Saturday, April 9, 2011

Protect Yourself from Surprises

In construction industry, the unexpected tends to be expensive bad news. And with every surprise comes an obvious question, “Who’s going to pay?”

Owner: “Look, it’s not my fault. You should have known about this. I’m not going to cover for your mistakes.”

Contractor: “This is extra work – not part of the deal. I’ll do what’s required. But I have to charge extra.”

Every surprise has the potential to become an acrimonious dispute.

A Catalog of Surprises
The list of possible surprises on a construction project must be nearly infinite. But most of the surprises likely to cause a dispute fit in one of three categories:
• Mistake or omission in the plans – something the designer, architect or engineer didn’t consider.
• Differing site conditions – hidden or highly unusual conditions no one would have anticipated.
• Change in scope of the work – something discovered later, such as by the inspector.

Get Paid for Surprises
A good contract will resolve most disputes about what’s included and excluded. Point to a contract clause that covers the point in dispute and you’ve won. But I’ve never seen a construction contract that covers every possible surprise. You won’t either.

Federal public works contracts include a changed site conditions clause, giving the contractor a claim when there’s a surprise. That way, contractors don’t have to bid the worst case. They can bid what’s expected. Little or no contingency allowance is needed. That encourages more competitive bids.

But there’s clearly a better way to protect yourself. Limit the job to what’s in your bid or proposal. It’s not permitted on most public works contracts. But it’s perfectly legal in private contracts. Anything omitted from the bid is not part of the job, no matter what other contract documents say.

On a public works job, the awarding authority won’t even look at a contractor’s estimate. Submit a detailed estimate with your bid and the contracting officer will trash it – or consider your bid non-conforming. On a private job, nothing prohibits including a detailed estimate with your bid and having that estimate define the scope of work. Anything not in the estimate is not part of the job, period. The more detailed your estimate, the better you’re protected against surprises.

With a single stroke, you’ve eliminated nearly all risk due to surprises – whether a mistake in the plans, differing site conditions or a change in the scope of work.

When you have a choice, make your estimate define the job. It’s both legal and good contracting practice. None of the boilerplate contracts sold by national trade organizations include this important protection.

To see how your estimate can define the job, have a look at Construction Contract Writer. The trial download is free.