BMATWT 353 - Business of Building

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Lecture Outline - Contract Primer

A Quick Primer on Construction Risks and Contracting Practices

Mark H. McCallum. 2000. Presented at American Corporate Counsel Assoc. Mtg., Oct. 2000

1. Defining Risk - Exposure to a Possible Loss.

2. Mitigate through Identification and Assessment

Risk Types:

• Acquistion of easements
• Archaeological discoveries
• Coordination on-site
• Related activities outside your Contract (activities of others)
• Delays
• Hazardous Wastes
• Permitting (environmental, other)
• Site Security (theft, vandalism)
• Subsurface conditions
• Worker safety
• Owner/Designer Relationship (7 bullets)
• Contract/Specifications (7 bullets)
• Many Others

3. Allocating Risks (Accept fully, Share or Transfer risk)

Which party is best able to

• Evaluate
• Control
• Manage
• Assume the risk

4. What do you gain from "Proper" risk allocation?

Removal of cost contingencies.

5. The Construction Contract

A set of documents which:

• Specifies intent (what is to be built, where, when, how, etc.)
• Documents risk allocation decisions.
  

The contract covers:

• Responsibilities of parties.
• What parts will be responsibility of General Contractor and what parts will have separate contracts
• Change orders
• Resolving Claims and disputes
• Delays and schedule
• Payment schedule
• Insurance requirements
• Contract suspension rules
• Project close-out

A "good" contract is clear, anticipates problems, and fairly allocates risk.

6. Standard Form Contracts

• American Institute of Architects - AIA
• Engineers Joint Contract
• Assocation of General Contractors - AGC

Adhering to standards can save Time and Money in contract preparation and review.

Review and modify the Standard Contract FOR EACH JOB.

Standard contracts feature the "bias" of the drafter.

7. Other Methods of Risk Reduction

Partnering - Establishing a working relationship through mutually-developed strategy of committment and communication (win-win). (Contrast this with Bargaining & compromise (zero sum))

Pre-qualification - Assessing qualifications (of designer or contractor) and their past experience and performance history before awarding the contract.

Performance Bonds

Produced and maintained by David T. Damery
Building Materials and Wood Technology
Department of Natural Resources Conservation
College of Natural Resources and the Environment
University of Massachusetts, Amherst.