This article is the second in a newsletter series aimed at helping general contractors navigate the legal and strategic challenges at each stage of a construction project. This part focuses on navigating the pre-bid rollercoaster ride of striving to be the lowest bidder, while attempting to manage financial risks.
Site Conditions: Known, Unknown & Should Have Known
The tender documents and the subsequent contract typically shift the financial risk of known, unknown and should have known site conditions to the general contractor. As such, it is essential to attend a pre-bid site inspection to properly assess known and visibly apparent site conditions in order to determine any complexities and/or physical restrictions and/or obstacles in performing the work. Failure to attend a pre-bid site inspection, particularly if it is a requirement in the tender documents, may be fatal to any claim for additional compensation arising from site conditions that were apparent and should have been known, if the pre-bid site inspection had taken place.
For example, be mindful of site access restrictions, including site trailer and material lay down area availability; other site restrictions imposed by the owner; shared workspaces with the owner’s ongoing business activities and employees’ working environments; and the presence of other owner engaged contractors, such as telecommunication contractors.
It is essential to review in detail any geotechnical report identifying the scope and nature of subsurface conditions. Be wary of the accuracy of any geotechnical report where there are typically an insufficient number of boreholes compared to the size of the project footprint. Inaccurate subsurface conditions guesswork may be the difference between a claim ridden, financially underwater project and a timely completed, claims-free, and profitable project.
Aiming for the “Goldilocks” Schedule
It is every general contractor’s goal to commit to a “Goldilocks” schedule: not too short (resulting in the general contractor issuing delay claims and, conversely, the owner claiming liquidated damages for delay against the general contractor); not too long (resulting in the general contractor expending valuable resources that could have been allocated elsewhere); but just right, no delay claims, no liquidated damages, just a successful, timely completed, and profitable project.
Be wary of committing to any unrealistic schedule, whether created by you or imposed by the owner, as such unrealistic schedules will attract general contractor delay claims and competing owner liquidated damage claims for delay.
Key Non-Scope of Work Terms and Costs
There are numerous non-scope-of-work terms and costs that may play a significant role in preparing your bid, such as licenses, permits, prohibition of price escalation clauses, prohibition in seeking extras, OHSA compliance requirements, local wage rate requirements, local bidder preferences, and compliance with owners’ and/or subcontractors’ collective agreement obligations.
Of course, premiums for performance bonds, labour and material bid bonds, project wrap up liability insurance, builder’s risk insurance, and pollution insurance must not be ignored. Where appropriate, have your insurance broker assess all your insurance and bonding requirements and related costs before submitting your bid.
Provisional Items, Cash Allowances, Additional Items, Extra Work and Unit Prices
Be wary of these provisions in the tender documents and, in particular, note their precise definitions and how each one plays a specific role in being part of the original scope of work and bid price, or not. It is also critical to be aware of the timing when any such work is subsequently triggered and becomes part of the contract scope of work, how any such costs are calculated, and how they become part of the total contract price.
Bid Qualifications
Bid qualifications will typically lead to bid disqualification by the owner, depending on the nature and scope of each item being the subject of the bid qualification. Be mindful of the consequences of any bid qualification and understand the risks of doing so. If you intend on qualifying your bid, you may wish to consider taking a pass and not expending the time, energy, and resources to prepare a bid that will likely be rejected.
The Intangibles
Successful projects rely on more than good estimating, detailed paperwork, timely performance and quality workmanship. Knowing who the project players are and their reputation in the industry, how fairly, reasonably, and honestly they conduct their business, how they communicate, and how effectively they resolve disputes in a timely manner, may make all the difference in performing and completing a successful and profitable project.
As stated by Frank Perricone, President of Percon Construction Inc., and a past Chair of the Ontario General Contractors Association: “People think the construction industry is all about bricks and mortar. I’m here to tell you that it’s not. It’s all about relationships and communications, and if you have that, you can get anything built.”
In a highly competitive bid environment, low price matters, but bidding is not just about price; it’s about risk assessment, and the human factor.
Read Part 3 of this series: Understanding Contract A and Contract B: What Every Contractor Must Know Before Bidding. – Cambridge LLP