Monday, 17 November 2014

Keeping Construction and Tendering Contracts Separate

Author: Corbin Devlin 

Tender documents are often "living" documents. A problem arising on one project prompts a construction owner to insert a new contract term to address the problem on subsequent projects. This is good practice in itself, a sort of continuous improvement process. But a common result of this process is that contract terms are put in the wrong place. In particular, there is a recurring problem with tender documents that intersperse construction terms with proper tendering terms. For example, it is common to see conditions such as "Contractor will use only materials ABC in performing the Work" or "Installation by XYZ certified installers" right in the invitation to tender. These terms and conditions belong in the construction agreement, not in the invitation to tender.

What's the difference where these terms are placed? Isn't the invitation to tender incorporated by reference into the construction agreement anyhow?

The legal problem is that the invitation to tender (Contract A) creates a binding agreement between each bidder and the construction owner. Each bidder (and the construction owner) has a contractual obligation to respect the terms of the invitation to tender – and a contractual right to enforce the terms of the invitation to tender. On the other hand, the construction agreement (Contract B) is binding on only one bidder - the successful bidder - and construction owner. The terms that should bind each and every bidder are terms such as “Bids submitted later than 4 p.m. on closing date will be rejected.” But the owner only requires the successful bidder – not each bidder - to actually perform the work. So it is only the successful bidder that requires to comply with construction specifications such as, for example, "only materials ABC to be used in construction" or "materials to be installed by XYZ certified installers."

What is the harm in binding all bidders to such terms? After all, the owner wants to ensure that all bidders are bidding on the same thing. Frankly, the harm is that this practice causes lawsuits. A few years ago the Double N Earthmovers case (Double N Earthmovers Ltd. v. Edmonton (City of), 2005 ABCA 104) went all the way to the Supreme Court of Canada because of a related problem. The City of Edmonton prescribed certain equipment specifications for the work – and this requirement was found in the tender documents. One of the unsuccessful bidders sued when the City ultimately entered a construction agreement that allowed for different equipment specifications. The City was held not liable. But if the equipment specifications were not embedded in Contract A (the invitation to tender), but instead placed in Contract B where they belong, then this lawsuit might have been avoided.

I'm writing this article because the Double N case does not illustrate an isolated incident. I have seen numerous disputes that could have been avoided but for the confusion caused by construction agreement terms embedded in tendering documents. The owner who specifies "XYZ certified installers" probably does not contemplate that an unsuccessful bidder might have the right to enforce this specification. But placing that specification in the invitation to tender may have that effect.

Of course, the fix to this problem is relatively simple. As mentioned, the proper place for construction terms and conditions is in the construction agreement. Something like the requirement to provide “XYZ certified installers" should be located in the scope of work appendix. The proposed construction agreement, or maybe (depending on circumstances) just the scope of work appendix, should be an attachment to the invitation to tender. The invitation to tender should specify that the successful bidder will enter a contract on the attached terms and conditions, or for the attached scope of work. And the invitation to tender should expressly reserve the owner’s right to negotiate the construction agreement terms with the successful bidder.

Tuesday, 4 November 2014

Top 3 Ways Project Documentation Fails

Author: Corbin Devlin 

Documentation is key to resolving construction disputes. Was there a change in site conditions? What instructions were given on site? Was a change approved? Was the owner given notice?  This is just a small sample of the issues that come into dispute – and that depend on proper documentation to resolve. Here’s the top 3 reasons project documentation fails:
  1. No documentation habit: Construction companies – and construction owners - have personalities just like people do. It still surprises me when small companies have excellent documentation habits, and large companies have weak documentation habits. But I have learned it is not a question of financial resources; it is a question of human resources. Personnel well-educated regarding construction disputes – and in particular personnel who have lived through a number of disputes – come to learn the importance of documentation, and how to properly document a project, event or dispute.
  2. No systems: Not all personnel involved in a project are going to have the aforementioned training and experience. So it is key to have systems in place to ensure that documentation is maintained, even by those who may not understand the reasons for it, and even when there is no dispute in sight. Many sophisticated construction contractors and owners have excellent (albeit complex) management systems in place. Remarkably, some don’t. But even smaller or less sophisticated contractors and owners can implement good systems; e.g. designating who is responsible for what project documentation, setting standards for documenting site conditions and events, and recording (and retaining) all project communications.
  3. Not reading the contract: No documentation habit or system is going to save the owner or contractor who does not read or understand the contract requirements. One of the best practices I recommend is to ensure that key personnel (e.g. project managers and superintendents) create a summary of every significant contract – in other words, reduce the contract to a page or two of bullet-points. This ensures that key personnel actually read the contract, and provides a useful reference throughout the project. Notice requirements and timelines should be a highlight of any such contract summary.
Sometimes there is no documentation of a disputed event. This puts the parties on a level playing field. But it is far more challenging to resolve disputes without documentation; if it comes down to “he said, she said,” then outcomes may be unpredictable. Sometimes both parties have excellent documentation. In such cases disputes are more likely to come down to technical issues or issues of contract interpretation – they can still be contentious, but much easier to resolve. Sometimes one party has excellent documentation and the other has none. This tilts the playing field. Don’t lose the war of documentation.