A lean agreement is better than a fat judgment.—Proverbs
We’ve spent a good deal of time discussing where and how to increase the likelihood of procuring work in these lean times through various methods such as generating new leads, “sharpening the pencil,” reducing the margins and following up on pending sales. Chances are, if you have applied these aggressive measures to the fullest, some or most of us will, against all odds, actually be awarded a job. And after all the well-deserved congratulations and whispered prayers of thanks have died away, your next concern should be with the project’s profitability. And you may think that the final act in your involvement with a procured project is handing it over to a project manager or an operations manager. In any case, your final review with the department that is going to execute the job should come with the arrival of the subcontract.
Obviously, you want the contract to be consistent with your proposal, and a good working agreement will contain the basic parallel components that your bid abstract set forth. Those key components include the assignment of dollar amounts to relevant components of work, the sources upon which the work will be based, clear definition of the scope of work, and the terms and conditions under which the work will be performed.
Certainly, the simplest cross-check between the proposal and the contract is the bottom line—at least one would think that the numbers should clearly match. But there are often intervening modifications that affect the amount. These dollar-assigned items include designated alternates (additive or deductive), allowances and bond. Allowances should be included for contingency items that may or may not be necessary for performance of the work. Weather protection, unspecified materials and repair work for trade damage are common examples of allowance items. Unless directed otherwise, performance and payment bond should be calculated as a separate line item in your proposal so that it is clearly stated as an exclusion from your pricing, but this item may not be so neatly segregated in the contract. All of these items should be thoroughly reviewed and reconciled with the bottom line before executing the agreement.
If you did due diligence up front, you included a solid CYA paragraph on the front page of your proposal that refers to the documents that you based, and didn’t base, your estimate on. Plans and specification manuals with dates and names of architects and engineers are essential. A thorough review should include a close scrutiny of the dates and possible modification to these particular elements. Intervening modifications may have occurred that will affect the profitable performance of the work. Pay particularly close attention to potential differences between the bid set of plans and the construction set.
Similarly, the scope of your work should be cited as clearly and meticulously in the subcontract as it was in your proposal, and such an itemization should be carefully reviewed for any extraneous items or added details. Obviously, you don’t want to be awarded a job based on ambiguities and assumptions that you will be held to on execution. The subcontract should clearly include whether you will perform work that is connected with your sections but not clearly designated as such in the plans. It should include those items that you may have agreed upon verbally with the general contractor during pre-contract negotiations.
Most subcontracts include a boilerplate list of terms and conditions that may or may not be consistent with those you submitted in your proposal. These include timely payment clauses, indemnification clauses, schedule obligations and change order terms. Any incongruity with regard to these items may adversely impact your ability to perform the agreement profitably. Don’t be intimidated by a GC’s insistence that the boilerplate cannot be modified. If it is not consistent with the way that you proposed to do the work, strike it, modify it, initial it and submit it.
Of course, the process of a full blown contract review entails much more than a cursory comparison with the project proposal. But it is a critical first step that can only be performed accurately by the project estimator.
Vince Bailey is an estimator/operations manager for San Juan Insulation and Drywall, Durango, Colo.