This presentation helps to demystify many legal issues experienced by DBE Subcontractors including the potential benefits of Joint Ventures and the finer points of developing contract agreements with Prime Contractors.

1. JOINT VENTURES
AIA SUBCONTRACTOR AGREEMENTS
(AIA 401)
CHANGE ORDER BASICS
PRESENTED BY
TYRONE A. POWELL, Esquire
POWELL LAW, P.C.
1

2. TYRONE A. POWELL
301 Market Street AREAS OF PRACTICE
Suite 403 Business Counseling
Commercial Real Estate
Harrisburg, PA 17101
Diversity Counseling
717.236.6666 EDUCATION
FAX 717.230.8855 Stanford University
tyapowell@gmail.com (B.A., honors, 1981)
HTTP://WEBPROFILE.INFO/
University of Texas
TPOWELL/
School of Law (J.D.,
1984)
2

3. POWELL LAW, P.C.
Tyrone is a shareholder of Tyrone provides advice on a wide
Powell Law, P.C. Tyrone has range of matters including
more than 20 years of government contracting, large
experience in the counsel and urban redevelopment projects,
representation of retailers, acquisitions and dispositions,
developers and professionals choice of entity consultation and
in real estate lease and public-private partnerships.
contract negotiations with Tyrone has negotiated agreements
shopping center and office for a $1.0 billion automobile plant,
complex owners and other a $1.1 billion engine plant and a
retail tenants, representing $55 million marina, restaurant and
both landlords and tenants in housing development. He has
office building and shopping successfully completed over 700
center leases and in complex retail pharmacy related real estate
real estate transactions. transactions and a $500 million
3
leverage lease transaction.

4. IMPORTANT NOTE
The contents of this presentation are intended
for general information only and should not
be construed or relied upon as legal advice
nor as a legal opinion on any specific facts or
circumstances. If you need legal advice
concerning specific circumstances, please
consider contacting Powell Law, P.C.
4

5. PARTNERING
• Describes a relationship (or contract) where two or
more persons (or companies) share management
functions and share profits & losses.
• Partnering for a specific procurement or project is a
Joint Venture.
• PennDOT recognizes Joint Ventures.
5

6. JOINT VENTURING
• Supplements to Publication 408M/96 of PennDOT
Specifications – Section 101 defines a Joint Venture:
 A legal association of contractors or subcontractors,
limited to 3 participants, formed for the purpose of
bidding and executing a common contract.
Prequalification is required of each contractor or
subcontractor, as specified in Section 102.01.
6

7. JOINT VENTURING
• 2 or more companies form a partnership or
joint venture to act as a potential prime
contractor.
• Contractors should complement each other’s
unique capabilities.
• Joint Ventures may offer the Government
the best combination of performance, cost
and delivery for the project.
7

8. JOINT VENTURING
• Particularly appropriate:
 For large or complex projects
Projects requiring significant DBE
participation
8

9. JOINT VENTURING
• Time and effort is required to form Joint
Ventures.
• Identify potential partners & develop
relationships as early as possible.
Government workshops
Chamber of Commerce or PennDOT sponsored
networking sessions
Trade journals
Prebid sign-in sheets
9

10. BIDDING
• To bid for State Highway construction work:
Contractors should register with PennDOT as
a business partner. Registration instructions
are on the ECMS website.
Generally, Contractors must be prequalified
on the date of bid opening. Section 102.01
10

11. BIDDING
• A Contractor’s bid cannot exceed its
prequalification capacity.
• The prequalification capacity is based on the
contractors available financial capacity and
approved work classification codes.
11

12. JOINT VENTURE BIDDING
• For a Joint Venture Bid:
Only 1 J.V. Business Partner is required to
submit & electronically sign.
The J.V. Business Partner will be considered
the Joint Venture Prime.
12

13. JOINT VENTURE BIDDING
• For alternative compact disk (CD) Bid
submissions:
• Each Joint Venturer is required to complete
one signature page.
13

14. JOINT VENTURE BIDDING
• A Joint Venture Bid is considered a bid by
each of the participants, jointly & severally,
for the entire project.
• PennDOT recognizes 2 types of Joint
Ventures:
Line Item Joint Venture
Percent Joint Venture
14

15. JOINT VENTURE BIDDING
• Line Item Joint Venture Bids:
Identify items to be undertaken by each Joint
Venture Business Partner
Specify the Quantity & Unit Price (in whole or
in part) for each line item.
Each JVBP will be evaluated for
prequalification work classifications and
capacity based on the designated line items.
15

16. JOINT VENTURE BIDDING
• Percent Joint Venture bids:
For a two-party 50/50 JV Bid, each Joint
Venture Business Partner will be evaluated
for prequalification work classifications for all
items. Capacity will be calculated using 50%
for all items.
16

17. JOINT VENTURE CONSIDERATIONS
• Study the solicitation.
• How does the capability of your company
measure up to the evaluation factors?
Technical ability
Key personnel
Past performance
DBE utilization requirements
17

18. JOINT VENTURE CONSIDERATIONS
• Evaluate your company and your potential
joint venture partners:
Do you want to bid as the prime?
Would you rather limit the risk and commit
as its subcontractor?
Do you and others desire to bid together as a
single prime contractor? 18

19. JOINT VENTURE AGREEMENT
Who serves as the lead J. V. B. Partner?
Controls bid submission.
Serves as primary contact for the client.
Receives & disseminates information on
behalf of the Joint Venture.
Serves as the J. V. change order advocate.
19

20. JOINT VENTURE AGREEMENT
Who serves as the Managing Joint Venturer?
Manages the Joint Venture.
Calculates & allocates profits and losses in
accordance with Joint Venture Agreement.
Requires a well-organized and effective
administrator.
20

21. JOINT VENTURE AGREEMENT
Who serves as registered agent?
Responsible for receiving correspondence
from governmental authorities.
Responsible for accepting service of process
of lawsuits and claims.
Requires a capacity to timely receive,
acknowledge , disseminate & respond to
correspondence & demands from 3rd parties.
21

