{"id":100772,"date":"2022-10-12T09:05:08","date_gmt":"2022-10-12T13:05:08","guid":{"rendered":"https:\/\/sjcivil.com\/?p=100772"},"modified":"2024-04-01T09:18:48","modified_gmt":"2024-04-01T13:18:48","slug":"owners-loosen-your-grip","status":"publish","type":"post","link":"https:\/\/sjcivil.com\/owners-loosen-your-grip\/","title":{"rendered":"Owners Loosen Your Grip!"},"content":{"rendered":"<p><strong>Executive Summary.<\/strong>\u00a0COVID and inflation in 2020, 2021, and 2022 have created challenging and unpredictable times for contractors. Owners should consider loosening contract provisions during this interim for the good of their projects.<\/p>\n<p><iframe loading=\"lazy\" style=\"border-radius: 12px;\" src=\"https:\/\/open.spotify.com\/embed\/episode\/0aVkRlRzm0zCrNGMOHMGgY?utm_source=generator\" width=\"100%\" height=\"152\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p><strong>I\u2019m tired of hearing of these unique times.<\/strong>\u00a0Seems ever since the Great Recession of 2008 when Lehman Brothers fell, every year since then has been a unique year in the economy. Well, it has been tough, don\u2019t you think? How any restaurant made it is a miracle. To handle these times of challenge, project owners should consider what can be done to loosen their contractual grip on contractors. Because after all, don\u2019t owners want their jobs built on time and for a reasonable amount of money? Of course they do. If owners can put the project as their top priority (versus making darned sure the the Contractor doesn\u2019t take the Owner for a penny more than they should) projects can get done and everyone wins: Owner, Contractor, and taxpayer.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-102043 aligncenter\" src=\"https:\/\/sjcivil.com\/wp-content\/uploads\/2022\/10\/437604663-atm-683x1024-1-200x300.jpg\" alt=\"\" width=\"200\" height=\"300\" \/><\/p>\n<p><strong>Contractor risks.\u00a0<\/strong>Contractors care about two things, and probably in this order: cash flow and profit. Cash flow feeds a contractor this year and profit feeds it for years to come. Yes, safety is there and it\u2019s important, but no one paid an employee in Experience Modification Rate (EMR) crypto tokens.<\/p>\n<p><strong>Owner risks.<\/strong>\u00a0Owners get in trouble in the newspaper and with bond raters and with taxpayers when projects go over budget and come in late. This can be for a number of reasons, but a majority of the time many of these problems can be mitigated by fair contract drafting principles. I didn\u2019t say give away the farm, I just said be fair.<\/p>\n<p><strong>Compromising terms is the goal.<\/strong>\u00a0A contract can be fair to both parties by managing risks on both sides, the Contractor side and the Owner side. Below are three significant contract provisions that can turn a project from failure to success.<\/p>\n<div class=\"wp-container-4 wp-block-group\">\n<div class=\"wp-block-group__inner-container\">\n<div class=\"wp-container-3 wp-block-columns\">\n<div class=\"wp-container-2 wp-block-column\">\n<figure class=\"wp-block-table aligncenter is-style-regular\">\n<table>\n<tbody>\n<tr>\n<td class=\"has-text-align-left\" data-align=\"left\"><strong>Item<\/strong><\/td>\n<td class=\"has-text-align-left\" data-align=\"left\"><strong>Contractor Effect<\/strong><\/td>\n<td class=\"has-text-align-left\" data-align=\"left\"><strong>Owner Effect<\/strong><\/td>\n<\/tr>\n<tr>\n<td class=\"has-text-align-left\" data-align=\"left\"><strong>Material on Hand<\/strong><br \/>\n\u2013 Make it Timely<br \/>\nand Richer<\/td>\n<td class=\"has-text-align-left\" data-align=\"left\">Paying material on hand has<br \/>\ntwo benefits: (1) it helps cash<br \/>\nflow the contractor, and (2) it<br \/>\nallows quick procurement ahead<br \/>\nof looming escalation.<\/td>\n<td class=\"has-text-align-left\" data-align=\"left\">Owner pays \u201cearlier\u201d than normal.<br \/>\nOwners, the Contractor\u2019s not<br \/>\nsupposed to be a bank. At least<br \/>\nnot more than thirty (30) days.<\/td>\n<\/tr>\n<tr>\n<td class=\"has-text-align-left\" data-align=\"left\">Offer\u00a0<strong>Realistic<\/strong><br \/>\n<strong>Schedules<\/strong>\u00a0&amp;<br \/>\nReasonable<br \/>\n<strong>Liquidated<br \/>\nDamages (LDs)<\/strong><\/td>\n<td class=\"has-text-align-left\" data-align=\"left\">Labor resources now are difficult<br \/>\nto find and hold. If contractors<br \/>\nknow at bid time they cannot<br \/>\nmeet a schedule due to labor<br \/>\nshortage, this impact is built<br \/>\ninto the bid price. This may be<br \/>\nan acceptance of liquidated<br \/>\ndamages. So, an estimator<br \/>\nmay say, we just can\u2019t get done<br \/>\nin 500 days, it\u2019s going to take<br \/>\n600 days: \u201c\u2026build in a cost in<br \/>\nour job for 100 days at the LD<br \/>\nrate of $5,000 \u2013 add $500,000<br \/>\nto our bid.