey, legal limits and description
- Free copies of DWGs & SPECs (e.g., 10-18)
- OWNER’S RIGHTS:
- Right to perform work with own force/ other
- Right to stop the work
- Right to carry on defective work
After 7 days from a written notice
ARTICLE 3
- CONTRACTOR’S OBLIGATION:
- Review and compare documents
- Report inconsistencies/ errors
- Direct, supervise & test work
- Liable for his employees and subs
- Liable in spite A/E inspection
- Provide & pay resources for all work
- Warranty all material and equipment
- Pay applicable taxes
- Secure permits & licenses required
- Comply with all laws & regulations
- Employ competent superintendent & key person
- Submit progress schedule
- Submit shop drawings, samples product data
- Submit list of subs & suppliers
- Clean-up
- CONTRACTOR’S RIGHTS:
- Withholding payment for no reason:
AIA 7 days past due + 7 days notice = stop
Cost of shut down
Cost of delay 7 start up
ARTICLE 4
- CONTRACT ADMINISTARTION:
- Longest Article
- Interpretation of documents
- Dispute resolution
44
- Arbitration
ARTICLE 5
- SUBCONTRACTORS:
ARTICLE 6
- WORK BY OWNER OR OTHER PRIMES
ARTICLE 7
- CHANGES IN THE WORK
- Change orders: written, signed by A/E & Owner
- Contractor signature means agreement with adjustment only.
- Cost of change orders:
1. Mutual consent
2. Unit price schedule
3. As determined by A/E
4. GC claims for cost adjustment (20 days time limit)
ARTICLE 8
- TIME
- Date of commencement: NTP or agreement form (Appendix-19 examples of NOA and NTP)
- Time extension if delays by O or A/E
- Must submit time claims within 20 days
ARTICLE 9
- PAYMENTS
- Schedule of values before 1st payment
- For installed/ not deliver only
- Time to review application
- Owner pays with time specified in agreement
- Withholding payments for reason
- Final completion & final payment
1.Final inspection
2.Affidavit of all payments made
3.Waivers of liens
ARTICLE 10
- PROTECTION OF PERSONS AND PROPERTY
- Safety programs
- Designate a safety officer
- Maintaining safe operation
- Comply with all safety laws & regulations
- Utmost care in handling hazardous material
- Prompt remedy
45
ARTICLE 11
- INSURANCE
- Contractor’s liability (purchased by contractor)
- Owner’s liability (purchased by owner)
- Property insurance (purchased by owner)
- Boiler and machinery (by owner)
- Policies filed before commencement of work
ARTICLE 12
- UNCOVERING & CORRECTION OF WORK
- Covered contrary to A/E request
uncover & cover on contract $$$
- Uncover request:
1.If in accordance with contract documents, owner pays the cost
2.If not in accordance with contract documents, contractor pays the cost
- Prompt correction of defective work
- One year from substantial completion or as per law = correct deflective
- Right to deduct $$$ for defective work
ARTICLE 13
- MISCILLENIOUS
ARTICLE 14
- TERMINATION OF THE CONTRACT
- By contractor:
1.Stopped for 30 days (no fault of his)
2.7 days notice = = recover all $$$
- By owner:
1.Major non-compliance with: contract, laws, regulations, standard workmanship, payment to subs; or
go bankrupt
7 days notice to contractor + surety
Take position of site, material, equipment, construction equipment, tools, etc ….
See Appendix 11 – Example of General Conditions
46
SUPPLEMENTARY CONDITIONS
What is the purpose/function of the Supplementary Conditions?
- Examples of issues handled by Supplementary Conditions include:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10
11.
- Language samples:
1. Delete paragraph 5.4.2. of the general conditions in its entirety and insert the following in its
space:
2. Add the following at the end of the second sentence of paragraph 9.4.3 of the general
conditions:
3. Add a new paragraph immediately after paragraph 8.6.3 of the general conditions which reads:
47
SPECIFICATIONS
Purpose
Written documents that specify:
1. Type and quality of materials and equipment required
2. Quality of workmanship (standards/codes) including:
a. Fabrication and installation methods
b. Testing requirements (QA/QC)
c. Allowances (i.e., amounts of money specified by the owner to cover the cost of
certain items)
d. Alternates (i.e., defined scope for which the owner requested a separate bid that
could be added or subtracted from the base bid)
Evolution
In the Medieval time, the Master builder directed the work and selected materials as the work was
executed. In the 20th century, specifications started as compilation of notes on drawings and
infrequently provided as separate write ups. Today, writing specifications is a recognized profession
that requires individuals with good writing skills; verbal communication; ability to communicate with
wide range of people; capability of researching and fast reading; understanding of legal principles; and
knowledge of field practice. There is no specific education (i.e., no single program; college degree) is
necessary. However, many professional specifiers have degrees in Engineering, Architecture, and
Construction Management. However, some specifiers have vocational or high school degrees
complemented by extensive experience on job sites.
Methods of Specifying
Specifications could be written as:
1.
Descriptive specs
2.
3. Reference specs
Proprietary specs
4.
Performance specs
5. Combination of above
Descriptive Specifications
This type of specifications is written to describe the means and methods of reaching the end product.
Therefore, it provides details regarding selection, proportions, preparation, properties, and
installation of the materials desired.
In this type of specifications concrete is specified by its concrete mix proportions (i.e., 4:2:1:0.5)
instead of specifying the concrete strength (e.g., 3000 psi). As such, the specifier assumes the
performance liability of the end product. In other words, the contractor will not be liable for attaining
certain concrete strength if the contractor follows the specified mix proportions. This method is
being used less because of this shortcoming. However, sometime it is the only choice available to the
specifier. Examples of such situations include specifying a new material where the manufacturer is
the only expertise and no previous standards or expertise are available.
48
Reference Specifications
This type of specifications refers the contractor to nationally recognized standards that govern the
means and methods of reaching the end product. Exemples of such standards include standards those
written by ASTM, ANSI, ACI, ASME, etc. Although full inclusion of the standard is recommended,
it is sufficient that a specifier only mention full title and number of the standard desired. This type of
specifications saves text, time, and effort.
It should be noted however that such standards only cover the minimum acceptable quality and can
contain hidden choice. For instance, specifying the concrete work using the ASTM C150 standard
allows the contractor to choose among 8 types of Portland cement. Obviously, a contractor will
choose the least expensive regardless of the quality or what is best for the project. In addition, this
method can create duplication and confusion because many organizations developed standards that
are contradicting at times. The worst of all is to mistakenly reference the wrong standard number or
acronyms of the issuing organization, which could easily happen.
To avoid such disastrous situations, it is recommended that the specifier:

