Conditions of the Contract

Conditions of the Contract
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Conditions of the Contract

 

Guidelines for Design Professionals Preparing Project Specifications

 

An often mysterious topic for design professionals is how to specify Conditions of the Contract. Let’s break the topic down into its two components; General Conditions and Supplementary Conditions.

 

Since these documents have such important legal consequences they should be prepared by or in conjunction with the Owner’s legal counsel.

 

General Conditions:

These are standard clauses that will govern the overall Work, and include subjects common to most construction contracts, including:

 

Definition of the parties to the Contract.

Changes in the Work.

Time.

Payments and completion.

Insurance and bonds.

 

General Conditions are often preprinted forms by organizations such as the American Institute of Architects (AIA), Engineers Joint Contract Documents Council (EJCDC), Design/Build Institute of America (DBIA), or others.

 

In addition many owners including school districts and large corporations have their own General Conditions.

 

These documents are often not included in the Project Manual, but rather incorporated by reference.

 

Since these documents were prepared by consensus committees and have been available for a long time, they have stood the test of time and court challenges, assuring the Owner and Design Professional that they are covered in case of a problem on the project.

 

Supplementary Conditions:

General Conditions are just that; general. For example, they can require the Contractor or Construction Manager to carry insurance, but the specific types and dollar limits of that insurance varies depending on project specifics. Consequently, it is usually necessary to write supplements to incorporate project-specific requirements.

 

Subjects that may need to be included in the Supplementary Conditions include:

 

Weather delays: AIA A201 allows for extensions of time due to adverse weather conditions that were “abnormal for the period of time” but does not state how those additional days will be determined.

 

Liquidated damages: These are often misunderstood and should be approached carefully.

 

They are intended to compensate the Owner for any financial losses incurred if the project is not completed on time. For example, a retail space that generates income will cause financial loss to a landlord if a tenant cannot move in on schedule and start paying rent. Additional interim financing costs are another example.

 

These are not intended to be a “hammer” to hold over the Contractor or Construction Manager to push for early completion.

 

Courts have typically not upheld liquidated damages where actual losses cannot be proven and where the liquidated damage amount is unrealistic.

 

Bonuses for early completion: Some owners are willing to offer bonuses for early completion, for example when a restaurant will start generating income early if it opens early.

 

Insurance types and limits: A qualified insurance adviser should be consulted to determine the project’s specific needs.

 

Performance and payment bonds: Often required to be provided by the Contractor or Construction Manager to ensure that funds are available to complete the work and pay the bills if a default happens.

 

Equal opportunity employment: Statements requiring equal opportunity hiring are a legal requirement in many cases, but some other owners want these included to avoid legal issues.

 

Depending on which General Conditions are used, it may also be necessary to modify terminology such as “Architect” and “Engineer” throughout the Project Manual to match those General Conditions.

 

Some owners, particularly states and local municipalities, prepare “special conditions”. Since these projects are often prepared using standardized specifications that cover materials and methods, special conditions are used to modify those standard specifications.

 

In order to properly prepare General and Supplementary Conditions there are a few basic concepts that need to be understood.

 

Construction Participants: The duties, obligations, and imitations of each of the parties is defined by the Conditions of the Contract.

 

Owner:

The person or entity offering a project for bids and construction.

A signatory party to the construction contract.

The Owner of a project may be different than the Owner of a construction contract; for example when a landlord owns a building but a tenant is performing interior finish-out.

 

Contractor or Construction Manager:

The person or entity constructing a project.

A signatory party to the construction contract.

Typically employs various sub-contractors and sub-subcontractors to perform specific portions of the Work.

 

Architect, Engineer, or Other Design Professional:

The person or entity licensed to practice architecture or engineering and performing the design, creating the Contract Documents, and often, providing construction observation.

Not a signatory party to the construction contract, but has an implied third-party obligation to perform specific duties such as observation of the work and review of applications for payment.

Typically employs various consultants and sub-consultants to design specific portions of the work.

 

Types of Construction Contracts: Several types of construction contracts are available to suit the owner’s needs and project requirements. Like the General Conditions, organizations including the AIA, EJCDC, and DBIA offer standard contract forms.

 

Single Prime Contract: A single Contractor or Construction Manager is selected to perform all of the work.

 

Multiple Prime Contract:

Multiple Contractors or Construction Managers are selected to perform specific portions of the work. This could include separate buildings on a single campus or the separation of site construction, mechanical work, or electrical work from general construction.

 

The Owner or a third party project manager must coordinate the various contracts.

 

Design/Build Contract:

Both the design and construction are performed under a single contract.

 

The Design/Builder may be a single, ongoing entity or a partnership formed for a single contract.

 

Requires a slightly different approach to contracts and specifications since only one entity is involved.

 

 

For a quick review of the conditions of the contract, visit SimpleSpecs construction spec temples and 00 70 00 – Conditions of the Contract where General and Supplementary Conditions.