Construction File: The Pitfalls of Incomplete Contract Documents

In providing a price, contractors expect that the contract documents are complete and reflect the project requirements, and that any changes, errors or omissions from the documents will lead to a change order with commensurate adjustment to both the contract price and duration. As the bidding is done in a competitive environment, contractors and their subcontractors are reluctant to add allowances to their tendered price, fearing that they will not be successful as low bidder. While the design may have taken several months to complete, the contractor is often unfairly expected to verify the consultant’s drawings and specifications for deficiencies or completeness during a much shorter bidding period. To remain competitive, a contractor should be able to rely entirely on the contract documents, and that their price will reflect the scope of work outlined in the documents alone, even if the contract is loaded with onerous clauses.

Different researchers have conducted studies to determine the common causes of significant claims on contracts and the results seem to be consistent. On average, claims amounted to 30% of the construction value. Four of the major causes for claims were:

  • Inadequate site and/or subsurface investigation prior to starting the design
  • Starting design efforts too late and/or unduly limiting the cost of engineering and design
  • Calling for bids with an incomplete set of drawings
  • Endeavouring to complete the design through shop drawing review

The common feature of all these projects was hurriedly and incompletely prepared bid documents, giving rise to design changes, extra work, and quantity fluctuation during the project. Many owners may argue that such a high premium can be justified as long as the facility is available on the scheduled date. Unfortunately, experience does not support such an argument. The analysis of the reports revealed that nearly all of them suffered significant delays, notwithstanding any attempted acceleration. The average delay was 5.69 months, representing nearly a 50% overrun in the average planned duration. Had more time been spent in investigating, planning and designing these projects than they actually did, they would have saved at least 20% of the actual cost even had they paid approximately 50% more to their designers. It is safe to state that the ultimate cost of the project would be significantly lower if owners allowed more time to complete their design.

Best Practices for Complete Contract Documents:

  1. Owners need to recognize there is an implied warranty that the drawings and specifications that they provide to the contractors as part of a contract are accurate, complete and buildable and that the contractor is not responsible for the consequences of defects in the plans and specifications.
  2. The owner should not skimp on the front 10% of the project costs (architectural and engineering) at the expense of the latter 90% of the project (construction). Owners should demand that consultants provide 100% complete contract documents at the time a contract is tendered. If necessary, cash allowances should be well defined.
  3. Most contracts require the consultant to perform the first adjudication of an issue, but when the claim results from design errors and omissions in the contract documents, the consultant may be in a conflict of interest position. The result is a possible dispute between the contractor and the owner with possible litigation costs. A better approach may be for the owner to use a third party neutral to provide an independent opinion on issues that arise during construction.
  4. The use of onerous clauses to prevent a contractor from recovering costs due to incomplete contract documents is not a principled practice and may not be considered as being fair by the courts. It may therefore be either unenforceable or interpreted to the benefit of the contractor. This should be taken into consideration when drafting a contract.
  5. When consultants have been asked why incomplete documents are issued for contracts, the usual response has been that the fees are not adequate to do a complete job. Designers should be cautious that commercialism does not replace professionalism.

These are some sound fundamentals for achieving the schedule and cost objectives of a project. The most critical of the requirements is having drawings, specifications and other parts of the contract documents as close to 100% complete as possible at the time of executing a contract. If 100% is not achievable for some reason, then the contract documents must make provision for fair and equitable adjustments to the time and price in the contract as changes are issued. Otherwise, the spectre of claims and potential litigation loom on the horizon to the peril of all parties involved in the contract.

Acknowledgement: This document was prepared from information provided in ‘The Revay Report, March 2010’ – to access the complete report, go to http://www.revay.com/index.php/publications/the-revay-report/.

ChrisAtchison_ManleyMcLachlan_02.jpg
December 06, 2016

Chris Atchison Named BCCA President

The British Columbia Construction Association (BCCA) announced today that Chris Atchison has been named incoming President, replacing retiring incumbent Manley McLachlan. The handover will begin on January 3, with McLachlan staying on in an advisory capacity until March 31, 2017.
Read More
bcca-construction-connections-175.png
September 26, 2016

Ross McLean Receives Distinguished Service Award

The BC Construction Association has awarded a Distinguished Service Award to Houle Electric’s Regional Manager Ross McLean, in recognition of his contributions to the growth and stature of British Columbia’s construction industry.
Read More
news-steven-bernard.png
April 25, 2016

