By David R. Cook
In Part I of this article, published in late April, we discussed the performance risk and time risk involved with construction and design contracts, and in Part II, we will cover cost risk and political risk.
School budgets are limited for many reasons, and the construction budget is no exception. As a result, contracts should guard against unwarranted cost increases and claims. In the absence of a written change order signed by the appropriate officer, the contract should absolutely prohibit additional compensation for changes in the work. It should forbid claims for all events except those within the school authority’s sole control. Even for permitted claims, the contractor must provide written notice so that the authority might alleviate the problem and control its costs. To encourage the contractor to limit costs and claims, the contract could include a shared-savings clause, which grants an incentive payment for completion within the budget.
School authorities generally are political bodies that must respond to the wishes of voters and taxpayers. So they ignore political risks at their peril. While in all cases, the authority must follow any competitive-solicitation requirements, there are some instances in which they can or must give preference to local bidders. To the extent local bidders are awarded a contract, the bid or proposal and final contract should require affirmative representation that the contractor or designer qualifies for any such preference and will, to the extent permitted or required, use local goods and services.
Constituents also prefer designers and contractors that are good corporate citizens. As such, solicitation documents and contracts could include affirmative representations that they will pay all taxes, comply with all laws, and satisfy all applicable DBE requirements. In some parts of the county, political risk includes the use of undocumented workers on the project. Some public works projects have been doomed by bad press when undocumented workers are discovered working on the site. When applicable, the contract could include provisions regarding undocumented workers, including E-Verify requirements.
Many authorities are able to generate goodwill with their constituents by engaging in energy savings performance contracting (EPSC), which is a method of procurement that is paid for by energy savings or revenue enhancements resulting from the project. These savings and enhancements are guaranteed by the contractor. Constituents appreciate the budget-neutral and environmentally friendly aspect of ESPCs.
Lastly, since there is no way to predict when politics will negatively impact a project, the school authority should have an off ramp — a termination-for-convenience clause. When permitted by law, this clause allows the authority to terminate a contract for any reason or no reason.
Experienced facilities managers know that problems will arise on a construction project. They also know that one of the best defenses is a good contract. But a good contract is not one pulled off the shelf; it is crafted and fine-tuned by experience and a deep understanding of the authority’s goals and its constituents’ wishes. It incorporates all constitutional, statutory, and regulatory mandates applicable to school authorities. It balances the one-sided provisions of many industry form contracts and those proffered by designers and contractors. Finally, it provides just the right amount of incentives and deterrents to promote a timely, cost-efficient and high-quality project.
David R. Cook is a partner at the Atlanta-based law firm, AHC Law. He practices in the firm’s construction law group, representing specialty contractors in connection with their contract negotiation and drafting, commercial and corporate transactions, and dispute resolution, litigation and arbitration of construction claims.