IG5336.9201-ch7

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CHAPTER 7

Construction Contract Management

Section 1 – Contract Requirements

7.1 Introduction. For a construction project to be a success the multi-functional team (contractor, contracting officer and engineer, etc) must work together toward their common goal of a quality end product conforming to the contract requirements. Contracting officers are responsible for assuring the contractor complies with the contract documents and produces the required end product. The contractor is responsible for Quality Control. It is their responsibility to manage, control, and document work to ensure compliance with the contract plans and specifications. As stated in FAR Part 36 and other regulations, contract management of construction contracts is accomplished in accordance with FAR Part 42. However, construction contracts also have unique processes that differ from other types of contracts. This chapter focuses on managing those unique areas:

7.2. Performance and Payment Bonds. The Miller Act (40 U.S.C. Section 3132, requires that construction contracts greater than $30,000, but not greater than $100,000 include payment protections. FAR 28.102-1(b)(1) identifies the types of protection necessary. The Miller Act (40 U.S.C. Section 3131 et seq.) requires performance and payment bonds for construction contracts exceeding $100,000. The conditions under which this requirement can be waived can be found at FAR 28.102-1(a). A bond is a written instrument executed by a bidder or contractor and a second party to assure fulfillment of the principal’s obligations to a third party (AF). If the principal’s obligations are not met, the bond assures fulfillment of the principal’s obligation, to the extent stipulated, to the third party. The applicable clauses are located at FAR 28.103. When using Performance and Payment Bonds consider:

7.3. Insurance When Work is Being Performed on A Government Installation. Certificates of insurance for the prime contractor performing work, or Notification of Compliance with Contract Insurance Requirements should be received prior to the commencement of any work on the Government installation. The prime contractor is responsible for maintaining a copy of all subcontractors’ proofs of insurance, and shall make them available to the Contracting Officer upon request. The insurance certificate must include an endorsement that cancellation is effective as prescribed by the laws of the state; or 30 days after the insurer or the Contractor gives written notice to the Contracting Officer, whichever period is longer.

7.4. Pre-Construction Conference. Although in accordance with FAR 52.236-26 the contracting officer decides if a preconstruction conference is necessary, the contracting officer must give careful consideration to the benefits of the conference prior to determining a conference is not necessary. If the Contracting Officer decides a pre-construction conference is necessary, they must notify the contractor in advance of the conference, and the contractor is required to attend. The notification includes the date, time, location, any need for the attendance of subcontractors, and an agenda. Other interested stakeholders should also be invited to attend. The conference typically includes representatives from safety, fire, security, COR(s), affected building managers, and others that may be impacted by the construction. If a decision is made not to hold a conference, at a minimum, written documentation explaining the items below should be sent to the contractor prior to the commencement of work. The Pre-Performance Conference Checklist Template in IG5336.90 may be used for planning the pre-performance conference. The conference includes:

7.5. Materials and Workmanship. FAR 52.236-5 identifies the quality of equipment, material, and articles used for a project, and the quality of workmanship required during performance. Submittal requirements originate from the specifications. It is the responsibility of the contractor to convey submittal requirements to the sub-contractors, suppliers, and vendors. Quality Assurance personnel recommend approval of the submittals, and the Contracting Officer is responsible for approval the submittal. The AF IMT 3000, Material Approval Submittal may be used to meet construction and article approval requirements.

7.5.1.2. identify who is authorized to approve submittals.

7.6. Labor Compliance Requirements. Chapter 6 of this Guide addresses labor compliance requirements.

7.7. Warranties. In accordance with the FAR 52.246-21, Warranty of Construction, the contractor is required to warrant that all work performed conforms to the contract requirements and is free from any defect in equipment, material, or design furnished, or workmanship performed by the contractor or any subcontractor or any supplier at any tier. If possession of any part of the work occurs, prior to final acceptance, the warranty continues one year from the date of possession. FAR 52.246-21 requires the Contracting Officer to notify the contractor, in writing, within a reasonable time after the discovery of any failure, defect, or damage. If the contractor fails to remedy any failure, defect, or damage within a reasonable time after receipt of the notice, the Government has the right to replace, repair, or otherwise remedy the failure, defect or damage at the contractor’s expense. The contractor is required to supply all standard commercial warranties, and enforce the warranties for the benefit of the government, if requested.

CHAPTER 7

Construction Contract Management

Section 2 – Contract Oversight and Management

7.8. Monitoring Progress. In accordance with FAR 36.515, for projects exceeding the simplified acquisition threshold and greater than 60 days, the contractor must submit a progress schedule to the contracting officer.