1. Reviews the contents and purpose of the reference spec
2. Verifies that it is compatible with rest of the specs
3. Utilizes the most commonly used specs
4. Ensures no hidden choices
5. Ensures no duplication
6. States exceptions to the ref specs, if any
7. Use full titles, designations and define acronyms
Proprietary Specs
This type of specifications defines the requirements by stating:
1. Manufacturer’s name
2. Brand name
3. Model #/ catalogue #
4. Type & other designations
As such, this method simplifies bidding, reduces the volume of specs, provides more complete
project documents, and offers closer control of product selection. However, it eliminates wide
competition, favors certain products, and can force contractors to use undesirable products or
vendors with whom they may not be able to work harmoniously. At times, proprietary specs are a
must when the products have to match exiting ones to avoid extra efforts in maintenance and tying
additional money in spare parts. Also, when the system is vital to the operation of the facility and a
certain product has proven superiority. In general, proprietary specs are not allowed in public works
unless it names at least 2 brands and allows substitutions.
Proprietary specs could be classified as: closed or open as discussed below.
Closed Proprietary Specs

This type of specifications states only one product name and allows no substitutions for the purpose
of reducing variability in the possible alternatives. This type of specs could result in higher cost
because of sole sourcing, unfair advantage of one vendor against others, and increase the possibility
of collusion (i.e., bribing/kick-backs) between the specifier and the supplier.
49
Open Proprietary Specs
This type of specifications lists more than one product name and indicates that named products are
primarily for guidance, allows substitutions. As a result, it eliminates sole sourcing, provides more
flexibility to bidders, and benefits from the introduction of new products. However, it should be noted
that bids are evaluated based on base items (named products) with substitutions’ prices listed separately
for owner’s assessment.
Performance Specs
This type of specifications the items are described by detailing the results required instead of the
physical products. For example, instead of specifying an Air Conditioning system by its brand name or
tonnage it is specified by the ability of the system to cool/heat certain volume in specified time period
and its ability to offer certain number of air exchanges within certain time, etc. Another example is
specifying concrete by its strength (5000 psi) instead of the mix design. In this method the specifire must
clearly state the method by which the results will be verified.
Writing Specifications
Each specification must answer 3 questions:

