Construction Contract Administration

Tim-

Did you issue a Change Order-signed by Owner and Contractor-for this added scope hardware?  And, did the Change Order address the impact on Project Time before Liquidated Damages start to apply?   Since you are using standard A101 and A201 contracts, I assume there are no unusual relevant conditions to the contrary in your other spec Divisions 00 and 01.  If the Contractor has not yet met all requirements in 017700, and the amount of incomplete Work is excessive, then the hardware issue is completely irrelevant to their delay in achieving Substantial Completion.  However, this is a classic example of what I have found in my 40+ years of full-time CA experience to be the real root of many construction phase problems: the unintended consequences of ill-advised LDs. 

Most building Owners need to occupy their finished facility by a date certain, so they often put a clause in the construction contract stipulating that penalties or liquidated damages, LDs, are to be paid by the Contractor to compensate for Owners' losses if the agreed upon completion date is not met.  LDs give an Owner comfort-in theory.  In actual practice, however, LDs are virtually never paid by a General Contractor, and in fact, more often than not they cause unintended losses for the Owner. 

Here's why: 

•             To the maximum extent possible, all General Contractors delegate liability and risk, including LD exposure, down into subcontracts with trade contractors and suppliers who are less financially able to sustain costs imposed by LDs.  Those subs seldom have any control over the whole project, but they are motivated by fear of devastating losses if any LD delay is blamed on them.  Therefore, they tend to increase their initial bids to offset the added risk of LDs, which become an invisible and non-refundable additional cost to the Owner.

•             Construction has become ever more complex and dependent on a high degree of coordination and teamwork if quality work is to move quickly toward completion.  However, teamwork and efficiency evaporate under the constant threat of LD penalties.  Subcontractors seek self-protection from risk of LDs which, ironically, adds to the likelihood that the project will go slower and miss the completion date-adding even more risk of harm to the Owner.

•             Any General Contractor or Construction Manager who encourages the Owner to include LDs for the GC to use as a way to force their subcontractors into schedule compliance is just paying lip-service to the 'partnering' concept and portraying the Owner, not the GC, as the subs' opponent.  Project -management-by-threat-of-LDs undermines teamwork and obstructs any sense of loyalty to the Owner.  It is also a red flag warning of potential conflicts to come.

•             Subs can only control their own actions, so under time pressure of LDs, they naturally try to rush their work even more than would be the case just to maintain schedule.  If another trade is not "out of the way" fast enough, the precedent work is rushed and/or covered over in greater haste to avoid LD charges-fear usually trumps concern for workmanship.  Loss of quality and impacted building performance is yet another hidden, but very real, cost of LDs to the Owner.

•             In the end, though, if/when the stipulated Completion Date is missed, most Contractors immediately counter by redefining "completion", counter-claiming due to "extenuating circumstances", and/or blaming the designer and the Owner or all the above.  Expensive, protracted litigation over those related issues can exceed the dollar amount of LDs as well as cause other problems, so the wasted energy of conflict is usually better and more productively applied to a belated effort to get the Owner into operation ASAP.  The damage is done.  But even in the absence of a pre-agreed amount for Liquidated Damages, the Owner still may have recourse via breach-of-contract litigation for actual Consequential Damages if all else fails.

For all these reasons, Liquidated Damages simply don't work.  It is never a 'surprise' when a project ends up behind schedule-a lack of scheduled progress should have been obvious to everyone long before Completion Day.  Who was monitoring the project for the Owner, and if schedule was so important, who was certifying monthly payment applications as being in compliance with the contracted schedule?  And if progress was behind schedule due to unforeseen conditions, was there no Contingency fund to deal with that?  Or, if delay was due to circumstances under Contractor control, did the specifications not contain provisions that compel the Contractor to accelerate promptly to get back on schedule?  Having to impose LDs at the end is actually an admission that everyone involved waited too long to even acknowledge the problem earlier and did not respond cooperatively when delays began-at the point where necessary corrective actions were still possible and still reasonably economical to implement. 

I have crafted two alternative solutions to the problem of LDs, and they almost always do work--see my 2-page explanation, copy attached.   If anyone would like to discuss further, feel free to contact me directly.

--Dale Munhall,  AIA

Director of Construction Phase Services

LEO A DALY

dlmunhall@leoadaly.com

(402) 670-2078

Tim-

Did you issue a Change Order-signed by Owner and Contractor-for this added scope hardware?  And, did the Change Order address the impact on Project Time before Liquidated Damages start to apply?   Since you are using standard A101 and A201 contracts, I assume there are no unusual relevant conditions to the contrary in your other spec Divisions 00 and 01.  If the Contractor has not yet met all requirements in 017700, and the amount of incomplete Work is excessive, then the hardware issue is completely irrelevant to their delay in achieving Substantial Completion.  However, this is a classic example of what I have found in my 40+ years of full-time CA experience to be the real root of many construction phase problems: the unintended consequences of ill-advised LDs. 

