Construction File: Keeping Projects on Budget and Over Budget Negotiations
Not only can budget concerns jeopardize the potential for a project proceeding, where it does proceed there may be costly over-budget negotiations or a re-bidding of the project. Over-budget negotiations are an expensive exercise for owners, design professionals, and contractors. As a result, contractors would rather avoid over budget negotiations and they would much prefer to see owners making every effort to do the same.
There has been a lot of discussion regarding the substantial amount of construction on the books and being planned for British Columbia over the next few years. There are some proven actions that will help ensure a successful project, built on time, on budget and with as few surprises as possible. The following are some brief recommendations:
Prepare accurate and complete bidding documents with a pragmatic view to constructability and cost.
Regardless of what procurement method is used, employ contractors early in the design phase to assist with decisions on constructability and cost.
Make the project as attractive to as many bidders as possible by:
Using Standard Tender Documents (i.e. CCDC2) with few Supplementary General Conditions.
Establishing realistic tender periods and realistic construction duration.
Allowing adequate time for the preparation of bids.
Limiting the time period for acceptance
of bids to thirty (30) days or
less. (see Note)
Creating fair allocation of risk in insurance
and indemnification clauses.
Making sure that there is maximum
exposure to the project documents.
Place plans in physical planrooms,
and on the electronic planroom.
Not applying non-refundable document
deposits.
Outlining attractive terms of payment.
Limiting warrantees to one year.
Using the Bid Depository System.
During the construction phase of the project:
Consider using Conflict Resolution
consultants to deal with issues expeditiously
as they arise.
Set out Progressive payment schedules
for changes to the work.
Be amenable to reasonable overhead
and profit for changes.
In the event that you are not successful in keeping your project within budget, you should be prepared by including some specific wording in your project documents. Allow yourself the opportunity to negotiate without having to cancel the tenders and comply with the requirements of the Agreement On Internal Trade.
The Construction File is a publication of the BC Construction Association.
For additional information contact the BCCA.
It has been a decade since BCCA last issued a Construction File on Prequalification. The original information is still relevant but changes in the industry are having an impact that must be noted.
Over the last decade new people, processes and procurement protocols have led to a loss in some fundamental practices in regard to accessing information that is paramount to fair, open and transparent bidding.
CCA has introduced the new CCA 26 A Guide to the Construction Management (CM) Project Delivery Method (2016). Along with the Guide these are some other considerations which are very important in insuring a successful delivery of a project using Construction Management.
Recently BCCA endorsed the requirements of CCA 90 Guidelines for Electronic Procurement, Clause 11, Bid Results as the Association’s policy for disclosure of bid information when projects are bid online.
In 2015, the Canadian Construction Association (CCA) embarked on a series of “Quality of Documents” workshops across Canada. CCA issues its report on the findings from the workshops. Learn more about these key findings and takeaways.
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.
Four years ago BidCentral launched online bidding for trade contractors (BOBS). We’re still the only truly online solution available in BC, with hundreds of projects under our belt.
By their very nature, liquidated damages clauses in contracts cause an adversarial relationship to exist from the outset on a construction project. Such clauses are used in contracts to assign financial responsibility to the contractor for damages that are likely to be incurred by the owner if the specified schedule is not met.
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.
Providing Planholder Lists to members is a core service provided for decades by the Construction Associations all across Canada. For example the Construction Association of Victoria, which started in 1912 as a Builders Exchange, is the oldest Construction Association west of Winnipeg and it has likely collected Planholders Lists almost from the very beginning of its 95 year existence.
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.
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.
Ensuring that a bidding process is fair, open and transparent is perhaps the second most important element in the bidding process to contractors preceded only by whether they were the successful bidder on the project.
Since the early days of Building Exchanges, facilitating and managing public construction bids has been a focal point for construction associations. The BC Construction Association (BCCA) and its regional construction association partners BCCA North, Southern Interior Construction Association, BCCA Vancouver Island and Vancouver Regional Construction Association, are no exception to this rule.
The prospect of a major construction job generally initiates a cascade of invitations to bid from the owner, to general contractors, to subcontractors, to suppliers and other participants.
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.
The impact of changes in the scope of work – both time and money – is probably the single most disputed issue in construction. Therefore, in order to keep the project moving toward completion, the contractual provisions governing changes must be fair as well as effective in encouraging the timely resolution of cost and time issues.
However, feedback from contractors is that change order markups are a major issue. Two decades ago, the discussion about markups on changes to the work was not as intense as it is today. What has changed?
“Egregious behaviour”. Behaviour seen as “an affront to the integrity and business efficacy of the tendering process”. So said the Supreme Court of Canada in its reasons for judgment in the recent Tercon Contractors Ltd. Appeal.
