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Stipulated Contract Times: Determination Requires Due Diligence

  

Editor's Note: CSI is pleased to publish this blog from Kevin O’Beirne, PE, FCSI, CCS, CCCA, CDT. If you have an idea or opinion you would like to share with your colleagues in the construction industry, please contact CSI Content Strategist Peter Kray at Pkray@csinet.org. He would love to help publish your thoughts.

All contracts include three basic considerations: compensation, scope, and time. In drafting construction contracts, design professionals typically devote considerable time and effort to developing the scope, via the drawings and specifications, and compensation, via the opinion of probable construction cost (“cost estimate”). However, design professionals may devote relatively little effort to determining the stipulated contract times by which construction must be completed.

Somewhat shockingly, this writer has encountered many design teams that spend only a minute or two identifying what they believe are appropriate construction contract times. Sometimes, the contract times are virtually plucked from the air after a brief contemplation of “about how long it should take” the contractor to complete the work. Rather, due diligence is necessary to determine and appropriately document the basis for the contract times.

Consequences of Guessing Wrong

A longstanding truism is, “Time is money.” When the construction contract times stipulated in the owner-contractor agreement are too short for the required work, the owner may receive higher prices bid for the work. Higher prices may be needed to account for the cost of extraordinary measures, such as overtime, other costs for accelerating construction such as admixtures for fast-setting concrete, and costs for liquidated and other damages for late completion. Also, the owner may receive fewer bids because bidders may believe the probable reward from receiving the contract award will not be commensurate with the risk undertaken.

Stipulated construction contract times that are unnecessarily long also have drawbacks. The most obvious is that the owner will likely have to wait longer to realize benefit from the completed project. Because construction-in-progress is disruptive and often unattractive, a project under construction for a long time may inconvenience users of the facility, drive away potential customers, and may pose ongoing safety hazards. Nothing spurs action quite like a deadline, so a contractor responsible for a project with over-long contract times is likely to use it as “filler” for workers and resources not otherwise employed on other, more-urgent projects. Because over-long projects require the contractor to be mobilized for a longer period, they, too, likely result in higher prices for the owner.

Failure of due diligence in determining the stipulated contract times also has strong potential to contribute to construction stage change proposals, claims, and disputes.

This is like Goldilocks checking out the three bears’ house: the contract times need to be “just right.” Thus, guessing too low or too high is unattractive for the owner. How should appropriate contract times be determined?

Dates or Days?

When stipulating the required contract times, the drafter of the owner-contractor agreement needs to decide whether the required contract times will be expressed as a number of days after the contract times start to run, or as specific dates.

Most construction contracts probably use a number-of-days approach, allowing a certain amount of  flexibility concerning when a notice to proceed is issued and the contract times start to run. This is also probably the fairest approach for contractors.

However, expressing contract times as specific dates is sometimes necessary, such as when the owner must have the construction completed by a specific date, or when the construction contract times must be coordinated with a separate contract, such as the delivery of owner-furnished materials or equipment. While specific dates provides greater certainty for the completion of construction, perhaps its most significant drawback is its likelihood to bind the contractor to a shorter-than-planned construction period, in the event signing of the contract is delayed.

When the contract times must be coordinated with a separate construction contract or purchase contract for materials or equipment, careful consideration must be given to the coordination needs of each separate contract.

Recommended Practices

Regardless of the project type or size, during the project’s design phase, a preliminary construction schedule should be developed, whether by the design professional, construction manager as advisor (CMa), or owner’s program manager. The construction expertise applied and level of detail in the design phase preliminary construction schedule should be appropriate to identify the project’s critical path and reasonable times for the construction activities on it.

Relevant construction activities will often include:

  • Preconstruction activities, including mobilization, preparation of schedules, and negotiating and signing construction subcontracts and purchase orders with suppliers. These activities are often longer and more-involved than many owners and design professionals may realize.
  • Another required pre-construction activity to be considered in the preliminary construction schedule is applying for and obtaining required permits, such as building permits, highway work permits and street opening permits, and others.
  • For projects with delegation of professional design responsibility, sufficient time for the final design of the project’s delegated design elements must be allocated.
  • Shop drawings and submittals, including preparation by the supplier, review and approval by the contractor, review and approval by the design professional, and, possibly, resubmittals.
  • Fabrication, shop testing, and shipment to the site. This is often relatively easy to determine when the design professional or CMa has obtained design phase cost quotations from suppliers as part of preparing construction cost estimates. Often, supplier quotes include a projected time for delivery following approval of submittals.
  • The nature of the project may require staged construction that will drive the project’s schedule. For example, rehabilitation and modification projects usually require coordination with occupants and operation of existing facilities. Some projects require coordinating the work with adjacent properties. Such considerations often prolong the duration of construction.
  • Certain construction activities, such as earth moving, exterior concrete work, exterior masonry construction, landscaping, paving, and startup and adjusting of certain HVAC systems, may be seasonally dependent.
  • Predictable delays resulting from typical adverse weather. For example, the progress of exterior work is likely to be influenced by normal, average precipitation that does not rise to the level of an abnormal weather force majeure delay.
  • Holidays and probable delays resulting from nearby community events or festivals. In some locales, the opening of certain game hunting seasons may affect construction projects when many construction workers use their vacation time.
  • Construction activities at the site. Logical assumptions must be made concerning site preparation; excavation (including providing temporary support of excavations and dewatering); construction of foundations; erection of structural systems; building envelope work; providing facility services (such as fire suppression, plumbing, HVAC, electrical, building controls, communications, and security); site work and site infrastructure; and process equipment and systems.
  • Curing and finishing work.
  • Training of facility operation and maintenance personnel.
  • Checkout, startup, adjusting, and field quality control activities.
  • Documenting substantial completion.
  • Post-substantial completion activities, such as punch list work, demobilization, as-constructed documents, and contract closeout.

Documentation of design stage efforts to determine appropriate construction contract times should be maintained in the owner’s, design professional’s, and CMa’s project files for later use, if challenged. Such documents may have potential to become exhibits in a dispute and should be complete and properly organized.

When the project is larger, longer in duration, more-complex, or has more-sophisticated scheduling demands, consideration should be given to retaining the design stage services of a specialized scheduling consultant. Such services are available in larger communities. While retaining a scheduling consultant does, of course, have an associated cost, the cost will, on larger, longer, more-complex projects, likely be offset by reduced construction stage problems such as time-related change proposals, claims, and disputes.

Conclusions

Like compensation and scope, time is a principal basis of any contract and, for all construction projects, the contract times stipulated in the owner-contractor agreement must be appropriate for the work required, being neither too short nor too long. Appropriate documentation of such efforts should be established and maintained throughout the project. When the design professional or CMa does not, itself, possess the necessary skills and expertise to prepare a design stage preliminary construction schedule, a qualified consultant should be retained.

Copyright 2021 by Kevin O’Beirne

The content of this blog post is by the author alone and should not be attributed to any other individual or entity.

Kevin O’Beirne, PE, FCSI, CCS, CCCA is a professional engineer licensed in NY and PA with over 30 years of experience designing and constructing water and wastewater infrastructure for public and private clients.  He is the engineering specifications manager for a global engineering and architecture design firm.  He is a member of various CSI national committees and is the certification chair of CSI’s Buffalo-Western New York Chapter.  He is an ACEC voting delegate in the Engineers Joint Contract Documents Committee (EJCDC) and lives and works in the Buffalo NY area.  Kevin O’Beirne’s LinkedIn page

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Great Article.  Kevin, I wonder if you would mind if I reprint it in my next Newsletter.

Billy Mathis