22. JOINT VENTURE AGREEMENT
• Some important provisions to consider:
• Determine purpose of the Joint Venture.
• Determine name of the Joint Venture.
• Determine percentage ownership.
• Determine compensation to partners.
22

23. JOINT VENTURE AGREEMENT
• Determine allocation of Profits and Losses.
• Determine powers of Joint Venture Manager.
• Determine who serves a tax partner.
• Special provisions.
23

24. QUESTIONS?
24

25. AIA SUBCONTRACTOR AGREEMENTS
25

26. AIA SUBCONTRACTOR AGREEMENTS
OVERVIEW
• Review A401 Subcontractor Agreement.
• Explain Strengths & Weaknesses of the A401.
• Identify the use of the A401 in Private Vs.
Public Contracts.
• Discuss advantages and disadvantages to
subcontractor and prime contractor.
26

27. OVERVIEW OF AIA A401
• Form is published by the AIA.
• Form is copyrighted.
- Licenses are expensive.
27

28. OVERVIEW OF A401 (CONTINUED)
• AIA A401 incorporates AIA Document
AIA201 – General Conditions
-You must read and be familiar with
the General Conditions.
- If you do not have a copy, request
one.
28

29. OVERVIEW OF A401 (CONTINUED)
• Revisions to A401 are supposed to be shown
in “redline” format.
Ask to be sure.
• AIA revises its documents approximately
every 10 years.
There are many revisions in use today, from
1987 to 2007.
Be careful to verify which version you are
using; some changes are substantial.
29

30. WHY USE AIA 401
• Good off-the-shelf product, which addresses
a majority of commercial issues on
construction project.
• Substantial case law interpreting AIA
provisions.
• Owner or Contractor may impose use of AIA
forms.
30

31. WHEN TO USE AIA A401
• If you do not have a ready off-the-shelf
product
• If upstream contracts use AIA documents
• If you are Owner or Architect oriented
31

32. OTHER BENEFITS OF AIA A401
• Terminology consistent throughout AIA
families.
• Mixing and matching will create challenges.
• Use of AIA forms upstream & downstream
will reduce risk of confusion & disputes.
32

33. INTEGRATION INTO NON-AIA
PROJECTS
• Requires careful analysis of forms to ensure
Terminology is harmonized
• Analyze treatment of key clauses, including:
Payment Insurance
Schedule Changes
Limitation of Liability Dispute resolution
33

34. STRENGTHS OF A401
• Presents fully integrated contract form
addressing the majority of commercial issues
confronting the trade contractor.
Article 2: Places Subcontractor in similar
relation to Contractor, as Contractor is
placed with Owner.
• Provides familiar language which facilitates
obtaining insurance and bonding.
34

35. SUGGESTED REVISIONS –
SUBCONTRACTOR’S VIEW
• Inclusion of proposal as a contract document
Pricing Assumptions
Pricing Exclusions
• Article 1.1(3): Clarify that modifications
presented to Subcontractor after initial bid or
RFP documents are not included, absent a
change order.
35

36. SUGGESTED REVISIONS – SUB’S VIEW
• Article 2: Clarify subcontractor’s rights to
prosecute claims, even if Contractor says they are
Owner’s responsibility.
• Article 3.1: Revise to clarify that Subcontractor is
entitled to receive all monthly schedule updates,
in electronic format.
Subcontractor should see all float, ES/EF, and
LS/LF relationships, with all logic.
• Article 3.3.2.1: Revise so that Subcontractor
avoids default if it begins its cure within 7 days
(make consistent with 3.4). 36

37. SUGGESTED REVISIONS –
SUBCONTRACTOR’S VIEW
Require objective 3rd party (architect) verification.
• Article 4.1.7: Revise to state that contractor must
ensure that its other subcontractors protect
Subcontractor from their work.
• Add duty to defend.
• Articles 6.3.3 through 6.3.5: Consider revising to
disallow joinder or consolidation.
37

38. SUGGESTED REVISIONS –
SUBCONTRACTOR’S VIEW
• Articles 11 and 12: Consider adding
protections from appropriate prompt
payment acts.
• Article 13: Have your broker preview and
verify available coverage as required;
otherwise, revise.
38

39. SUGGESTED REVISIONS -
CONTRACTOR’S VIEW
• Article 3.1: Clarify that the float belongs to the
Contractor.
• Article 3.4: Revise to allow Contractor to
immediately begin work upon notice of default,
charging costs back to Subcontractor.
• Article 4.3.5: Add duty to defend and hold
harmless.
• Article 4.6.1: Add duty to defend.
• Article 7.2.1: Revise to allow quicker termination
39
for default.

40. USE OF ADDENDUM
• Limitation of Liability
Disclaimer of consequential damages
• Changes to schedule / push-around language
is compensable
• Indemnity only to extent of negligence
• Reliance on Owner information
40

41. USE OF ADDENDUM
• Differing site conditions
• Dispute resolution
• No damages for delay
41

42. CLARIFYING PRICE ASSUMPTIONS
& SCOPE OF WORK
• Are pricing assumptions included as a
Contract Document?
• Are exclusions clearly stated and
incorporated into the Contract Documents?
• Has Subcontractor reviewed all plans and
specifications?
• Has Subcontractor inspected the project site
for access, laydown area, and the like?
42

43. FLOW DOWN – PUBLIC PROJECTS
• Public works projects incorporate numerous
regulations.
Federal contracts require certain
regulations to be flowed down to
Subcontractors.
• Subcontractor must be careful to price these
risks.
Exclusions, if permitted, must be
confirmed in writing 43

44. CLAIMS HANDLING
• Contractor seeks to stay subcontractor claims
until the project is complete.
44

45. COMPAIRISON TO CONSENSUSDOCS
SUBCONTRACT
There are a number of differences between ConsensusDOCS
and AIA Contract Documents.
(I.) The ConsensusDOCS do not provide a significant role for
the architect during the construction phase of the project.
The role of the architect during construction, under the
ConsensusDOCS, is principally limited to certification of
payment applications and certification of substantial
completion. By contrast, under AIA Construction
Documents the Architect serves as a representative of the
owner and provides valuable assistance to the owner
45
throughout the construction process.

