As you should recall, our last installment of Estimator’s Edge dealt with contract terms and conditions (yawn), and included the promise (threat) that this month’s column would continue along those lines (the horror!). Since then, I’ve received some mixed feedback on my original effort. It seems that a number of readers are still a bit cloudy about how contract issues relate to the day-to-day concerns of drywall construction estimators. I’ve heard everything from "That’s PM territory” to "I’m not a lawyer” to "I can’t risk losing an opportunity over a few words,” regarding the matter. Apparently, a good many readers still want to know why it’s important to invest the time and effort in an area that is alien and possibly irrelevant to them.
Well, aside from the reasons given last month—i.e., contracts being floated with the up-front bid docs, development of more onerous terms, the increased risk of these terms being exercised as a consequence of our lean times—there is an inherent value in knowing what the risks are in advance. And while it seems intuitive that we become less discriminating in choosing prospective jobs as the work becomes more limited, it is also very true that lean backlogs provide less buffer against loser jobs. It is a sad piece of irony indeed that the contract award you celebrate today might be the final nail in your coffin a year from now, but that’s a very real prospect that must be confronted. But if you can discern in advance from a contract that there is more risk in a project than potential profit, you may be well-advised to direct
your efforts onto more promising pathways.
Having, I think, justified my continued meanderings in the realm of mutual obligation, I should cite a couple more typical terms that warrant closer scrutiny. You may have glossed over them while scanning a standard agreement. They usually command entire sections and appear in bold: schedule compliance and failure to perform.
If ever there was a ticking time-bomb set to obliterate any profit you had figured to go into a job, the typical schedule compliance clause is it. It will usually read something akin to the following:
"Subcontractor shall diligently prosecute the work in conformity with progress schedule, which is subject to change during the course of construction.” It might further read: "Subcontractor acknowledges such schedule revisions may be necessary and agrees to make no associated claim for acceleration or delay.” Moreover, it could continue to read: "Subcontractor shall make up lost days so as not to impact the Contractor’s progress schedule at no cost to the Contractor.” Finally, the clincher might read: "If the work of others is hindered or delayed by Subcontractor, Subcontractor will pay for all costs and damages incurred by such other party.”
At first brush, these clauses might seem to be reasonable requirements aimed at keeping every participant subcontractor abreast with the project schedule. But stop and consider the possible consequences when applied to the actual prosecution of a job. The first clause allows the contractor to compress or accelerate the schedule at his whim and fancy. I’ve managed jobs in which such an acceleration required literally twice the manpower to execute compared to the anticipated number derived from the original schedule. The second clause declares that there is no cost associated with such an acceleration, which simply defies all logic. The third clause directs the sub to absorb the costs that the second clause says don’t exist, and the final clause says that you’ll pay others’ costs for delay if you can’t keep up with the draconian demands of the new, arbitrarily-determined schedule.
Any one of these clauses could, by itself, deal a crippling blow to your budget. But combine them (which is often the case), and the impact may well pack a fatal knockout punch. Needless to say, an astute estimator may take pause and reconsider the possible consequences. At the very least, he’d be well-advised to carry a healthy premium-time allowance in his bid.
First cousin to the schedule compliance term is the failure to perform term. It will typically be comprised of some more tortured legalese such as: "If the Contractor shall determine in its sole discretion that the Subcontractor has failed to perform as required by the Subcontract documents, Contractor shall notify Subcontractor in writing of such default.” Sounds like it should be announced by a town crier and accompanied by a fanfare. It will go on to set time limits to cure (often unreasonably short), a long list of unpalatable remedies, and provisions for marking up the cost to the subcontractor. Clearly, though, the basic injustice of the clause lies in the words "sole discretion.” Executing an agreement containing this clause is the equivalent of signing off a blank check to your prospective client.
We have now completed a cursory review of some potentially damaging contract provisions—pay-if-paid (in part one), schedule compliance and failure to perform. But this is just a primer, and clearly there are a number of contractual pitfalls that warrant our attention as well. It is hoped that, in the process of this overview, the reader has gained some appreciation of the relevance of contract terms to determining the value of a project, and will peruse the documents in the future. If not, woe betide.
Vince Bailey is an estimator and project director for MKB Construction, a Phoenix, Ariz.–based wall and ceiling contractor.