1. What interrelationships exist with reminder of the sections?
2. What products are involved?
3. How products are incorporated/installed?
This is accomplished by writing specs in what is known as “the 3-part format”:
1. Part 1: General
2. Part 2: Products
3. Part 3: Execution
The name and sequence of these three parts are fixed in all specifications. The following elaborates on
each part:
PART 1-GENERAL
This part represents the administrative and procedural requirements of the spec and contains the
following:
1. It lists the contents of the section and lists related references and standards
2. It lists the related sections and clarify it the item is to be furnish, installed or both
3. It lists the unit price work, allowances, and alternates
4. It lists the requirements for submittals, Q/A & Q/C, handling, and storage
5. It lists the requirements for sequencing, scheduling, warranty, and maintenance
PART 2-PRODUCT
It specifies the materials, equipment, components, mixes, fabrications, tests, inspections, tolerances,
accessories, and manufacturers
PART 3-EXECUTION
It specifies the requirements of on-site labor, as well as, examination of material, acceptability criteria,
preparation, erection, tolerances, field Q/C, tests, field manufacturing, adjusting, cleaning protection,
and scheduling constraints………… Appendix 13-Example Spec
50
Organization of Specifications
Prior to 1960s, specs were presented as notes on drawings. This has proven impractical and
confusing to bidders. In 1963, the Construction Specifications Institute (CSI) came up with the idea
of uniform location of matters to standardize the formatting of specs. This was accomplished by
providing a fixed framework of standard titles, sequence, and a numbering system. The CSI Master-
Format gained global popularity and was adopted by designers. The CSI Master-Format (up to 1995)
was made of 16 divisions. After 1995, the CSI switched to 50 Divisions. The 16-Division format is
still used and more popular than the 50-Division version.
Regardless of the version, a CSI Division represents a basic grouping of related items. Each Division
is broken down into Phases (related sections to address the major components in a division). For
example, Division 3- Concrete is broken down into three phases: 3.1 Formwork, 3.2 Rebar, and 3.3
Concrete materials. Each Phase in turn is divided into sections to detail the items included in the
phase.
The CSI Master-Format utilizes a five-digit numbering system as explained below:

The 5 digits are used to fully identify each spec section
The first 2 digits refer to the Division number
The next 3 digits refer to the broad, mid, and narrow scope
Example:
05 200 metal joists (broad scope)
05 210 Steel joists (medium scope)
05 211 Open web steel joists (narrow)
05 212 Steel joists girders (narrow)
The CSI system is flexible enough to allow designers to select only the applicable divisions and
sections. They are not forced to use all broad, mid, narrow scopes; they can mix and match as they
see fit. It should be noted that the numbering code and the sequence of Divisions, Phases, and
Sections do not follow the construction timeline or individual trades work.
CSI 16-Division Format

DIVISION 1- General requirements
DIVISION 2- Site work
DIVISION 3- Concrete
DIVISION 4- Masonry
DIVISION 5- Metals
DIVISION 6- Wood and Plastics
DIVISION 7- Thermal and moisture
DIVISION 8- Doors and widows
DIVISION 9- Finishes
DIVISION 10- Specialties
DIVISION 11- Equipment
DIVISION 12- Furnishings
DIVISION 13- Special construction
DIVISION 14- Conveying systems
DIVISION 15- Mechanical
DIVISION 16- Electrical
51
Hierarchy of Contract Documents
The contract documents are organized in a hierarchical arrangement. This was necessary so that
information is only stated once and referenced repeatedly as needed. Also, such an arrangement allows
certain documents to delineate the information summarized in others, as needed. In addition, it preserves
information contained in the Bidding Documents to make it part of the Contract Documents. This is
important since Bidding Documents are not part of the Contract Documents. The Figure below shows
pictorially the relationships among the contract documents.
As
shown in
the above
Figure,
Division
1-
General
Requirements governs the execution of the rest of specs because it lists the administrative requirements,
procedural requirements, and temporary facilities requirements for the entire contract instead of
repeating the same for each section of the specs. Division-1 is also related to the following documents:
52
Instruction to Bidders
Instruction to bidders is a document included in the Bidding Requirements. Therefore it is not a
part of the contract documents. However, the instructions include information that needs to be
preserved in the contract such as: procedures for substitutions, unit prices, site use, materials
purchased by owner, alternates, and phasing of work. Instructions to Bidders therefore should only
detail information that is applicable only during bidding (e.g. time limit on the offer, bid security,
refund for returned documents) and reference the information in Div.1 that need to stay in the
contract.
Agreement
Division 1 is referenced in the Agreement since it expands the summary of work mentioned in the
agreement, specifies administrative details, and delineates the responsibilities of the parties during
execution of work.
General Conditions
The General Conditions (GC) document governs all the contract documents including Division 1.
However, requirements that are broadly stated in the GC are further detailed in Division 1.
Examples of such items include property surveys, temporary utilities and services, warranties,
allowances, progress schedules, submittals, cutting and patching, cleaning, and schedule of values.
For example, the GC document states that the owner may employ a separate contractor. Division 1
(Sec 01010) will identify the contractors, scope of work for each, responsibility of each, who will
coordinate the overall activities, etc.
Divisions 2-16
These Divisions further detail the requirements stated in Div.1.
General Conditions
Requirements are summarized in the General Conditions (GC) and expanded in Division-1.
For example, testing may be stated in the GC, but the administrative procedures such as
who hires the testing lab? who pays for the tests? lab qualifications, reports requirements,
coordination of tests, etc are stated in Division-1.
Supplementary Conditions
The Supplementary Conditions (SC) is related to Division-1 since it adds/modifies the