46. Among other things, the architect (1) evaluates
and facilitates communications between the
owner and the contractor; (2) reviews and
evaluates contractor submittals, proposals, and
payment applications; (3) periodically visits the
site and reports to the owner observed defects
and deficiencies in the work; (4) assists the
owner in evaluating proposed site
superintendents and subcontractors; (5)
processes change orders; and (6) may serve as
the initial decision maker in disputes between
owner and contractor.
46

47. (II.) There was little or no input from the design
industry in the ConsensusDOCS process.
Neither the AIA, nor the Engineers Joint
Contract Documents committee (EJCDC),
including the engineering associations
comprising the EJCDC (American Council of
Engineering Companies, National Society of
Professional Engineers, and the American
Society of Civil Engineers) has endorsed the
ConsensusDOCS.
(III.) The AIA has been publishing standard form
documents for 120 years. AIA documents are
timely tested and widely used. 47

48. The following groups provided input into the AIA:
• Associated General Contractors
• Associated Specialty Contractors
• Associated Builders and Contractors
• American Subcontractors Association
• Council of American Structural Engineers
• National Association of State Facilities
Administrators
• Commercial Owners Association of America
• Owner, Contractor & Architect’s Attorneys
form Divisions 2, 3 and 12 of the ABA Forum
on the Construction Industry
• American College of Construction Lawyers
48

49. PENNDOT SPECIAL PROVISIONS
Special Provisions supersede specifications.
FINDING SPECIAL PROVISIONS
• Referenced in Contract specification section
• Referenced in addendum or rider
• PENNDOT Special Provisions can be found
under PENNDOT Publication 408.
• Access PENNDOT website
49

50. - Internet Explorer
(Do not use “firefox” or “google”.)
- www.dot14.state.pa.us/ECMS
- ECMS home page
- Log in as a guest
- “Construction Projects” (top of the page)
- Drop down box – “Resources”
- Drop down box – “Special Provisions”
- “Advanced Search”
- “Search”
- View list of all Special Provisions
50

51. QUESTIONS?
51

52. CHANGE ORDER BASICS
52

53. CONSTRUCTION CHANGE
1) Change happens
2) Changes cost more than Contract Work
3) Early resolution = reduced cost
53

54. AVOIDING CLAIMS AND DISPUTES
• Complete the design
• Minimize changes during construction
• Document the issues
• Establish and follow a protocol
• Price changes fairly
• Recognize schedule impacts fairly
54

55. CHANGE ORDER RESOLUTION
• Recognize changes
• Procedure for requesting Change Order
• Mechanism for pricing and scheduling
• Grant/deny properly and fairly
• Complete the Project
• Lender and Surety Concerns
55

56. CONTRACT PROVISIONS
• General provisions regarding process
• Circumstances entitling Contractor to Change
Order?
• Contractor options if Owner/Architect denies
Change Order?
56

57. BENEFITS OF USING CHANGE ORDERS
• Force parties to adhere to Contract
• Predictability and Certainty
• Allow parties to control costs and schedule
• Enables contractor to be paid for extra work
• Avoids disputes, litigation
57

58. DANGERS OF CHANGE ORDERS
• Offensive use of Change Orders: “Pocket
Change Orders”
• Failure to adhere to Change Order procedure
• Construction Loan Balance
58

59. ACTUAL AND CONSTRUCTIVE
CHANGES
Actual change: Express owner-directed or
agreed change to price, time or quality
Constructive change: Scope change resulting
from other events or circumstances
• Defective design requiring additional
work
• Owner caused delays
• Differing Site conditions 59

60. CARDINAL CHANGE
• Constructive or actual changes by Owner
AND
• Project fundamentally different from job bid
• Fixed price contract can become a time and
materials contract
• May excuse Contractor’s performance
altogether
60

61. WHAT IS A CHANGE ORDER?
• Modification of a Contract
• Requires meeting of the minds
- Intent
- Offer, acceptance or counter-offer
• Consideration
• Oral or written
- Statute of Frauds
• Binding on the parties
61

62. AGREED MODIFICATIONS TO
CONTRACT
• Time, price or quality terms
- Adjustment of time
- Adjustment of cost
- Change in the scope of work
• Authorization and/or agreement to proceed
• Reservation of Rights
62

63. CHANGES IMPOSED BY
• Change Order: Parties agree to the change
• Construction Change Directives:
Owner directs the change
• Order for minor change in the work:
Architect directs the change
63

64. TYPICAL CHANGE ORDER CLAUSE
IN CONTRACT
• §7.2 CHANGE ORDERS
• §7.2.1 A Change Order is a written instrument
prepared by the Architect and signed by the Owner,
Contractor and Architect after execution of the
Agreement, stating upon all of the following:
1) change in the work
2) the amount of the adjustment, if any, in the
Contract Sum; and
3) the extent of the adjustment, if any, in the Contract
Time. 64

65. • §7.2.2 Methods used in determining
adjustments to the Contract Sum may include
those listed in Section 7.3.3.
65

66. • §7.2.3 Agreement on any Change Order shall
constitute a final settlement of all matters
relating to the change in the Work which is
the subject of the Change Order, including,
but not limited to, all direct and indirect costs
associated with such change and any and all
adjustments to the Contract Sum and the
Contract Time. The schedule of values shall
be modified accordingly for Work covered by
Change Orders.
66

67. • §7.2.4 The Contract Sum and the Contract
Time may be adjusted by Change Order or
Construction Change Directive Only.
67

68. CHANGES WITHOUT A CHANGE
ORDER
• Construction Change Directive
Change nominal without price or time impact
Owner and Contractor disagree on price or
time
• Order for minor change in the Work
• Contractor must proceed promptly
• Contractor should advise Owner/Architect if
disagrees with price or time adjustment 68