The British Columbia Documents Committee (BCDC) has recently published updates and added new Standard Documents and Guidelines for a Stipulated Price Bid for use on Publicly Funded Building Projects in the Province of British Columbia.
When the British Columbia Construction Association (BCCA) introduced online bidding three years ago – in the form of the BidCentral platform – there was one element of the process anticipated to go through the most significant evolution: the protocol for the submission of bid bonds online. Or, as it has now commonly become known: e-bonding.
With little to no exception, all levels of government within Canada have an aspiration to further economic development through their purchasing conduct – often highlighting specific populations and objectives.
In addition to established policies, public sector entities continue to learn and expand policy and processes to do with minority groups such as Aboriginal suppliers. Recent examples in our province can be drawn from tenders for civil construction projects where preference is given to contractors who hire Aboriginal workers or who engage in Joint Venture with Aboriginal companies.
A liquidated damages clause will be enforceable where it represents a genuine pre-estimate of the damages an owner will likely suffer as a result of a contractor’s delay. However, where a liquidated damages clause is excessive and objectively unreasonable, it will likely be considered a penalty clause and will be unenforceable.
The British Columbia Construction Association has developed recommended guidelines for the selection of a project delivery method, in association with its regional offices (BC Construction Association - North, Southern Interior Construction Association, Vancouver Island Construction Association and Vancouver Regional Construction Association).
Integral to BCCA’s policy for the Use of Owner Forces are several other policies that the Association endorses. Fundamentally, it is rooted in our policy on Freedom of Enterprise which is that we support an economic and political system based on individual freedom and the competitive free enterprise sy
In our January 2007 Construction File we published how we were going to be issuing Contractor Alerts to bring attention to the onerous clauses that contractors see as an impediment to bidding on projects. In the five years since we introduced this protocol we have issued several Contractor Alerts. On the projects where it has been used it has been effective in educating contractors of the risks of onerous bidding conditions.
Government agencies in BC are facing increasingly tight budgets and the need to efficiently allocate scarce resources is critical. In order that the taxpayers can receive the best possible services, agencies must focus on their core activities and seek to outsource others to private industry.
Why is knowing the bid results after closing so important to the construction industry? Firstly, providing bid results is an important part of a fair, open and transparent bidding process.
“Egregious behaviour”. Behaviour seen as “an affront to the integrity and business efficacy of the tendering process”. So said the Supreme Court of Canada in its reasons for judgment in the recent Tercon Contractors Ltd. Appeal. They were referring to the actions of the BC Ministry of Transportation and Highways, during the tendering phase of a public construction project.
The prospect of a major construction job generally initiates a cascade of invitations to bid from the owner, to general contractors, to subcontractors, to suppliers and other participants. The invitations generate a corresponding flow of bids upwards along the same food chain. Each compliant bid submitted along that food chain creates a bid contract between the party seeking bids and the bidder which, generates corresponding obligations as expressly and impliedly set out in the bid documents.
In the June 2002 BCCA Bulletin we published an article called ‘A Fine Day to be a Lawyer’. At that time we expressed concerns about the implementation of the BC Government’s Capital Asset Management Framework and in particular the removal of the BC Government’s Standard Stipulated Sum contract, which was removed under the guise of reducing red tape.
The BCCA Electronic Bidding System is one component of the on-line bidding tools that were developed by BCCA along with Infinite Source Systems. What has been built is a seamless system that has the capability to eventually include everyone in the bidding chain from material suppliers bidding to subsubcontractors through to the general contractors bidding to owners.
By their very nature, liquidated damages clauses in contracts cause an adversarial relationship to exist from the outset on a construction project. Such clauses are used in contracts to assign financial responsibility to the contractor for damages that are likely to be incurred by the owner if the specified schedule is not met.
Why is it that BCCA is adamantly opposed to pre-qualification of contractors as general practice? In a nut shell, it is because of the subjectivity of the process. As a general practice we don’t see that it can be completely fair, open and transparent. Somewhere in the methodology, a decision is made that affects a contractor’s right to do business with the government based on some subjective consideration.
As a result of the publication of the new CCDC 2, 2008 there is a concurrent update being undertaken to the Standard Documents and Guidelines for a Stipulated Price Bid for use on Publicly Funded Building Projects in the Province of British Columbia.
When documents contain clauses that discourage contractors from bidding, raise the costs associated with bidding, add onerous risk, or limit the competition to a select few bidders, it may come at a cost to the owner. Such an outcome creates the potential for unfairness or misuse of public funds.
