A pre-bid risk assessment guide for electrical contractors working on fast-track projects
Time has always been money in the construction industry, but today's unsettling economic climate has brought new meaning to that old expression. Now more than ever, building owners and end-users are working under leaner budgets, prompting them to seriously weigh the impact of not completing a project on time. That means very little, if any, time is allowed in most construction schedules for unforeseen delays — and that's just on a regular project.
You also run into situations where owners or end-users need to occupy the designated facility or space before the scheduled completion date. These jobs are known as “accelerated” or “compressed” scheduled projects. Let's take a closer look at what's involved with these types of fast-track jobs as well as some tips for electrical contractors on how to increase productivity by determining risks up-front during the pre-bid phase.
What is schedule acceleration and compression?
Schedule acceleration or compression is a very intense time during the construction process when resources, such as materials and labor, are consumed at a much faster pace than anticipated. As the name implies, more work must be performed in the same amount of time — or the same amount of work must be performed in less time. On typical projects, it's a combination of both.
As needs change during the acceleration process, the time to respond becomes much shorter. Managers and supervisors who are trained to be proactive must become reactive to meet these changing needs.
What causes schedule acceleration and compression?
Most causes can be related to a delay in the start of a project. For example, sometimes a project will be designed, bid, and awarded before all required permits are given to the building owner by the prevailing government body. Site access may also be a cause for delaying the start of construction. Demo of an existing building or the discovery of asbestos on a remodel have also been known to prevent access to a job site.
Although not as common as they used to be, labor disputes are another underlying case of scheduling delays. And don't forget about weather or excessive changes, which also hinder productivity. The problem is very few (if any) days are built into the schedule at the beginning of construction to compensate for these types of delays.
Dealing with acceleration
The textbook approach of constructive acceleration is for the general contractor or construction manager to write subcontractors and order them to accelerate. Although this is the proper way to ensure a project is done correctly, it almost never happens. Note: Remember that if you accelerate or compress the schedule voluntarily, you may not be entitled to recover the cost of acceleration.
Constructive acceleration occurs when the following circumstances arise:
A justifiable reason for an extension of time has occurred. Reasons, such as delays in the start of a project or excessive changes, will show you that an extension of time is required to complete the project. You must show the reasons for the delay in documentation to provide a justifiable reason.
A timely request for an extension is made by the subcontractor. It's your responsibility to make this request in writing to the correct person.
The request for an extension is denied. You can almost always count on the request for the extension to be denied. Owners and end-users understand the expense of not completing a project on time. This cost is usually more than the cost of acceleration.
There must be a demand to accelerate. The general contractor or construction manager will insist that the original schedule be kept due to the cost impact to the owner.
Actual acceleration occurs. You must show that acceleration did occur through documentation.
Managing your risk
Recovering cost from schedule acceleration and compression is not easy for electrical contractors to do, especially if the contract language is unfair or unbalanced. A pre-bid risk assessment is the best way to determine how much risk exists (see Risk Assessment 101 below). When assessing your risk, you should examine the risks conveyed in the contract clauses you'll be asked to sign. This includes looking at whether or not the contract documents (blueprints and specifications) are complete, the likelihood of effective subcontractor coordination, the demeanor of the owner, general contractor, and construction manager, and special risks posed by the particular project.
The key issue of risk in contract clauses is related to rights and entitlements, which are found in the general conditions of the contract. The clauses relative to the schedule acceleration are coordination of trades/out-of-sequence work, schedule acceleration, no damages for delays, time extensions, and pay when/if paid. Let's take a look at each in more detail.
Coordination of trades/out-of-sequence work: Because subcontractors usually give the general contractor the right to control the schedule, the main issue imparting risk to the electrical subcontractor is whether he's entitled to additional time or money as a result of the schedule disruption or interference by other trades. Contract clauses allowing for time extensions and monetary damages are considered a minimal risk for subcontractors. Subsequently, contract clauses permitting a time extension but no monetary damages would be considered an intermediate risk.