69. • §7.3 CONSTRUCTION CHANGE DIRECTIVES
• §7.3.1 A Construction Change Directive is a written
order prepared by the Architect and signed by the
Owner and Architect, directing a change in the
Work prior to agreement or adjustment, if any, in
the Contract Sum or Contract Time, or both. The
Owner may by Construction Change Directive,
without invalidating the Contract, order changes in
the Work within the general scope of the Contract
consisting of additions, deletions or other
revisions, the Contract Sum and Contract Time
being adjusted accordingly. 69

70. • §7.3.2 A Construction Change Directive shall be used
in the absence of total agreement on the terms of a
Change Order.
• §7.3.3 If the Construction Change Directive provides
for an adjustment to the Contract Sum, the
adjustment shall be based in one of the following
methods:
1) mutual acceptance of a lump sum properly
itemized and supported by sufficient
substantiating data to permit evaluation;
2) unit prices stated in the Contract Documents or
subsequently agreed upon;
3) cost to be determined in a manner agreed upon
by the parties and a mutually acceptable fixed or
percentage fee; or
4) as provided in Section 7.3.6 70

71. CHANGES WITHOUT A CHANGE
ORDER
• §7.3.4 Upon receipt of a Construction
Change Directive, the Contractor shall
promptly proceed with the change in the
Work involved and advise the Architect of the
Contractor’s agreement or disagreement with
the method, if any, provided in the
Construction Change Directive for
determining the proposed adjustment in the
Contract Sum or Contract Time.
71

72. • §7.3.5 A Construction Change Directive
signed by the Contractor indicates the
agreement of the Contractor therewith,
including adjustment in Contract Sum and
Contract Time or the method for determining
them. Such agreement shall be effective
immediately and shall be recorded as a
Change Order.
72

73. MINOR CHANGES IN THE WORK
• §7.4 MINOR CHANGES IN THE WORK
• §7.4.1 The Architect will have authority to
order minor changes in the Work not
involving adjustment in the Contract Sum or
extension of the Contract Time and not
inconsistent with the intent of the Contract
Documents. Such changes shall be effected
by written order and shall be binding on the
Owner and Contractor. The Contractor shall
carry out such written orders promptly. 73

74. CHANGE ORDER PROCESS
SCOPE OF OWNER’S RIGHT TO MAKE CHANGES
• Owner “owns” the project: Can change
anything
• Change can impact price or time
• Change Order or claim/dispute will
determine effect on price, time or quality
• Contractor’s right to a Change Order
74

75. ROLE OF THE ARCHITECT
• Coordinate the design and administer the Contract
• Prepare Change Orders, construction change
directives and orders for minor changes in the
Work
• Interpret plans and specifications
• Decide matters of performance, requirements of
Contract documents, disputes
75

76. ROLE OF THE CONTRACTOR
• Perform, supervise and/or coordinate the
Work
• Review documents and field conditions
• Request information/clarification
• Request Change Orders and/or make claims if
cost, time or quality are impacted by
changes
76

77. ROLE OF THE CONTRACTOR
• Pricing
• Scheduling
• Value engineering
77

78. ROLE OF THE SUBCONTRACTORS
• Provide pricing and scheduling information
• Perform portions of the Work
• Pass-through obligations
• Subcontract Change Orders
78

79. ROLE OF THE LENDER AND SURETY
• Loan imbalance
• Surety obligation to cover modified time,
cost and quality
79

80. CHANGE ORDER FORMATION
• “Change event”
• Agreement on “change”
• Negotiation of effect on price, time or quality
• Reservation of rights if cannot agree
• Make Change Orders “all inclusive” to avoid
claimed Change Orders for “cumulative
effect”.
80

81. NEGOTIATING THE CHANGE
• Agree on entitlement
• Agree on pricing method
(T & M, unit price, estimate…)
• Agree on the scope of change
81

82. NEGOTIATING THE CHANGE
• Prepare independent estimate
• Carefully review Contractor’s estimate
- Including all backup
• Resolve it Now through negotiation
82

83. MANAGEMENT & ADMINISTRATION
OF CHANGES
• Compliance with contract
- Notice; changes; time; reservations
• Create issue files
- Document control system
- Change control system
- Records as principal source of proof
- 3rd party review / reconstruction
83

84. MANAGEMENT & ADMINISTRATION
OF CHANGES
• Prepare timely assessment of issues
- Time and Cost analysis
• Negotiation / resolution
84

85. RECORDS TO DOCUMENT CO WORK
• RFI and response
• Request for CO (COR or PCO)
85

86. RECORDS TO DOCUMENT CO WORK
• Request for pricing or proposal
• Pricing & scheduling information
- Unit costs
- Labor rates
- Estimated time/schedule
• Explanation or reason for change
86

87. RECORDS TO DOCUMENT CO WORK
• Delivery tickets
• Provide daily report form in the Contract
• Report of labor, materials and equipment by
subcontractor: Quantity and merit
87

88. RECORDS TO DOCUMENT CO WORK
• Avoid/minimize disagreement over entries
• Signature of each party: receipt, agreement
or verification, approval for payment
• Document resolution of the change
88

89. CONTRACTOR’S OBLIGATION TO
CONTINUE
• Determined by Contract
• “Contractor shall have the right to stop Work
if…”
89

90. CONTRACTOR’S OBLIGATION TO
CONTINUE
• “Contractor shall proceed with the
performance of the Work pursuant to the
Contract without causing any delay or
cessation of the Work in the event of any
dispute or controversy over many matter
whatsoever…”
• Otherwise, Contractor may be able to
continue and sue, rescind or terminate.
90

91. CONTRACTOR’S OBLIGATION TO
CONTINUE
• §4.3.3 Continuing Contract Performance.
Pending final resolution of a Claim or dispute,
except as otherwise agreed in writing or as
provided elsewhere in the Contract
Documents including in Section 9.7.1 and
Article 14, the Contractor shall proceed
diligently with performance of the Contract
and the Owner shall continue to make
payments in accordance with the Contract
Documents.
91