Most building Owners need to occupy their finished facility by a date certain, so they often put a clause in the construction contract stipulating that penalties or liquidated damages, LDs, are to be paid by the Contractor to compensate for Owners' losses if the agreed upon completion date is not met.  LDs give an Owner comfort-in theory.  In actual practice, however, LDs are virtually never paid by a General Contractor, and in fact, more often than not they cause unintended losses for the Owner. 

Here's why: 

•             To the maximum extent possible, all General Contractors delegate liability and risk, including LD exposure, down into subcontracts with trade contractors and suppliers who are less financially able to sustain costs imposed by LDs.  Those subs seldom have any control over the whole project, but they are motivated by fear of devastating losses if any LD delay is blamed on them.  Therefore, they tend to increase their initial bids to offset the added risk of LDs, which become an invisible and non-refundable additional cost to the Owner.

•             Construction has become ever more complex and dependent on a high degree of coordination and teamwork if quality work is to move quickly toward completion.  However, teamwork and efficiency evaporate under the constant threat of LD penalties.  Subcontractors seek self-protection from risk of LDs which, ironically, adds to the likelihood that the project will go slower and miss the completion date-adding even more risk of harm to the Owner.

•             Any General Contractor or Construction Manager who encourages the Owner to include LDs for the GC to use as a way to force their subcontractors into schedule compliance is just paying lip-service to the 'partnering' concept and portraying the Owner, not the GC, as the subs' opponent.  Project -management-by-threat-of-LDs undermines teamwork and obstructs any sense of loyalty to the Owner.  It is also a red flag warning of potential conflicts to come.

•             Subs can only control their own actions, so under time pressure of LDs, they naturally try to rush their work even more than would be the case just to maintain schedule.  If another trade is not "out of the way" fast enough, the precedent work is rushed and/or covered over in greater haste to avoid LD charges-fear usually trumps concern for workmanship.  Loss of quality and impacted building performance is yet another hidden, but very real, cost of LDs to the Owner.

•             In the end, though, if/when the stipulated Completion Date is missed, most Contractors immediately counter by redefining "completion", counter-claiming due to "extenuating circumstances", and/or blaming the designer and the Owner or all the above.  Expensive, protracted litigation over those related issues can exceed the dollar amount of LDs as well as cause other problems, so the wasted energy of conflict is usually better and more productively applied to a belated effort to get the Owner into operation ASAP.  The damage is done.  But even in the absence of a pre-agreed amount for Liquidated Damages, the Owner still may have recourse via breach-of-contract litigation for actual Consequential Damages if all else fails.

For all these reasons, Liquidated Damages simply don't work.  It is never a 'surprise' when a project ends up behind schedule-a lack of scheduled progress should have been obvious to everyone long before Completion Day.  Who was monitoring the project for the Owner, and if schedule was so important, who was certifying monthly payment applications as being in compliance with the contracted schedule?  And if progress was behind schedule due to unforeseen conditions, was there no Contingency fund to deal with that?  Or, if delay was due to circumstances under Contractor control, did the specifications not contain provisions that compel the Contractor to accelerate promptly to get back on schedule?  Having to impose LDs at the end is actually an admission that everyone involved waited too long to even acknowledge the problem earlier and did not respond cooperatively when delays began-at the point where necessary corrective actions were still possible and still reasonably economical to implement. 

I have crafted two alternative solutions to the problem of LDs, and they almost always do work--see my 2-page explanation, copy attached.   If anyone would like to discuss further, feel free to contact me directly.

--Dale Munhall,  AIA

Director of Construction Phase Services

LEO A DALY

dlmunhall@leoadaly.com

(402) 670-2078

Actually, Ivan, I'm Dale Munhall at LEO A DALY.  And, yes, I do think we spoke briefly at AIA HQ in March of 2019 when I did a presentation for the CCA Knowledge Community's Innovation Symposium.  

Please do let me know how it goes the next time you show a client my Liquidated Damages article.  I originally wrote it at the request of one of my clients, who then used it successfully to convince the attorney at his lender not to require LDs because they are so bad for the Owner.  The lender and the attorney had no idea of the downsides of LDs, but they agreed to stop requiring that LDs be included as a condition in their borrowers' construction loans.  There is a far, far better way to keep projects on schedule, as I have shown.

