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By Contractors For Contractors!
  General Conditions of the Contract

General Conditions of the Construction Contract ... What are they?

By Douglas D. Harding (Capital Project Solutions, LLC)
11/02/2002

There are a number of critical contract issues in every construction contract. Each contract is made up of three elements - offer, acceptance and consideration. When a subcontractor reviews a set of plans and specifications, then provides a bid, this is called an "offer". The terms of the subcontractor's offer should be included on his proposal/bid form(s) and/or document(s). When bidding on a project, the subcontractor sets many of the terms of his own subcontract by strong use of a written proposal/bid form.

Typically, Subcontract Agreements are not available at the time of bidding. Because of this, when a Subcontract Agreement is sent (to the subcontractor who has the winning bid) by a general contractor, it is a counter-offer from the general contractor to the subcontractor. This counter-offer, in the form of the Subcontract Agreement, usually contains additional and/or different conditions, general conditions and clauses than what the subcontractor's proposal/bid form contained. The subcontractor is free to accept or reject the Subcontract Agreement.

The bidding documents contain the terms and conditions of the prime contract (the contract between the Owner and General Contractor) as well as the specifications and plans. A subcontractor is charged with the knowledge of all the bidding documents (even work outside his scope) whether or not he read, or even saw in some cases, those documents. While a subcontractor can negotiate the terms and conditions of the subcontract, almost never can he negotiate the prime contract. Should the Subcontractor negate (or reject) that prime contract, or any portion thereof, he is creating a "non-responsive" bid and is running the risk of having his bid rejected and his contract being awarded to another subcontractor.

When the bid is awarded (either verbally or in writing), it can be said that the offer was accepted, consideration (money) is identified and a contract exists. It sounds so simple. However, put a group of diverse contractors in a room and ask how many have read the general conditions in the specifications and you are lucky if 5% of the room has read these clauses.

These general conditions (all the pages between the Instructions to Bidders up to "cutting and patching") is typically indicated as §01000 of the specifications. These are the rules of the job. In these very critical documents are the instructions for what to do in any of the anticipated situations on the project.

An example of what can be missed due to assumptions by the crew are those relating to the "Order of Precedence". When a contract contains instructions that are susceptible to two or more reasonable interpretations, these are considered "ambiguities". If the ambiguity is "patent" (obvious or should have been obvious), then the duty is for the contractor to inquire before the bid. If the ambiguity is "latent" (potential but not evident), the burden is on the owner as the author of the contract documents. The general rule is that the owner pays for latent ambiguities. The "order of precedence" clause is designed to help the owner out of these situations by giving the contractor rules of interpretation.

What about a project where the specifications say that you, Drywall Dan, have to provide all "access panels indicated on the drawings" as part of your contract. When you look at the drawings to see how many access panels you have to provide, you see 40 panels clearly shown on the drawings, and you bid the contract accordingly. After the project starts, the Owner instructs you to provide 120 access panels as shown in §15000 and §16000 of the specifications. There is a big difference between the two. Who wins?

The "Order of Precedence" clause will state either that "specifications control over drawings" or they can also hold that "drawings control over specifications". If there is no "Order of Precedence" clause, the courts will typically only consider the general rule of "specific over general". As this tends to favor contractors, a smart owner will put in a solid Order of Precedence clause to answer as many of the latent defect issues in his favor as possible. If you don't pay attention to the cluase and assume that the rule is always "drawings over specs" your project could be doomed from the start. This is especially true in federal public works projects which are notoriously complicated in this area.

In the case above, when the "specifications control over the drawings", Drywall Dan is sunk. Although the access panel issue is clearly a latent ambiguity which, left untreated would result in owner liability, the contract addressed the possibility of this problem and provided the owner's answer before the question was asked. So long as this does not violate public policy, the courts will look to the Order of Precedence clause first.

Without an actual knowledge of the general conditions on each project, subcontractors are playing different types of poker without knowing the game rules. You can’t win high-low poker with a royal flush.

Here is a list of some of the general condition clauses that can have a direct affect on the success of your project, if you don’t pay attention to them:

  • Progress Payments (when is it due? Is there a "condition
    precedent" clause?)
  • Retention (How much and when is it due?)
  • Change Orders (Overhead & profit; time extensions; inclusions)
  • Delay (Notice and Time Impact Analysis)
  • Scheduling (who has scheduling responsibilities? What kind
    of schedule is required? Is the subcontractor required to
    complete and maintain a schedule?)
  • Order of Precedence (What is the order, do specs rule over
    drawings or do drawings rule over specs?)
  • Notice (How many days after a delay to you have to give
    notice? How is notice to be delivered? verbally, by mail,
    by registered mail?)

Every project manager should be intimately aware of the general conditions to the project as part of his/her project administration effort. If it proves too difficult to read or you simply don’t have enough time to bother, you put your project and maybe your job at risk.


Douglas D. Harding is a licensed California attorney who concentrates his efforts in construction law and the problems of subcontractors. Since 1985, Doug has been a consultant specializing in subcontractor project administration, management, scheduling and claims services. He has developed and given hundreds of Project Management Workshops which train subcontractors in project documentation, using the project schedule as both a "sword and a shield", and anticipating claim situations to avoid/document losses. Doug testifies as an expert throughout the states of California, Arizona and Nevada and is a full-time partner in the firm of Capital Project Solutions, LLC. in Sacramento, California. He can be reached at:

Capitol Project Solutions
http://www.cpsolutions.info
1501 28th Street, Suite 100
Sacramento, CA 95816
Office: 916.447.7038
Fax: 916.739.0101
email doug@capitalprojects.net

 

 

   

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