92. CAUSES OF CHANGE ORDERS
• Differing site conditions
• Changes in scope of work
• Defective or ambiguous plans and specs
• Owner’s failure to disclose information
92

93. CAUSES OF CHANGE ORDERS
• Owner’s interference / micromanagement
• Delay
• Disruption
• Acceleration
93

94. AREAS OF CONCERN
NECESSITATING CO
• Constructability review and site
familiarization
• Owner / Architect-directed scope
changes/substitutions
94

95. AREAS OF CONCERN
NECESSITATING CO
• Delays
• Unknown or concealed conditions
• Unit prices materially changing
95

96. DIFFERING SITE CONDITIONS
• Contract should clearly allocate risk for
different site conditions between the parties
96

97. TWO TYPES OF DIFFERING SITE
CONDITIONS
• Type I: Subsurface or related physical
condition at the site which differs materially
from those indicated in the Contract
documents
• Type II: Unknown physical condition of an
unusual nature differing materially from
those ordinarily encountered but recognized
as inherent in the work of same character as
provided for in the Contract
97

98. • §4.3.4 Claims for Concealed or Unknown Conditions.
If conditions are encountered at the site which are (1)
subsurface or otherwise concealed physical conditions
which differ materially from those indicated in the
Contract Documents or (2) unknown physical
conditions of an unusual nature, which differ
materially from those ordinarily found to exist and
generally recognized as inherent in construction
activities of the character provided for in the Contract
Documents, then notice by the observing party shall
be given to the other party promptly before
conditions are disturbed and in no event later than 21
days after first observation of the conditions.
98

99. • The Architect will promptly investigate such conditions,
and, if they differ materially and cause an increase or
decrease in the Contractor’s cost of, or time required for,
performance of any part of the Work, will recommend an
equitable adjustment in the Contract Sum or Contract
Time, or both. If the Architect determines that the
conditions at the site are not materially different from
those indicated in the Contract Documents and that no
change in the terms of the Contract is justified, the
Architect shall so notify the Owner and the Contractor in
writing, stating the reasons. Claims by either party in
opposition to such determination must be made within 21
days after the Architect has given notice of the decision.
99

100. • If the conditions encountered are materially different, the
Contract Sum and Contract Time shall be equitably adjusted,
but if the Owner and Contractor cannot agree on an
adjustment in the Contract Sum or Contract Time, the
adjustment shall be referred to the Architect for initial
determination, subject to further proceedings pursuant to
Section 4.4. No adjustment in the Contract Time or Contract
Sum shall be permitted, however, in connection with a
concealed or unknown condition which does not differ
materially from those conditions disclosed, or which
reasonably should have been disclosed, through performance
of those activities that the Contractor represents and
warrants, under Subparagraphs 1.5.2 and 1.5.3 to have
performed or through any of the Contractor’s preconstruction
services rendered in connection with the Project.
100

101. DEFECTIVE OR AMBIGUOUS PLANS &
SPECIFICATIONS: THE SPEARIN DOCTRINE
• U.S. v. Spearin, 248 U.S. 132 (1918)
• Owner impliedly warrants plans and
specifications – free of defects and buildable
• Effect of clauses requiring Contractor to visit
site, review plans and become informed
about the requirements of the Work
• Ambiguities, errors or omissions
101

102. AMBIGUITIES IN PLANS &
SPECIFICATIONS
• Contractor’s duty to review the plans and
specifications
• Construction Coordination v. Design
Coordination
102

103. §1.5.2 Execution of the Contract by the Contractor is
a representation that the Contractor has visited,
examined and inspected the site, become
generally familiar with the Project site and the
local conditions, excepting conditions that are
unknown and concealed or not reasonably
inferable from the conditions observed, such as
unsuitable soils, and is satisfied with the
conditions and limitations under which the Work is
to be performed including, without limitation:
(i) the location, accessibility, physical qualities,
layout, and nature of the project site, the
improvements thereon and the surrounding areas
(ii) generally prevailing climatic conditions 103

104. (iii) anticipated labor supply costs, and
(iv) availability and cost of materials, tools and
equipment. Except as explicitly set forth
elsewhere in the Contract Documents, the Owner
assumes no responsibility for the physical
condition of the Project site, or any improvements
located on the Project site and the Contractor shall
be solely responsible for providing a safe place for
the performance of the Work. The owner shall not
be required to make any adjustment in the
Contract Sum or the Contract Time in connection
with any failure by the Contractor to comply with
the requirements of this Subparagraph 1.5.2.
104

105. §1.5.3 Execution of the Contract by the Contractor is a
further representation that the Contractor has
examined all documents provided to the Contractor
pertaining to the Work, has correlated its personal
observations at the site with the requirements of the
Contract Documents, has read carefully and is fully
aware of the critical time restriction for performance
of the Contract Work, is fully aware of the provisions
and requirements of the Drawings and Specifications,
and recognizes that the standard of care set forth in
Paragraph 2.1 of the Agreement pertains to safety,
protection of the existing structures and other
facilities in the area, protection of pedestrians, health
and sanitation laws and ordinances and protection of
existing facilities, utilities, neighboring property and
adjacent walks and streets. 105

106. §1.5.4 Execution of the Contract by the Contractor
is a further representation that the Contractor is a
licensed contractor who possesses a reasonable
level of experience and expertise in the business
administration, construction, construction
management and superintendence of projects of
the size, complexity and nature of this particular
Project, is able to furnish the tools, materials,
supplies, equipment and labor required to
complete the Work and perform its obligation
hereunder, has sufficient experience and
competence to do so, and will perform the Work in
accordance with the standard of care set forth in
Paragraph 2.1 of the Agreement.
106

107. The above representations and warranties shall
survive the execution and delivery of the
Contract, any termination of this Contract and
the final completion of the Work.
107

108. PROCEDURE
• Discovery of ambiguity in plans and
specifications
• RFI
• Clarification and/or change in design
• Pricing proposal from Contractor
108

