Requirements for a Successful Capital Construction Project

You’ve hired a qualified Architect and Construction Manager to shepherd the capital project through planning, pre-construction, construction, and closeout, but the ultimate responsibility for successful project delivery is yours. You should take steps to reduce the risks, mitigate their impact, and insure against financial loss when the risk materializes. Once you’ve settled on the scope, schedule, and budget for the project, vigilance for ALL aspects of the project is required, but here are selected areas of focus which will help reduce the risks and prevent a problem or issue from turning into a disaster.

OACM Meetings. Continue to participate in the Owner, Architect, Construction Manager monthly meetings (typically referred to as the OACM meeting). You should have assembled a Team of professionals to assist with project planning and used the Team and the OACM meetings to set expectations, plan the project, and prepare for the voter referendum (if required). You should continue to use the OACM meetings as a communication and decision-making structure to assist in successful project delivery. Be sure all decisions are clearly documented in the minutes. Be sure that any issues that negatively impact the project (scope, schedule, or budget) are raised, resolved, and documented to your satisfaction expeditiously. Don’t hesitate to involve legal counsel if any issue remains unresolved at the OACM level for an extended period of time. You should be certain to satisfy any notice or other requirements to protect all rights and remedies available to the District if the issue isn’t resolved by mutual agreement.

Contract, General Conditions, Contractor’s Qualification Statement. As part of the bid solicitation package, along with the plans, specifications, drawings, and requirements to be met by each prime contractor, are the Owner-Contractor Contract, the General Conditions, and the Contractor’s Qualification Statement. Careful drafting of those documents is critical to the success of the project. You should have them prepared by legal counsel or, at a minimum, have legal counsel review the documents prepared by the project Architect or Construction Manager. They contain critical rights, remedies, and protections for the District.

The Owner-Contractor Contract and the General Conditions are integral and outline, either directly or by reference to other contract documents, all of the obligations of the parties. Your ability to enforce obligations, the contractor’s warranties, the insurance and bonding requirements, and dispute resolution procedures are just a few of the critical topics covered in these documents.

The Contractor’s Qualification Statement is an important document to be used in conjunction with the due diligence efforts in selecting the responsible contractors for the project. A carefully crafted Qualification Statement, which seeks contractor specific information, along with a thorough post-bid interview process will pay dividends throughout the project. It can be difficult to reject an arguably unqualified low bidder, but a carefully crafted Qualification Statement is a powerful tool to assist in uncovering weaknesses or outright fraud on the part of a bidder and could be used to support a Board decision to reject the bidder as not responsible.

Surety Bonds, Insurance. If properly crafted, the Contract and General Conditions will require each prime contractor to provide Surety Bonds (Payment and Performance Bonds) and insurance coverage designed to protect the District from risks associated with the work of the prime contractor. You should have legal counsel review the surety bonds to confirm they comply with the applicable requirements of the Owner-Contractor Contract. Similarly, you should have your insurance advisor review the contractor’s evidence of insurance to confirm it satisfies the applicable requirements.

Change Orders. During the construction stage of the project, you will be faced with a mountain of Change Orders. Insist that Change Orders be processed contemporaneously with the work to be added or eliminated, do not put them off until the end of the project. Do not sign off on a Change Order unless and until you fully understand the reason for the change, the additional cost or reduction in cost and how it’s calculated, and the impact on the project’s schedule. Require that each Change Order be accompanied by a brief narrative answering those questions, sufficient for presentation to the Board, and where appropriate, details and attachments that precisely define the change to be made. You must be prepared to justify the change to your Board and to the NYS Education Department; and document the fact that the change does not require a new competitive bid process for the additional work. In addition, Change Orders are a growing source of project cost escalation that may or may not be justified. Even if the change is justified, be sure to scrutinize the calculation of the added cost. If you have any doubt, call the question with the project Architect and the Construction Manager, and don’t hesitate to involve legal counsel.

Contract Closeout. The process and documentation surrounding closing out a prime contractor contract is a critical step to insure a successful project. It’s your last opportunity to confirm all the obligations of the prime contractor have been met. Because you’re holding the contractor’s final payment, including retainage, you will likely obtain expeditious compliance. You’ve withheld retainage from each payment throughout the project in part for the purpose of leveraging your ability to obtain required closeout documents at the end of the project. In addition to the traditional AIA affidavits, a final Certificate of Substantial Completion, completion of all punch list items, and a final payment application, we recommend use of the following newly issued AIA contract closeout forms: the Unconditional Waiver and Release on Final Payment and the Sworn Construction Statement. With the originals of the contract closeout documents in the file and confirmation by the project Architect and Construction Manager that there are no outstanding issues with the prime contractor’s performance, you will have taken the steps necessary to protect the District against issues that arise after final payment is made. You should involve legal counsel in the process of reviewing selected contract closeout documents to confirm compliance with the requirements of the Owner-Contractor Contract before you make final payment.

A myriad of risks exists in connection with every capital construction project, but you will minimize their likelihood and prepare to address them in real-time by following the steps outlined above. If you have questions or if we may assist with a capital construction project, please call David Tinker, Jeffrey Lewis, Thomas Barrett, or Joseph Shields.