When documents contain clauses that discourage contractors from bidding, raise the costs associated with bidding, add onerous risk, or limit the competition to a select few bidders, it may come at a cost to the owner. Such an outcome creates the potential for unfairness or misuse of public funds.
Effective February 1, 2008 the new CCDC2, 2008 is available for use. The existing 1994 document will no longer be published as of July 1, 2008. Existing seals for the 1994 document may be exchanged for the new document.
If the lowest compliant bid exceeds the Owner's budgeted amount, and the Owner is unwilling or unable to award a contract at the bid price but is unwilling to abandon the project, the following guidelines for a course of action are recommended...
Changes occur in the work that require the contractor and the owner to arrive at an agreed upon price before the work is to be carried out. In situations that warrant the changes to be carried out immediately, Change Directives are issued.
Recently, the BC Government issued its Capital Procurement Audit Tool developed to assist government ministries and agencies in adhering to the existing policies and standards that are set out under the Capital Asset Management Framework, published in 2002.
Providing Planholder Lists to members is a core service provided for decades by the Construction Associations all across Canada. For example the Construction Association of Victoria, which started in 1912 as a Builders Exchange, is the oldest Construction Association west of Winnipeg and it has likely collected Planholders Lists almost from the very beginning of its 95 year existence.
In an effort to advise contractors of the risks associated with onerous clauses in bidding documents, the BC Construction Association will be issuing Contractor Alerts. The Alerts are intended to bring attention to the onerous clauses that some contractors see as an impediment to bidding on projects.
Recently there have been public owners who have implemented requirements for certification for Site Superintendents as a condition of contract on construction projects. The certification has been the CCA Gold Seal certification with the alternative requirement that the Site Superintendent be indentured in the Gold Seal program within a specified time period, after award of contract.
The construction industry is in an unprecedented busy time. The building of a project starts with finding a good, qualified contractor and ends with making sure the final details of construction are completed.
The Public Construction Council of BC has just begun its fourth decade in existence. It has not survived this many years without having good reason for its continued existence. One of the mandates of the Council is to maintain guidelines which promote open, fair and transparent bidding.
There has been a lot of discussion regarding the positive amount of construction on the books and being planned for British Columbia over the next few years. One area of concern that we hear from many stakeholders in the industry is where we are going to find the trade contractors with people to build our facilities and infrastructure.
BCCA and its regional associations recognize the need for pre-qualification on publicly funded projects only in limited circumstances. Generally the ability of the Contractor to secure the necessary bonds is the sole criteria by which Contractors should be pre-qualified.
BCCA and its regional associations recognize the need for pre-qualification on publicly funded projects only in limited circumstances. Generally the ability of the Contractor to secure the necessary bonds is the sole criteria by which Contractors should be pre-qualified.
Given the environment for bidding in these busy times, we believe that owners are competing with each other for the strained resources of the industry. To attract contractors to bid your project and to ensure you are maximizing the competition, we recommend the following...
This information is not intended to assess the use of Construction Management but is offered as guidance to making the selection process for these services fair, open and transparent as possible.
BCCA has created this summary of just about anything that you would like to know on how to find information on construction procurement guidelines and standard documents in British Columbia.
The demonstration of the management of construction (via Gold Seal certification or internship*) should be stated in the contract documents in the appropriate divisions as a requirement.
The following thresholds should always be followed on all publicly funded construction projects (See the BCCA Policy on Publicly Funded Construction Procurement).
Cash allowances are recommended where it is impossible to clearly define the scope of a particular item of work, where it is difficult for bidders to accurately estimate the cost of a particular item of work or where access to certain building systems may limit the bidding competition.
An 'alternative' is defined as anything (e.g. a product, an installation, a design, a requirement, a scope of work, etc.) that is separately priced by bidders so as to provide options to the Owner in determining what the work of the contract will actually be.
A standard front end stipulated price document for use on publicly funded building projects with CCDC 2, Stipulated Price Contract (1994), is now available on the website of the Public Construction Council of BC (www.pccbc.com, under Documents).
Not only can budget concerns jeopardize the potential for a project proceeding, where it does proceed there may be costly over-budget negotiations or a re-bidding of the project.
The Agreement on Internal Trade applies to purchases made by all provincial and territorial governments and their associated agencies, including publicly funded academic, unless specifically exempted under the agreement.
The most common reasons for withholding funds on a construction project are as follows: There may be a statutory requirement for a holdback, as is the case under the Builders Lien Act, or there may be a contractual agreement to holdback funds, generally in the event of deficiencies in the work.
A disturbing trend is emerging in public construction. Increasingly, owners are making the decision to supply their own equipment and material for construction projects.