109. PROCEDURE CONTINUED
• Change Order
• Constructive Change Directive
• Notice to Proceed
109

110. OWNER’S FAILURE TO DISCLOSE
INFORMATION
• Owner’s contractual obligation to disclose
information
• Financial arrangements to fulfill Owner’s
obligations
• Approvals, easements, assessments and
charges
• Surveys describing physical characteristics
110

111. OWNER’S FAILURE TO DISCLOSE
INFORMATION
• Legal boundaries
• Utilities
• Other information in Owner’s “control” as
requested by Contractor
• Misrepresentations?
111

112. CONTRACTOR SHOULD REQUEST CO
• If subsequent discovery of undisclosed
information impacts project
• Adjustment of time
• Adjustment of Contract price
• Adjustment of quality
112

113. ALLOWANCES
• Cost to Contractor of the materials and
equipment delivered at the site
• Often not including transportation and
handling costs
• Contract Sum adjusted “accordingly” or
“equitably”
113

114. UNANTICIPATED COST IMPACTS
• Escalation of material cost
• Prevailing wage requirements
• Force majeure event
114

115. PENNDOT PROVISIONS
FORCE ACCOUNTS
• Force Account is the payment method used
for extra work if the contractor and the
owner cannot agree on a unit price or lump
sum amount, or if those methods are
impracticable. Force account payments cover
labor, materials, and equipment. They may
also cover other miscellaneous expenses.
115

116. FORCE ACCOUNTS CONTINUED
• Section 110.3(d)
• Perform extra work on a force account basis
only when directed in writing by the District
Engineer, as stated in Section 110.03(a).
116

117. FORCE ACCOUNTS
• Compare force account records with those kept by
the Department, at the end of each day or as
directed by the Engineer, to ensure accuracy and
obtain concurrence. Report any unresolved
disagreements with such records. Failure to
review the Department’s records or to report
disagreements with such records will create a
presumption that the Department’s records are
complete and accurate.
117

118. FORCE ACCOUNTS
• Payment for extra work performed on a force
account basis will be made, as specified
herein, upon completion of the work.
Progress payments will be made only when
an itemized estimated force account of cost is
provided, in writing, within 10 working days
after receipt of the Department’s written
authorization to perform the extra work on a
force account basis.
118

119. FORCE ACCOUNTS
Section 110.03 (d) payment provisions cover:
• Labor
• Material
• Equipment
- Owned Equipment
- Rented Equipment
• Services by Others
- Engineering services / non-subcontract
work
119

120. FORCE ACCOUNTS
• Permits, Bonds and Insurance
• Subcontracting
• Overhead and Profit
120

121. PREVAILING WAGE RULES
• Wage rates are governed by the U.S. Department of
Labor, Davis Bacon Act. Wage Rate Decisions are
divided into 4 categories: Highway, Heavy, Building
and Residential.
LET’S PLAY 20 QUESTIONS:
121

122. 1. Does it matter who employs the truck
driver for the application of Davis Bacon?
Answer: No.
The Court of Appeals ruled that material
delivery truck drivers, who come onto the site
of the work merely to drop off construction
materials, are not covered by the Davis-Bacon
Act even if they are employed by the
government contractor, because they are not
"employed directly upon the site of the work".
122

123. 2. Are truck drivers employed by a construction
prime contractor to transport materials from the
contractor plant or yard to a Davis-Bacon covered
project, or from a Davis-Bacon covered project to
the contractor's plant or yard covered?
Answer: Yes.
123

124. If the contractor/subcontractor's plant or yard
is part of the "site of the work", the drivers are
covered. If the contractor/subcontractor's
plant or yard is not part of the "site of the
work", the drivers are generally not covered.
The travel time between the plant or yard and
the site of work in this instance is never
covered. However, if the time spent unloading
the material or equipment on the site of work
is more than de minimis (20%), then this time
is covered.
124

125. 3. Is the time drivers spend transporting materials
or equipment from one Davis-Bacon project to
another Davis-Bacon project covered?
Answer: Generally, no.
Again the regulatory definition of "construction …"
specifically states that the transportation of materials or
supplies to or from the "site of the work" is not
considered construction (29 CFR 5.2(l)(2). Nevertheless,
there may be some instances where the two sections of
highway construction are contiguous and the
transportation of materials or equipment is all on the
"site of the work" of both sections that constitute a
combined covered project.
125

126. 4. Are drivers transporting material or equipment
away from a Davis-Bacon project or another
project of the contractor which is not a Davis-
Bacon project covered?
Answer: No.
Unless the transportation of such materials or
equipment is to a dedicated facility located
adjacent or virtually adjacent to the construction
area.
126

127. 5a. When truck drivers are engaged in hauling
excavated material, debris, dirt, asphalt, etc., for
recycling away from a Davis-Bacon covered
construction site, is the time spent loading at the
site covered?
Answer:
Assuming that the location or facility to which the
excavated material or debris will be transported is not a
facility that is part of the "site of the work" (adjacent or
virtually adjacent to the construction work area: and
dedicated exclusively or nearly so to the performance of
the contract or project): If the time spent on the site is not
more than de minimis, then loading the debris, dirt,
asphalt, etc., is not covered. 127

128. 5b. When truck drivers are engaged in hauling
excavated material, debris, dirt, asphalt, etc., for
recycling away from a Davis-Bacon covered
construction site, is the time transporting the
material away from the site covered?
Answer:
The time transporting the material away from the
covered site is not covered. The regulation
specifically states that the transportation of
materials or supplies to or from the "site of the
work" is not considered construction.
128

129. 5c. When truck drivers are engaged in hauling
excavated material, debris, dirt, asphalt, etc., for
recycling away from a Davis-Bacon covered
construction site, is the time unloading the
material covered?
Answer:
The time unloading the material off site is not
covered. Davis-Bacon only applies to work done
on the "site of the work".
129

