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Minimize the Inherent Risk in "Scope Bidding" by Amending Your Form Subcontract




by:
Eugene J. Heady
Smith, Currie & Hancock LLP - Atlanta Office

 
August 12, 2014

Previously published on August 8, 2014

Subcontractors must exercise particular care if the project specifications are performance specifications or otherwise described by so-called “scope” criteria.  A scope specification is one that describes the general scope of the project in terms of design, dimension, and major components of the work but does not list or describe all of the work required for full performance of the contract.  One example of a scope specification is as follows:

This document indicates the general scope of the project in terms of architectural design, the dimensions of the building, the major architectural parts and the type of structural, mechanical, and electrical systems.  This document does not necessarily indicate or describe all work required for full performance and completion of the Contract Documents.  On the basis of the general scope indicated or described, the contractor shall furnish all items required for the proper execution and completion of work.  Decisions of the architect, as to the work included within the scope of this document, shall be final and binding on the contractor and the owner.

This example of a typical scope specification is noted in Guidelines for a Successful Construction Project, which is a joint publication by the Associated General Contractors of America (AGC), the American Subcontractors’ Association (ASA), and the Associated Specialty Contractors (ASC).  The joint Guidelines list the typical items of work that the contractor should include in its competitive bid for a project when presented with scope specifications. The joint Guidelines also suggest the typical items of work that the contractor should seek to exclude in its prime contract with the owner. Similarly, in the event the subcontractor bids the project with knowledge that the work is based on a performance or scope type of specification, the successful subcontractor should attempt to amend any subcontract agreement to set forth the exclusions that were adopted as part of the joint Guidelines.

By way of example, consider how the joint Guidelines could be used to amend AIA Document A401-2007, which is a form subcontract agreement that is widely recognized and used in the construction industry.  Article 8 of the A401 contains a blank space where the subcontractor should insert a precise description of its work, including all inclusions, exclusions, additions, or deletions.  It is here that the subcontractor should attempt to amend the subcontract agreement to set forth the exclusions that were adopted as part of the joint Guidelines.  This could be done by adding the following language to Article 8 of the A401-2007:

8.1  To the extent that the Subcontractor’s work is defined by scope or performance specifications, the Subcontractor’s work shall not include work, materials, equipment, or services that would be excluded from such scope or performance specifications under Section B.3 of Guidelines for a Successful Construction Project, “Guideline on ‘Scope’ Bidding for Private Work,” page 16 (2003), a joint guideline of the Associated General Contractors of America, the American Subcontractors Association, and the Associated Specialty Contractors. Accordingly, the Subcontractor’s work shall not include

1. material or equipment not specified to be furnished, unless required for the normal functioning of the system or to comply with the original stated intent;

2. changes in location of equipment, materials and facilities due to alterations in architectural concept and design;

3. changes in sizes, capacities and locations of components of the installation due to modifications of the building or its components;

4. determination of capacities and sizes, unless made a part of bidding and contract requirements, and the furnishing of equipment to satisfy those capacities; and

5. basic design changes to meet applicable codes and ordinances, including but not limited to, added stairs, exits, added sprinklers, fire protection or changes from specified or indicated items.

Of course, the best negotiating tool that the subcontractor can use to secure inclusion of these provisions in the subcontract agreement is the fact that they have been adopted as joint guidelines by the AGC, ASA, and ASC. Indeed, the contractor should consider including similar provisions in its prime contract with the owner.

There are many ways to amend standard form contract agreements to minimize your risk on a construction project and to help you avoid claims and contentious disputes from the outset.  The sample provision above is one example.  Before simply inserting such sample language into your contracts without further thought, however, it is advisable to consult with a seasoned construction lawyer.  A seasoned construction lawyer will be able to assist you in drafting carefully tailored and deliberate revisions to the interrelated boilerplate provisions of your form contracts to advance your overall objectives including shifting or significantly minimizing the risk inherent in every construction project.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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Author
 
Eugene J. Heady
Practice Area
 
Construction Law
 
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