General Conditions. Examples of items in the SC that relates to Division-1 include
particular test, number of tests required for products and execution, etc.
Drawings
Complement and delineate the requirements stated in Division-1.
The Figure below is an example of expanding information from the summary presented
in the General Conditions to the details presented in a section in the specifications.
53
C:\Documents and Settings\neldin\My Documents\0. Online Courses\Masters -6310 Contracts\0. 6310-Students Notes
2010.doc
54
C:\Documents and Settings\neldin\My Documents\0. Online Courses\Masters -6310 Contracts\0. 6310-
Students Notes 2010.doc
The following summarizes the information contained in Division-1:
01010-SUMMARY OF WORK
Work by Owner, Owner Furnished Products, Contractor Use of Premises, Future Work, Work Sequence, Owner
Occupancy
01019-CONTRACT CONSIDERATIONS
Cash allowances, Contingency Allowance, Inspection and Testing Allowances, Schedule of Values, Applications for
Payment, Change Procedures, and Alternates
01039-COORDINATION AND MEETINGS

Coordination, Field Engineering, Alteration Project, Procedures, Cutting and Patching, Preconstruction Conference,
Site Mobilization Conference, Progress Meetings, Pre-installation Conference
01300-SUBMITTALS
Submittal Procedures, Construction Progress Schedules, Proposed Products List, Shop Drawings, Product Data,
Samples, Manufacturer’s Instructions, Manufacturer’s Certificates, Construction Photographs
01400-QUALITY CONTROL
Quality Assurance/Control of Installation, References, Field Samples, Mock-Up, Inspection and Testing
Laboratory Services, Manufacturer’s Field Services and Reports
01500-CONSTRUCTION FACILITIES AND TEMPORARY CONTROLS

Temporary Electricity, Temporary Lighting Temporary Heat, Temporary Ventilation, Telephone Service,
Temporary Water Service, Temporary Sanitary, Facilities, Barriers, Fencing, Water Control, Exterior Enclosures,
Interior Enclosures, Protection of Installed Work, Security, Access Road, Parking, Progressive Cleaning, Project
Identification, Field Offices and Sheds, Removal of Utilities, Facilities and Controls
01600-MATERIAL AND EQUIPMENT

Products, Transportation and Handling, Storage and Protection, Product Options, Substitutions
01650-STARTING OF SYSTEMS
Starting System, Demonstration and Instructions, Testing, Adjusting and Balancing
01700-CONTRACT CLOSEOUT
Closeout Procedures, Final Cleaning, Adjusting, Project Record Documents, operation and Maintenance Data,
Warranties, Spare Parts and Maintenance Materials
NARROWSCOPE SECTIONS
01011-Summary of Project
01027-Application for Payment
01028- Change Order Procedures
01030-Alternates
01041-Project Coordination
01045-Cutting and Patching
01049-Mechanical and Electrical Coordinator
01050-Field Engineering
55
This manual is an intellectual property prepared by Dr. Neil N. Eldin, PhD, PE only for the
purpose of student training and education.
01120-Alteration Project Procedures
01310-Progress Schedules
01311-Network Analysis Schedules
01380-Construction Photographs
01090-Reference Standards
01410-Testing Laboratory Services
01540-Security
01550-Access Roads and Parking Areas
01560-Temporay Controls
01570-Traffic Regulations
01580-Project Identifications and Signs
01590-Field Offices and Sheds
01730-Operation and Maintenance Data