130. 6. Are truck drivers who are employed by an
independent contractor or bona fide materialman to
haul material to a covered project from a non-
covered supply source (i.e., sand or gravel pit,
asphalt plant serving the public in general) covered?
Answer: No.
If the material source is commercial in nature and supplies the
general public, then the drivers are generally not covered.
However if the time spent on the site of work is more than de-
minimis (20%of the truck driver's work week), the driver
would be covered. (regardless of whether they are employed
by the contractor or subcontractor, or by an independent
contractor or bona fide materialman/supplier).
130

131. 7. Are truck drivers covered for the delivery of
materials to the "site of work" from covered
supply sources (e.g., batch plants or borrow pits,
stockpiles, etc.) which have been established to
serve exclusively, or nearly so, the covered
project?
Answer: Yes.
If the supply facility is part of the “site of the work”
because it is dedicated (exclusively or nearly so) to
performance of the contract or the project and
located within or near the project limits –
“adjacent or virtually adjacent” to the actual
construction site. 131

132. Note: DOL has an enforcement position with
respect to bona fide owner-operators of trucks
who own and drive their own trucks. Certified
payrolls including the names of such owner-
operators do not need to show the hours
worked or rates paid, only the notation “owner-
operator”. This position does not apply to
owner-operators of other equipment such as
bulldozers, backhoes, cranes, welding machines,
etc.
132

133. 8. A barricading company supplies traffic control
products for 20 Davis-Bacon projects. The devices
are dropped off and picked up at the contractor's
yard for each project. No setup work is involved.
Are the employees of this company covered?
Answer: Generally No. If the contractor’s yard is
not deemed a part of the “site of work”, the
employees are not covered. However, if the
contractor’s yard is deemed a part of the “site of
work”, then the employees would be covered if the
time spent on each project is more than 20% of
their work week.
133

134. 9. Would these workers be covered if they are
not only involved in drop off/pick up, but are
also involved in setting up and servicing the
traffic control products?
Answer: Yes.
If a material supplier, manufacturer, or carrier
undertakes to perform part of a construction
contract as a subcontractor, its laborers and
mechanics employed at the site of the work are
subject to the prevailing wage requirements under
Davis-Bacon in the same manner as those employed
by any other contractor or subcontractor.
134

135. 10. What prevailing wage rate would apply to the
workers in the above example?
Answer:
The employees driving the trucks would be paid truck
drivers rates. The employees doing the servicing would be
paid at the unskilled or misc. laborers rate. If the driver is
doing both activities, Davis-Bacon compliance can be
achieved by payment of the higher rate for all hours
worked. However, laborers or mechanics performing work
in more than one classification may be compensated at
the rate specified for each classification for the time
actually worked in each, provided that the employer's
payroll records accurately set forth the time spent in each
classification in which work is performed. 135

136. 11. A barricading company places the advance
warning signs per contract, pounds posts, and
places a sign cover which the prime contractor
removes when construction begins. Is all the
work performed by this company now subject to
Davis Bacon?
Answer:
The USDOL position is that if this is a one time incident,
before construction begins, and the time spent on the site
of work is minimal (less than 20% of the employee’s work
week) then in this instance, the installation of the advance
warning signs will not be covered by Davis-Bacon.
136

137. 12. Prior to the start of construction, a
barricading company places into position and
turns on a portable changeable message sign per
the contract.
What Davis Bacon rules apply to this situation?
Answer:
Again if this is a one time situation before
construction begins, and the time spent on the
site of work is minimal, (less than 20% of the
employee’s work week) then Davis-Bacon would
not apply in this situation.
137

138. 13. On the same or the next day, this company
sets the drums and temporary signs along the
shoulder of the road for the prime to set into
position when construction begins. What are the
Davis-Bacon rules for this situation?
Answer:
When temporary signs and drums are placed along
the shoulder of the road for later placement per
the contract, Davis-Bacon does not apply, if the
total time spent on the project is not more than
20%.
138

139. 14. Does it matter if the barricading company is
working with a sub-contract or a purchase order,
for the purposes of applying Davis-Bacon rules?
Answer: No.
Sub-contract status is irrelevant for the purposes
of Davis-Bacon.
139

140. 15. The manufacturer of concrete box beams
delivers 10 beams to a Davis-Bacon covered
project. After beams are set and the
manufacturer sends a technician out to the
project to post tension the beams. Is the post
tensioning of the beams covered?
140

141. Answer:
For purposes of administration and enforcement of Davis-
Bacon, under the applicable regulations issued by the
Department of Labor, the regulatory definition of
"construction" includes "[m]anufacturing or furnishing of
materials, articles, supplies or equipment on the site…", as
well as the installation of items fabricated off-site. (See 29
CFR 5.2(l)). As discussed regarding item 8, if a material
supplier, manufacturer, or carrier undertakes to perform
part of a construction contract as a subcontractor, its
laborers and mechanics employed at the site of the work
are subject to the prevailing wage requirements under
Davis-Bacon in the same manner as those employed by any
other contractor or subcontractor. 141

142. For example, employees of a materials supplier
who are required to perform more than an
incidental amount of construction work in any
workweek at the site of the work would be
covered by Davis-Bacon and due the applicable
wage rate for the classification of work
performed. For enforcement purposes, the
Department of Labor adopts a policy that if such
an employee spends more than 20% of his/her
time in a workweek engaged in such activities
on the site, he/she is covered by Davis-Bacon for
all time spent on the site during the workweek.
142

143. 16. The contractor hires a company to provide
inspection services for the contractor's quality
control operations on a Davis-Bacon covered
project.
Are the inspectors subject to prevailing wages?
143

144. Answer:
In general, individuals who perform inspections
and testing for quality control purposes are not
considered laborers or mechanics within the
meaning of the Davis-Bacon Act. However, if an
employee spends more than 20% of a workweek
performing manual, physical and mechanical
functions that are normally performed by
traditional craftsmen, he/she would be
considered laborers and mechanics and covered
by the DBRA and due the applicable wage rate
for the classification of work performed.
144