------------------------------
Dale Munhall AIA
Director of Construction Phase Services
LEO A DALY
Omaha NE
dlmunhall@leoadaly.com
(402) 670-2078
------------------------------

Tim-

Did you issue a Change Order-signed by Owner and Contractor-for this added scope hardware?  And, did the Change Order address the impact on Project Time before Liquidated Damages start to apply?   Since you are using standard A101 and A201 contracts, I assume there are no unusual relevant conditions to the contrary in your other spec Divisions 00 and 01.  If the Contractor has not yet met all requirements in 017700, and the amount of incomplete Work is excessive, then the hardware issue is completely irrelevant to their delay in achieving Substantial Completion.  However, this is a classic example of what I have found in my 40+ years of full-time CA experience to be the real root of many construction phase problems: the unintended consequences of ill-advised LDs. 

Most building Owners need to occupy their finished facility by a date certain, so they often put a clause in the construction contract stipulating that penalties or liquidated damages, LDs, are to be paid by the Contractor to compensate for Owners' losses if the agreed upon completion date is not met.  LDs give an Owner comfort-in theory.  In actual practice, however, LDs are virtually never paid by a General Contractor, and in fact, more often than not they cause unintended losses for the Owner. 

Here's why: 

•             To the maximum extent possible, all General Contractors delegate liability and risk, including LD exposure, down into subcontracts with trade contractors and suppliers who are less financially able to sustain costs imposed by LDs.  Those subs seldom have any control over the whole project, but they are motivated by fear of devastating losses if any LD delay is blamed on them.  Therefore, they tend to increase their initial bids to offset the added risk of LDs, which become an invisible and non-refundable additional cost to the Owner.

•             Construction has become ever more complex and dependent on a high degree of coordination and teamwork if quality work is to move quickly toward completion.  However, teamwork and efficiency evaporate under the constant threat of LD penalties.  Subcontractors seek self-protection from risk of LDs which, ironically, adds to the likelihood that the project will go slower and miss the completion date-adding even more risk of harm to the Owner.

•             Any General Contractor or Construction Manager who encourages the Owner to include LDs for the GC to use as a way to force their subcontractors into schedule compliance is just paying lip-service to the 'partnering' concept and portraying the Owner, not the GC, as the subs' opponent.  Project -management-by-threat-of-LDs undermines teamwork and obstructs any sense of loyalty to the Owner.  It is also a red flag warning of potential conflicts to come.

•             Subs can only control their own actions, so under time pressure of LDs, they naturally try to rush their work even more than would be the case just to maintain schedule.  If another trade is not "out of the way" fast enough, the precedent work is rushed and/or covered over in greater haste to avoid LD charges-fear usually trumps concern for workmanship.  Loss of quality and impacted building performance is yet another hidden, but very real, cost of LDs to the Owner.

•             In the end, though, if/when the stipulated Completion Date is missed, most Contractors immediately counter by redefining "completion", counter-claiming due to "extenuating circumstances", and/or blaming the designer and the Owner or all the above.  Expensive, protracted litigation over those related issues can exceed the dollar amount of LDs as well as cause other problems, so the wasted energy of conflict is usually better and more productively applied to a belated effort to get the Owner into operation ASAP.  The damage is done.  But even in the absence of a pre-agreed amount for Liquidated Damages, the Owner still may have recourse via breach-of-contract litigation for actual Consequential Damages if all else fails.

For all these reasons, Liquidated Damages simply don't work.  It is never a 'surprise' when a project ends up behind schedule-a lack of scheduled progress should have been obvious to everyone long before Completion Day.  Who was monitoring the project for the Owner, and if schedule was so important, who was certifying monthly payment applications as being in compliance with the contracted schedule?  And if progress was behind schedule due to unforeseen conditions, was there no Contingency fund to deal with that?  Or, if delay was due to circumstances under Contractor control, did the specifications not contain provisions that compel the Contractor to accelerate promptly to get back on schedule?  Having to impose LDs at the end is actually an admission that everyone involved waited too long to even acknowledge the problem earlier and did not respond cooperatively when delays began-at the point where necessary corrective actions were still possible and still reasonably economical to implement. 

I have crafted two alternative solutions to the problem of LDs, and they almost always do work--see my 2-page explanation, copy attached.   If anyone would like to discuss further, feel free to contact me directly.

--Dale Munhall,  AIA

Director of Construction Phase Services

LEO A DALY

dlmunhall@leoadaly.com

(402) 670-2078

Actually, Ivan, I'm Dale Munhall at LEO A DALY.  And, yes, I do think we spoke briefly at AIA HQ in March of 2019 when I did a presentation for the CCA Knowledge Community's Innovation Symposium.  