\u201d<\/td>\n<td class=\"has-text-align-left\" data-align=\"left\">If a reasonable time is put into<br \/>\nthe schedule, then payment by an<br \/>\nOwner (on bid day) for<br \/>\nanticipated LDs can be avoided.<br \/>\nAlso, having a schedule with a bit<br \/>\nof breathing room (just a bit,<br \/>\ndon\u2019t double the duration!), can<br \/>\nensure a good-paced project<br \/>\nfinished within time and budget.<br \/>\nNotice the suggestion was not to<br \/>\nget rid of LDs, or lessen them,<br \/>\njust get real with the schedule.<\/td>\n<\/tr>\n<tr>\n<td class=\"has-text-align-left\" data-align=\"left\">Allow\u00a0<strong>Material<br \/>\nSubstitutions<\/strong><br \/>\nDuring the Project<\/td>\n<td class=\"has-text-align-left\" data-align=\"left\">This can be a great time saver.<br \/>\nIf the specified Brand A is not<br \/>\navailable for 15 weeks, but<br \/>\nBrand B is just as good and<br \/>\navailable in 3 weeks, a project<br \/>\ndelay can be avoided.<br \/>\nCertainly, engineers cannot<br \/>\nknow the availability of<br \/>\nmaterials when they specified<br \/>\nthem, so allow the Contractor to<br \/>\nresearch the market at time of<br \/>\nconstruction.<\/td>\n<td class=\"has-text-align-left\" data-align=\"left\">Some procurement rules may<br \/>\nprohibit lax treatment in the area<br \/>\nof material substitution. But if<br \/>\npossible, allow the Contractor to<br \/>\nprovide like materials. A credit<br \/>\ncan be offered, or more<br \/>\nimportantly, a loss in schedule<br \/>\ncan be avoided. Adjust bid<br \/>\ndocuments to require escrowing<br \/>\nof the Contractor\u2019s bid<br \/>\ncalculations, or require certain<br \/>\nmaterials to have their bid costs<br \/>\nfilled out on a line item within the<br \/>\nproposal.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<p><strong>My story.<\/strong>\u00a0We work for contractors and owners. We do claim offense and defense. Many times these conflicts could have been avoided simply by the parties being fair to one another. Modifying the typical language for a short time can benefit BOTH parties.<\/p>\n<p>Material on hand is always interesting to me because owners often force contractors into being a bank. Contractors have to pay for materials today and then often do not get paid for weeks or a number of months after the material arrives on site, or worse after it\u2019s been long installed. I did a job once in eastern Washington state that didn\u2019t pay for sewer pipe installation until the roadway base course was installed. Crazy. I just don\u2019t find an approach like that to be fair in a contract. Having at least a partial timely payment is fair to both parties.<\/p>\n<p>The material substitutions is a good one to maintain schedule. However, it\u2019s good for Owners to have a check in place to make sure that they\u2019re (the Owner) not getting take advantage of. For example, if the Contractor bids the job with Brand A for $250,000 and then builds the job with Brand B (via a substitution request) for $125,000, well that\u2019s not in the spirit of the contractual language.<\/p>\n<p>The material substitutions is a good one to maintain schedule. However, it\u2019s good for Owners to have a check in place to make sure that they\u2019re (the Owner) not getting take advantage of. For example, if the Contractor bids the job with Brand A for $250,000 and then builds the job with Brand B (via a substitution request) for $125,000, well that\u2019s not in the spirit of the contractual language.<\/p>\n<p>Work Safe!<\/p>\n<span class=\"et_bloom_bottom_trigger\"><\/span>","protected":false},"excerpt":{"rendered":"<p>Executive Summary.\u00a0COVID and inflation in 2020, 2021, and 2022 have created challenging and unpredictable times for contractors. Owners should consider loosening contract provisions during this interim for the good of their projects. I\u2019m tired of hearing of these unique times.\u00a0Seems ever since the Great Recession of 2008 when Lehman Brothers fell, every year since then [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":104717,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","iawp_total_views":187,"footnotes":""},"categories":[553,46],"tags":[748],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.5 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Owners Loosen Your Grip!<\/title>\n<meta name=\"description\" content=\"COVID and inflation in 2020, 2021, and 2022 have created challenging and unpredictable times for contractors. 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