01740-Warranties and Bonds
56
DRAWINGS
Also known as plans and blue prints. Residential drawings are simple and usually small in number.
All systems are usually shown on floor plans. Non-residential (commercial, process, and heavy
civil) drawings are more complex and have dedicated plans for the separate systems (mechanical,
electrical, fire, etc).
Classification
Drawings are classified as:

1. Working drawings
2. Shop drawings
Working Drawings
Drawings produced by the designer are known as working drawings. They show the design intent
and not the details that allows manufacturing and fabrication of the design components.
Shop Drawings
Shop drawings are necessary to commence manufacturing and fabrication. These drawings are
produced by manufacturers/fabricators/vendors and reviewed by designer. Once produced, they
become part of the project drawings.
Purpose and Arrangement
The following summarizes common terminology and summarizes information common to the
various drawing types:
SITE PLAN
1. Project site
2. Layout of components
3. Property lines
4. Site elevation
5. Overall dimensions
6. Finished elevations
7. Utilities
8. Roads
9. Landscaping
57
FOUNDATION PLAN
1. Footings/Rafts/Piles
2. Foundation walls
3. Columns
ELEVATIONS
1. Outside views
2. Front, rear, left, right
3. North, south, east, west
SECTIONS
1. Internal relationships, sizes, material

2. Transverse (side to side)
3. Longitudinal (end to end)
4. Vertical cross-cut
5. Horizontal cross-cut
DETAIL
1. Enlarged view of a specific part

2. Special features
SCHEDULES
1. Tables /Charts
2. Repetitive items
3. #, Size, Shape, type, Material, Location
4. Doors, windows, finishes
5. Footings, columns, reinforcement steel
58
CHANGES TO CONSTRUCTION DOCUMENTS
Legal Requirements
The construction law requires two important provisions in changes to construction contracts:
1. Written notice provision – all changes must be in writing and owner must be notified of the
impact on the contract.
2. Approval/pre-authorization provision – owner must approve changes before work starts.
Violating these provisions may result in denying a contractor’s claim to additional compensations.
However, owners must be aware that they could lose this legal right by their own actions. This can
happen if an owner gives verbal instructions for changes and honor these verbal instructions by
compensating the contractor.
Change Instruments
A number of legal instruments are used to enact changes to construction documents. Each is
described below:
ADDENDA
addenda are written or graphic instructions issued by the designer to clarify, revise, add, and delete
information stated in the bidding documents or in previous addenda. The AIA limits issuance of
addenda to anytime before contract execution. This is more common in private work. The EJCDC
limits issuance of addenda to anytime prior to bid opening. This is more common in performing
public works.
1. Purpose
Addenda are used to:
1. To communicate clearly and in a timely manner any corrections or
omissions in bid documents
2. Clarify bidder’s questions
3. Add new requirements
4. Increase or decrease scope of work
Examples of changes accomplished by addenda include modifying:

1. Date, time, location of receiving bids
2. Quality of work
3. Qualified products
4. Information in bid documents
59
2. Format/Contents
A complete addendum must contain the following:
1. Addendum#-consecutively, more than one contract?

2. Date
3. project ID
4. A/E name & address
5. Party issued to
6. Notice to bidders
7. Changes to prior addenda
8. Change to bidding requirements:
i. Instructions
ii. Bid forms
iii. Others
9. Changes to agreement/forms
10. Changes to conditions of contract
11. Changes to specifications (in sequence)
12. Changes to drawings (in sequence)
See Appendix-16 for an example of an addendum.
CHANGE ORDERS
A Change Order is a written authorization issued to the contractor and signed by the owner and
A/E to authorize additions, deletions, or revisions of work, or adjustment of contract sum
and/or execution time after signing the contract.
Purpose
Change orders are used to:
a. Incorporate scope changes
b. Address unforeseen field conditions
c. Incorporate changes enforced by building codes
d. Address changes in market conditions (shortage of materials, etc…)
e. Eliminate errors/discrepancies
Format/Content
A complete addendum must contain the following:
1. Change order # and date of issue