Please do let me know how it goes the next time you show a client my Liquidated Damages article.  I originally wrote it at the request of one of my clients, who then used it successfully to convince the attorney at his lender not to require LDs because they are so bad for the Owner.  The lender and the attorney had no idea of the downsides of LDs, but they agreed to stop requiring that LDs be included as a condition in their borrowers' construction loans.  There is a far, far better way to keep projects on schedule, as I have shown.

------------------------------
Dale Munhall AIA
Director of Construction Phase Services
LEO A DALY
Omaha NE
dlmunhall@leoadaly.com
(402) 670-2078
------------------------------

Tim-

Did you issue a Change Order-signed by Owner and Contractor-for this added scope hardware?  And, did the Change Order address the impact on Project Time before Liquidated Damages start to apply?   Since you are using standard A101 and A201 contracts, I assume there are no unusual relevant conditions to the contrary in your other spec Divisions 00 and 01.  If the Contractor has not yet met all requirements in 017700, and the amount of incomplete Work is excessive, then the hardware issue is completely irrelevant to their delay in achieving Substantial Completion.  However, this is a classic example of what I have found in my 40+ years of full-time CA experience to be the real root of many construction phase problems: the unintended consequences of ill-advised LDs. 

Most building Owners need to occupy their finished facility by a date certain, so they often put a clause in the construction contract stipulating that penalties or liquidated damages, LDs, are to be paid by the Contractor to compensate for Owners' losses if the agreed upon completion date is not met.  LDs give an Owner comfort-in theory.  In actual practice, however, LDs are virtually never paid by a General Contractor, and in fact, more often than not they cause unintended losses for the Owner. 

Here's why: 

•             To the maximum extent possible, all General Contractors delegate liability and risk, including LD exposure, down into subcontracts with trade contractors and suppliers who are less financially able to sustain costs imposed by LDs.  Those subs seldom have any control over the whole project, but they are motivated by fear of devastating losses if any LD delay is blamed on them.  Therefore, they tend to increase their initial bids to offset the added risk of LDs, which become an invisible and non-refundable additional cost to the Owner.

•             Construction has become ever more complex and dependent on a high degree of coordination and teamwork if quality work is to move quickly toward completion.  However, teamwork and efficiency evaporate under the constant threat of LD penalties.  Subcontractors seek self-protection from risk of LDs which, ironically, adds to the likelihood that the project will go slower and miss the completion date-adding even more risk of harm to the Owner.

•             Any General Contractor or Construction Manager who encourages the Owner to include LDs for the GC to use as a way to force their subcontractors into schedule compliance is just paying lip-service to the 'partnering' concept and portraying the Owner, not the GC, as the subs' opponent.  Project -management-by-threat-of-LDs undermines teamwork and obstructs any sense of loyalty to the Owner.  It is also a red flag warning of potential conflicts to come.

•             Subs can only control their own actions, so under time pressure of LDs, they naturally try to rush their work even more than would be the case just to maintain schedule.  If another trade is not "out of the way" fast enough, the precedent work is rushed and/or covered over in greater haste to avoid LD charges-fear usually trumps concern for workmanship.  Loss of quality and impacted building performance is yet another hidden, but very real, cost of LDs to the Owner.

•             In the end, though, if/when the stipulated Completion Date is missed, most Contractors immediately counter by redefining "completion", counter-claiming due to "extenuating circumstances", and/or blaming the designer and the Owner or all the above.  Expensive, protracted litigation over those related issues can exceed the dollar amount of LDs as well as cause other problems, so the wasted energy of conflict is usually better and more productively applied to a belated effort to get the Owner into operation ASAP.  The damage is done.  But even in the absence of a pre-agreed amount for Liquidated Damages, the Owner still may have recourse via breach-of-contract litigation for actual Consequential Damages if all else fails.

For all these reasons, Liquidated Damages simply don't work.  It is never a 'surprise' when a project ends up behind schedule-a lack of scheduled progress should have been obvious to everyone long before Completion Day.  Who was monitoring the project for the Owner, and if schedule was so important, who was certifying monthly payment applications as being in compliance with the contracted schedule?  And if progress was behind schedule due to unforeseen conditions, was there no Contingency fund to deal with that?  Or, if delay was due to circumstances under Contractor control, did the specifications not contain provisions that compel the Contractor to accelerate promptly to get back on schedule?  Having to impose LDs at the end is actually an admission that everyone involved waited too long to even acknowledge the problem earlier and did not respond cooperatively when delays began-at the point where necessary corrective actions were still possible and still reasonably economical to implement. 

I have crafted two alternative solutions to the problem of LDs, and they almost always do work--see my 2-page explanation, copy attached.   If anyone would like to discuss further, feel free to contact me directly.

--Dale Munhall,  AIA

Director of Construction Phase Services

LEO A DALY

dlmunhall@leoadaly.com

(402) 670-2078