145. 17. The contractor hires an engineering firm to
provide surveying and staking activities for a
Davis-Bacon covered project.
Are these workers subject to prevailing wages?
Answer:
Where surveying is performed immediately prior
to and during actual construction, in direct support
of construction crews, such activity is covered by
Davis-Bacon requirements for laborers and
mechanics.
145

146. The determination of whether certain members
of survey crews are laborers or mechanics is a
question of fact. Such a determination must take
into account the actual duties performed. As a
general matter, an instrumentman or
transitman, rodman, chainman, party chief, etc.,
are not considered laborers or mechanics.
However, a crew member who primarily does
manual work, for example, clearing brush, is a
laborer and is covered for the time so spent.
146

147. 18. Does Davis Bacon apply to warranty work?
Answer:
If a material supplier, manufacturer or carrier undertakes to
perform a part of a construction contract as a subcontractor,
its laborers and mechanics employed at the site of the work
would be subject to DBRA requirements in the same
manner as those employed by any other contractor or
subcontractor. This would include warranty and/or repair
work. Employees of a material supplier who are required to
perform more than an incidental amount of construction
work (20%) in any workweek at the site of the work would
be covered by the DBRA and due the applicable wage rate
for the classification of work performed.
147

148. 19. How are truck drivers covered on "split-trip"
operations where a portion of the trip meets the
criteria for DBRA coverage and the
other portions of the trip do not.
Answer:
DBRA coverage is for "laborers and mechanics" for
time "employed on the 'site of the work'". If the
truck driver spends more than de-minimis (20%)
of their work week on the site of work, the time
he is on the site of work is covered by Davis-
Bacon.
148

149. OWNER’S INTERFERENCE
• Micromanagement of the Project
• Interference with
- Planned sequence
- Manpower deployment
- Means & methods or performance
• Owner’s separate contractors
- Asbestos or Hazardous Waste abatement
149

150. INSPECTION
• Required changes
• Code criteria and interpretation
• Opening Work to permit inspection
Clauses: Owner pays if not required to
redo Work
150

151. ARTICLE 12 UNCOVERING AND
CORRECTION OF WORK
§12.1 UNCOVERING OF WORK
§12.1.1 If a portion of the Work is covered
contrary to the Architect’s request or to
requirements specifically expressed in the
Contract Documents, it must, if required in
writing by the Architect, be uncovered for the
Architect’s examination and be replaced at the
Contractor’s expense without change in the
Contract Time.
151

152. ARTICLE 12 UNCOVERING AND
CORRECTION OF WORK
§12.1.2 If a portion of the Work has been covered which the
Architect has not specifically requested to examine prior
to its being covered, the Architect may request to see
such Work and it shall be uncovered by the Contractor. If
such Work is in accordance with the Contract Documents,
costs of uncovering and replacement shall, by appropriate
Change Order, be at the Owner’s expense. Is such Work is
not in accordance with the Contract Documents,
correction shall be at the Contractor’s expense unless the
condition was caused by the Owner or a separate
contractor in which event the Owner shall be responsible
for payment of such costs. 152

153. §13.5 TESTS AND INSPECTIONS
§13.5.1 Tests, inspections and approvals of portions of
the Work required by the Contract Documents or by
laws, ordinances, rules and regulations or orders of
public authorities having jurisdictions shall be made at
an appropriate time. Unless otherwise provided, the
Contractor shall make arrangements for such tests,
inspections and approvals with an independent
testing laboratory or entity acceptable to the Owner,
or with the appropriate public authority, and shall
bear all related costs of tests, inspections and
approvals. The Contractor shall give the Architect
timely notice of when and where tests and
inspections are to be made so that the Architect may
be present for such procedures. The Owner shall bear
costs of tests, inspections or approvals which do not
become requirements until after bids are received or
negotiations concluded. 153

154. §13.5.2 If the Architect, Owner or public authorities
having jurisdiction determine that portions of the
Work require additional testing, inspection or
approval not included under Section 13.5.1, the
Architect will, upon written authorization from the
Owner, instruct the Contractor to make
arrangements for such additional testing,
inspection or approval by an entity acceptable to
the Owner, and the Contractor shall give timely
notice to the Architect of when and where tests
and inspections are to be made so that the
Architect may be present for such procedures.
Such costs, except as provided in Section 13.5.3,
shall be at the Owner’s expense. 154

155. §13.5.3 If such procedures for testing, inspection or
approval under Sections 13.5.1 and 13.5.2 reveal
failure of the portions of the Work to comply with
requirements established by the Contract
Documents, all costs made necessary by such
failure including those of repeated procedures and
compensation for the Architect’s services required
for the convenience of the Contractor in its
scheduling and performance of the Work, and the
cost of testing services related to remedial
operations performed to correct deficiencies in the
Work shall be borne by the Contractor.
155

156. PRICING THE CHANGE: ACTUAL COSTS
• Detailed and documented
• Fair, reasonable and authorized by Contract
• Labor, material, equipment and direct costs
efficient and not excessive
• Overhead, profit and markup
• Contractor responsible for costs?
156

157. PRICING BY ESTIMATES
• Detailed breakdown
• Take-offs based on quantities and hours for
labor, materials, supplies and equipment
• Indirect cost estimates
• Subcontractor, vendor or supplier bids or
quotes
• Prices and mark-ups authorized by Contract
157

158. COST PER GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
• Contractor Cost Accounting System
• Consistent tracking of changes and costs
• Reliability of system and records
• Change and related costs contemporaneously
recorded
158

159. EQUIPMENT PRICES
• “No payment shall be made for the use of tools
which have a replacement value of $200 or less”
• Equipment rental rates shall not exceed local rates
• Equipment in good working condition
• Maintenance, breakdown and repair costs
• Published rates
159

160. UNIT PRICES
• Stipulated in Contract by Owner and Contractor
• Submitted by Change Order Bid Form or
Proposal by Contractor
• E.g. earth excavation at specified sum per yard
• Unit price inclusive of labor, material, services,
equipment, overhead & profit 160