2. Project ID
3. A/E name and address
4. Owner name and address
5. Contractor name and address
60
6. Original contract date
7. Statement if company modifies original contract
8. Description of modification and cost
9. Tabulation: original, current before and after
10. Time extension/reduction
11. A/E signature and date of submittal
12. Owner’s signature and date of acceptance
13. Contractor signature and date of acceptance
14. Distribution of copies
See Appendix-17 for an example of a change order.
Pricing of change orders
The following is commonly considered areas of concern when pricing change orders:
- Amount of contractor’s overhead and profit
- Unit prices to be used in change orders
- Confirmation of costs incurred
- Equipment rentals
- Amount of time extension
SUPPLEMENTAL INSTRUCTIONS (AIA)
A Supplemental/Minor Instructions is a written authorization used when the parties to a signed

contract agree that the instructions will not result in changes in the contract sum or contract
time. Examples of such changes include changing the color of a wall or floor covering.
Purpose
To satisfy the legal requirements of written changes and to serve as admissible proofs in
disputes
See Appendix-18 for an example.
FIELD ORDERS (EJCDC)

Same as SUPPLEMENTAL INSTRUCTIONS but more common in public works
61
CHANGE AUTHORIZATION (AIA)
Written orders to proceed with changes subject to contract adjustment through a change order.
These are used when the impact of the change on the time or contract price is not determined at
the time the request is made.
Purpose
To satisfy the legal requirements of written changes and to serve as admissible proofs in
disputes
EJCDC-WORK DIRECTIVE:
A Field Order (also known as Work Directive) is a written authorization used when the
parties to a signed contract are not sure if the instructions would result in changes in the
contract sum or contract time. This may happen in complex projects when reviewing and
interpreting the scope documents could result in loosing valuable time to capture the
optimum time or minimum cost. The document records the instructions and facts at that
time and proves the parties intention to make these decisions in a later time.
62

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Contract Administration

Nothing Will Work...Unless You Do!!

Contract administration is a primary function for project managers. A comprehensive understanding of

1. How contracts are described and classified?

What are the bases on which we group/classify/describe contacts?

The following provides more elaboration to further explain each classification …

1. Based on method of payment

2. Based on arrangement of project delivery

3. Based on method of selection and award

4. Based on number of primes

Do all contracts have to be in writing to be enforced in a court of law?

Definition: A contract is an agreement to do or not to do certain thing…

The following elaborates on such mutual understanding of the agreement:

The two conditions for ending a contract are:

These terms are explained below.

There are two types of terminations to a contract:

1. Termination for convenience:

2. Termination for default:

What are the options available for the non-breaching party?

The non-breaching party has three choices:

Termination for default and suing for damages

Courts recognize three types of damages:

1. What are the common contractual relationships in construction contracts?

Design-Bid-Build Arrangement - (Traditional Contractual Relationship)

Copy the diagram displayed on screen in this space

Copy the diagram displayed on screen in this space

Copy the diagram displayed on screen in this space

Copy the diagram displayed on screen in this space

1. What are the common challenges in contract administration?

1. Communication and Coordination Problems

3. Payment Obligations to Subs and Suppliers

4. Progress Payment, Final Payment and Retainage

6. Remedies for Unpaid Subs and Suppliers (Lien Laws)

7. Maintaining Proper Chain of Command

8. Lack of Contract Formality

10. Imposing Contractor’s Obligations on Subs and Suppliers

11. Scheduling Issues

1. What are the documents that make the bidding documents?

Each of these documents is

Appendix 2 provides an example of a letter format of a complete invitation to bid.

Contents of Instructions to Bidders

What does each of these terms mean?

(Appendix 7 – Surety Bonds)

See Appendix 8 – lump sum contracts

See Appendix 10 – certificate of substantial completion)

1. Builder’s risk insurance

Is the A/E a party to construction contracts?

• Owner’s rep to visit & check site

• Agreement between O & A/E

• Instruction to A/E field rep

- A/E responsibilities: (see “B” above)

See Appendix 11 – Example of General Conditions

What is the purpose/function of the Supplementary Conditions?

- Examples of issues handled by Supplementary Conditions include:

To avoid such disastrous situations, it is recommended that the specifier:

Proprietary specs could be classified as: closed or open as discussed below.

Closed Proprietary Specs