The Pitfallls of Incomplete Contract Documents
In providing a price, contractors expect that the contract documents are complete and reflect the project requirements, and that any changes, errors or omissions from the documents will lead to a change order with commensurate adjustment to both the contract price and duration. As the bidding is done in a competitive environment, contractors and their subcontractors are reluctant to add allowances to their tendered price, fearing that they will not be successful as low bidder. While the design may have taken several months to complete, the contractor is often unfairly expected to verify the consultant’s drawings and specifications for deficiencies or completeness during a much shorter bidding period. To remain competitive, a contractor should be able to rely entirely on the contract documents, and that their price will reflect the scope of work outlined in the documents alone, even if the contract is loaded with onerous clauses.
Different researchers have conducted studies to determine the common causes of significant claims on contracts and the results seem to be consistent. On average, claims amounted to 30% of the construction value. Four of the major causes for claims were:
- Inadequate site and/or subsurface investigation prior to starting the design
- Starting design efforts too late and/or unduly limiting the cost of engineering and design
- Calling for bids with an incomplete set of drawings
- Endeavouring to complete the design through shop drawing review
The common feature of all these projects was hurriedly and incompletely prepared bid documents, giving rise to design changes, extra work, and quantity fluctuation during the project. Many owners may argue that such a high premium can be justified as long as the facility is available on the scheduled date. Unfortunately, experience does not support such an argument. The analysis of the reports revealed that nearly all of them suffered significant delays, notwithstanding any attempted acceleration. The average delay was 5.69 months, representing nearly a 50% overrun in the average planned duration. Had more time been spent in investigating, planning and designing these projects than they actually did, they would have saved at least 20% of the actual cost even had they paid approximately 50% more to their designers. It is safe to state that the ultimate cost of the project would be significantly lower if owners allowed more time to complete their design.
Best Practices for Complete Contract Documents:
- Owners need to recognize there is an implied warranty that the drawings and specifications that they provide to the contractors as part of a contract are accurate, complete and buildable and that the contractor is not responsible for the consequences of defects in the plans and specifications.
- The owner should not skimp on the front 10% of the project costs (architectural and engineering) at the expense of the latter 90% of the project (construction). Owners should demand that consultants provide 100% complete contract documents at the time a contract is tendered. If necessary, cash allowances should be well defined.
- Most contracts require the consultant to perform the first adjudication of an issue, but when the claim results from design errors and omissions in the contract documents, the consultant may be in a conflict of interest position. The result is a possible dispute between the contractor and the owner with possible litigation costs. A better approach may be for the owner to use a third party neutral to provide an independent opinion on issues that arise during construction.
- The use of onerous clauses to prevent a contractor from recovering costs due to incomplete contract documents is not a principled practice and may not be considered as being fair by the courts. It may therefore be either unenforceable or interpreted to the benefit of the contractor. This should be taken into consideration when drafting a contract.
- When consultants have been asked why incomplete documents are issued for contracts, the usual response has been that the fees are not adequate to do a complete job. Designers should be cautious that commercialism does not replace professionalism.
These are some sound fundamentals for achieving the schedule and cost objectives of a project. The most critical of the requirements is having drawings, specifications and other parts of the contract documents as close to 100% complete as possible at the time of executing a contract. If 100% is not achievable for some reason, then the contract documents must make provision for fair and equitable adjustments to the time and price in the contract as changes are issued. Otherwise, the spectre of claims and potential litigation loom on the horizon to the peril of all parties involved in the contract.
Acknowledgement: This document was prepared from information provided in ‘The Revay Report, March 2010’ – to access the complete report, go to http://www.revay.com/index.php/publications/the-revay-report/.