7.9. Quality Management. Obtaining quality construction is a combined responsibility of the construction contractor and government personnel. The mutual goal must be a quality end product conforming to the contract requirements. The following construction clauses aid in insuring the government receives a quality product.

7.10. Value Engineering Change Proposals (VECP). There are times when contractors find less expensive ways to perform work than the methods called for in the contract documents. Since most contract changes that reduce the cost of performance have a potential to lead to a reduction in the contractor’s total profit, contractors must be incentivized to propose such changes. The Value Engineering Clause at FAR 52.248-3 provides this incentive by allowing the contractor to share in the savings. However, value engineering sharing does not apply to incentive-type construction contracts.

7.11 Payments. The FAR Clause 52.232-5, Payment under Fixed-Price Construction Contracts, authorizes the Contracting Officer to approve progress payments monthly as the work proceeds. This authorization includes authorizing the Government to make payments based upon estimates of work accomplished which meets the standards of quality established under the contract, as approved by the CO. The clause lists specific requirements a contractors request must include. For example, it requires contractors to support the payment amount they are requesting using itemized listings of work items completed, and it must identify the work performed by each subcontractor. The contractor is obligated to refund AF for unearned amounts. The clause also allows the CO to retain funds in the event satisfactory progress is not made (retainage). All material and work covered by progress payments becomes the sole property of the AF. Upon final completion of the work, retained amounts of progress payments not previously released to the contractor shall be included in the final payment to the contractor.

CHAPTER 7

Construction Contract Management

Section 3 – Changes and Delays

7.12. Principal Changed Conditions Clauses.

7.13. Constructive Changes. A constructive change is a “change by implication” and occurs when the Contracting Officer or other authorized Government personnel, by their actions, changes the contract without specifically adhering to the requirements of the “Changes” clause. Constructive changes can be compensated with time, money or both, usually using the Changes clause as the authority. A constructive change has two elements. The first element is change, it occurs when performance exceeds the minimum contract requirements. The second element is order, and it occurs when the Contracting Officer or their representative, by word or deed, require the contractor to perform beyond the contract requirements. Constructive changes can be divided into four categories which represent the major uses of the constructive changes in administratively resolving claims against the Government.

7.13.4.5. Review daily reports, and keep detailed written records.

7.13.4.6. Include a release statement on all modifications.

7.14. Types of Delays. There are different types of delays with different compensations and entitlements. A well documented construction schedule is critical to this process in determining whether the contractor is behind schedule or ahead of schedule. Schedule analysis is crucial in determining what caused the delay, what impact the delay had on performance, and the computation of any liquidated damages. There are four types of delays:

7.15. Schedule Analysis. Analyzing various schedules can assist the contracting officer in establishing delays and determining compensation. The types of schedules used in the analysis are:

7.16. Delay Analysis. The schedules above provide the basis in determining the proper time extension, the number of days of extended overhead and the number of days of liquidated damages applied from the delay. The following equations will assist the contracting officer in determining compensation.

7.17. Methods for Computing Overhead. Four methods are commonly used to calculate overhead. However, on occasion they do not compensate the contractor adequately for home office expenses, particularly when there is a suspension of work or government caused delay. In addition to the methods below, the Eichleay Method may be used to calculate the contractor’s unabsorbed overhead.

CHAPTER 7

Construction Contract Management

Section 4 - Liquidated Damages and Contract Termination

7.18. Beneficial Occupancy. The Government has the right to occupy a building prior to final acceptance. It requires the Contracting Officer to notify the contractor, in writing when that occupancy occurs. The Government assumes all risk when occupying the premises early with the exception of latent defects or fraud. If alterations, repairs or changes to the facility or equipment occur prior final acceptance, both parties’ rights under the contract clauses for warranty and inspection may be altered.

7.19. Termination.

7.19.1.3. The possibility of excusable delays.

7.19.1.4. The availability of construction services from other sources.

7.19.1.7. Any other pertinent facts and circumstances.

17.20. Liquidated Damages. Liquidated damages are to be assessed against the contractor for each day of unexcused delay. If the clause FAR 52.211-10 is used with its alternate specifying phased construction, liquidated damages should be assessed for each day of delay associated with the particular phase. It is recommended that legal assistance be sought prior to the assessment of liquidated damages.

CHAPTER 7

Construction Contract Management

Section 5 – Contract Completion

7.21. Final Contract Completion.

7.22. Contract Closeout. Construction contract files are closed in accordance with
FAR 4.804 and DFARS 204.804. If construction contracts include environmental issues, such as, the removal of hazardous soils, materials, waste, asbestos, coordinate with the organizational Environmental Division, for additional records retention requirements. The Pre-Final Payment Checklist template in IG5336.90 can be used for documenting the pre-final payment.

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