Schedule acceleration clauses: The prime risk allocation issue in the contract related to the schedule acceleration clause involves entitlement issues. Those granting entitlement for a broad range of causes for the cost increase pose the least amount of risk. Those that do not pose the greatest liability. Where the clause does not discuss entitlement issues, other parts of the contract must be consulted. When assessing a contract, take into account whether or not a delay is possible. Just because the contract doesn't entitle you to recover cost for compression or acceleration doesn't mean you shouldn't go after the project. The job may be in no danger of being accelerated. Just trust your instincts. If you sense red flags, you need to weigh the perceived risks.
No damage for delays: Your risk is greatest when the contract excludes the recovery of all monetary damages caused by all schedule disruption. Contracts such as the AIA A201 do not have a “No Damages for Delay” clause. This is an example of a minimum risk to you. No clause in the contract is the lowest risk to you. The intermediate risk could occur when the clause is included in the contract to cover only delays of a certain type. For example, language limiting remedies to a “time extension caused by failure or inability of the end-user to obtain title to/or possession of any land” clause could allow you to recover monetary damages for delays and disruptions caused by other events. The risk to you is greatest when the “No Damage for Delay” clause applies to all delays, regardless of the cause.
Time extensions: Contracts require that the work be performed within the contract time period. Contracts usually list the circumstances for which an extension will be granted.
This clause is called the “force majeure” clause. If a time extension clause is included in the contract, it's important to look for what events might allow for a delay. Time extensions that cover all events are the least risky to you; those that are specific to certain events add a little more risk. Clauses that shift the most risk to you either do not allow time extensions for any reason or severely limit the scope for which they will be granted. Another important point to remember is that just because a time extension clause is in the contract doesn't necessarily guarantee that an extension will be granted. You should be wary of time extension clauses on projects where they most likely will not be granted, such as school buildings.
Pay when/if paid: The pay-when-paid clause is used so the prime contractor does not incur a liability for payment until it has received the payment for owner. The clause relieves some of the potential cash flow problems of the prime contractor and shifts these burdens to the subcontractor. If a pay-if-paid clause is used, the prime contractor is not obligated to pay the subcontractor unless payment is received. Be sure you know for whom you are working. Ascertain the demeanor of the owner and prime contractor. If you do not feel there is possibility of not getting paid, the risk is minimal. The risk is at its lowest when the clause does not exist in the contract.
Reading between the lines
Other considerations to take notice of during the pre-bid phase are projects that are prone to schedule acceleration or compression. Projects, such as wastewater and water treatment plants and schools, usually are not granted extensions due to students starting class or fines assessed from the EPA. Make sure the design specifications are good before you take this type of project — and don't forget to look for potential for change orders.
Other subcontractors on the job can also have a significant impact on your work. That's why it's important to consider the following:
How well do you know them?
Have you worked with them before?
Are they easy to work around?
Do they have a good reputation?
Do they have experience with schedule acceleration or compression?
In addition, make sure you feel comfortable working with the owner and general contractor. Considerations such as working with them before, their ability to manage schedule acceleration or compression, and their track record should all be taken into account.
At the end of the day, when considering these types of projects, there can be significant economic exposure to you on jobs that are accelerated or compressed. For example, a 15,000 man-hour job at an average wage rate of $25 per hour comes to $375,000. A modest overrun of labor alone, which is very likely in schedule acceleration and compression situations, comes to $93,750. The inability to properly document and recover the overrun could put you out of business.
Mitchell is president of Integrated Management Group in St. Louis. He can be reached at email@example.com.
Sidebar: Risk Assessment 101
To better assess a project for the risk of schedule acceleration, a questionnaire, such as the one below, can be used to help you decide whether or not you should place a bid.
|Coordination with other trades||Low||Intermediate||High|
|Risk in time extension clause||Low||Intermediate||High|
|Risk in schedule acceleration clause||Low||Intermediate||High|
|Risk in no damage for delays||Low||Intermediate||High|
|Risk in pay when paid||Low||Intermediate||High|
|Is rework likely?||Low||Intermediate||High|
|Are there liquidated damages?||Low||Intermediate||High|
|Stability of owner||Low||Intermediate||High|
|Stability of general contractor||Low||Intermediate||High|
Other items of interest
|Is an extension likely?||Yes||No|
|General contractor easy to work with?||Yes||No|
|Did you participate in the schedule?||Yes||No|
|Schedule parameters communicated?||Yes||No|
|Are coordination drawings required?||Yes||No|
|Is labor market favorable?||Yes||No|