50 job placements already secured by LNG Canada Connect program

Connecting qualified workers with job opportunities in the skilled trades in Terrace and Kitimat is crucial to successful workforce development, particularly for the nascent LNG industry. To address this challenge, B.C. Construction Association (BCCA) teamed up with LNG Canada to create the LNG Canada Connect initiative. This initiative is completely funded by LNG Canada and is an extension of our Skilled Trades Employment Program (STEP).
Read More
February 23, 2016

BC Construction Industry Hiring Workers Back From Alberta

VICTORIA, BC – Strong activity in British Columbia’s construction industry is drawing skilled workers back to the province from Alberta and more young people are entering the trades, according to the 2016 Construction Industry Survey released today by the BC Construction Association, in partnership with Progressive Contractors Association and Construction Labour Relations.
Read More
report-innovation-project-260x336.png
February 18, 2016

Construction Innovation Study Shows BC Behind the Curve

The British Columbia Construction Association (BCCA) has published an industry study that reveals BC’s construction sector is lagging behind other jurisdictions when it comes to innovation. “BC is a leader in green building, wood, and procurement technologies, but we have catching up to do in most areas of construction innovation,” says Manley McLachlan, President of the BCCA. “Construction is an extremely competitive industry: employers are holding their cards close. The result is that we’re great at on-the-job problem solving but too often missing the big picture.”
Read More
media-release-lakay-school.png
February 01, 2016

BC Ironworkers to Help Rebuild Lakay Trade School in Haiti

Five members of the Local 97 of the Ironworkers Union of BC are volunteering their time to help rebuild the Lakay Trade School in Haiti. The school is a new two story steel structure, and the Canadian welders will bolt and weld the vertical alignment and attach the steel sheeting to the second floor and roof.
Read More
construction-file-default.jpg
December 22, 2015

Construction File: Onerous Bidding Conditions in 2015

The soon-to-be-published ‘Building a BC Construction Innovation Strategy’ (a joint initiative of BCCA and the Home Owner Protection Office) points out one of the biggest hindrances to innovation and productivity in the construction industry: the inequitable allocation of risk down the supply chain to those least able to support it.
Read More
templates/bcca-job-board-bg.jpg
July 20, 2015

Construction File: Job Order Contracting

To support public owners in their efforts to hold themselves accountable to taxpayers through fair open, and transparent procurement practises, the BCCA offers Thresholds for Procurement of Publicly Funded Construction policy.
Read More
news-wed-psc-announcement.png
July 07, 2015

Harper Government Invests in Trades Training Programs

The Honourable John Duncan, Minister of State, Chief Government Whip, and Member of Parliament for Vancouver Island North, on behalf of the Honourable Michelle Rempel, Minister of State for Western Economic Diversification (WD), announced $1.6 million in funding to the British Columbia Construction Association (BCCA).
Read More
Building-Act-Guide.png
June 29, 2015

BC Building Act & Guide

The Building Act is new legislation introduced in spring 2015. The Building Act is B.C.'s first act dedicated just to building and construction - it's designed to modernize and streamline the building regulatory system.
Read More
templates/bcca-job-board-bg.jpg
May 08, 2015

Construction File: Post Closing Over Budget Negotiations

The rationale of the tender process is to replace negotiation with competition and, subject to the terms of the tender documents, negotiation is generally not permitted in the tender process. One of the primary reasons why negotiation is not permitted is to prevent bid shopping. Generally, where the tender documents expressly permit negotiation, negotiation is only permissible so long as it is consistent with what is expressly provided in the tender documents.
Read More
WIDC-Building-Award.jpg
April 28, 2015

Wood Innovation Design Center (WIDC) Wins Award for Innovation in Architecture

BCCA would like to congratulate Michael Green Architecture on its Award of Excellence for Innovation in Architecture, received for the design of the Wood Innovation Design Center (WIDC) in Prince George, BC. The eigh-storey building is the first tall wood building in Canada built beyond current building codes, and North America’s tallest contemporary timber building.
Read More
construction-file-default.jpg
June 17, 2014

Construction File: Prompt Payment Creates a Sustainable Industry

Construction work is project based, with unique project teams assembled through a tendering process. These project teams typically involve an owner who is the buyer of construction services from a general contractor, who in turn employs sub-contractors and often sub-sub-contractors. Add numerous suppliers to the mix, at all levels of the contracting pyramid.
Read More