Contracts | by Len Ruzicka, Partner in the Business Litigation Division of Stinson Morrison Hecker LLP. | 09/09/2008
By Leonard R. Ruzicka, Jr.
Of the approximately 70 documents within the ConsensusDocs family of forms, there are three forms that offer a unique approach to addressing traditional business risks: the Collaborative Agreement, the Electronic Communication Protocol document and the Time and Price-Impacted Materials document. This article provides a brief overview of how these three forms tackle business risks in a unique way.
Tri-Party Collaborative Agreement Doc No. 300
This Agreement is initially executed by the owner, design professional and contractor and/or construction manager. The primary purpose of the Agreement is to bring these key players together at the front end of the project to minimize the risk of delay, conflict and increased cost typically experienced by project participants in non-integrated project delivery. The Agreement's provisions are intended to require a fully integrated and cooperative effort of all the project participants from preliminary design through final acceptance. In order to make this happen, the owner, design professional and contractor each designate an authorized representative to serve as a member of the Management Group. The Management Group is the decision-making body for the delivery of the Project consistent with the Owner's intended project requirements including schedule and budget. To facilitate an integrated, collaborative design process, there are provisions in the Agreement for including key design consultants, trade contractors and suppliers under Joining Agreements at later stages of the project as necessary. All of the initial members must approve the addition of such consultants, trade contractors and suppliers to the team. The Agreement requires decisions to be made through a consensus of the Management Group. If consensus cannot be reached among the Management Group members, the Owner retains the right to make a determination in the best interest of the Project as a whole.
Although this is a cost plus agreement, there are a number of provisions designed to provide some predictability of ultimate costs to the Owner and to also control costs. The Constructor and Trade Contractors are required to provide input to the Designer in order to create value for the project by identifying options to improve constructability and functionality and to reduce capital costs. The Designer and Constructor must jointly develop a preliminary estimate of the cost of construction, together with contingencies and allowances to arrive at a Design Budget. To clearly identify costs, the parties are required to revise and further develop the project budget with the ultimate goal of arriving at a Project Target Cost Estimate when the project design is sufficiently complete. There is an option to penalize or reward the Designer and Constructor if the actual project cost is more or less than the Project Target Cost Estimate.
Another means of controlling costs is to employ "pull based" principles so that each of the parties to the agreement are performing, at any point in time, only work necessary to advance the project as anticipated and directed by the Management Group. The Agreement penalizes out of sequence work by requiring any party that fails to follow the approved work sequence plan to pay the cost of any rework resulting from such failure.
The Agreement also allows the parties to select one of two forms of risk allocation. The first option is entitled Safe Harbor Decisions. If this option is selected by the parties, they agree to release each other from any liability resulting from a collaboratively reached decision that may have been based on any mistake or error in judgment by one or more of the parties. This safe harbor provision does not extend to acts or omissions that amount to a willful default of an obligation under this Agreement.
The second option is entitled Traditional Risk Allocation. This option requires each party to be fully liable to the other parties for its own negligence or breaches of contact or warranty. However, this second option provides for a specific dollar limitation of liability for both the Designer and Contractor.
Another unique clause in this document is entitled Principles of Communications. This provision not only requires that the parties agree on a protocol for communications, but also specifically prohibits "... offline Project-related discussions among the Project participants...". This clause emphasizes the importance of following the communication protocol by providing that a failure to adhere to the protocol constitutes a beach of the Agreement justifying a withholding of payment and a basis for termination.
Electronic Communication Protocol Addendum Doc No. 200.2
This unique form addresses the growing trend of communicating construction related information electronically. This 13-page form outlines the designation of key players in the communication process and details the list of all parameters that need to be considered in setting up the protocol and assignment of responsibility. This form requires each party to designate an IT Administrator. The IT Administrators then form an IT Management Team, with each party paying for its participation in this team. This form requires each party to establish standards for hardware, software, document format, transmission, security, access and archiving. Also, the form specifically requires the parties to make an affirmative election on the categories of documents to be exchanged. The document also outlines that the party failing to follow the detailed protocol in the form will be responsible for the related costs.
Time And Price-Impacted Materials Doc No. 200.1
This form addresses the recurring issue of material shortages or wildly fluctuating prices, such as with steel. Essentially the parties agree to certain materials that are required for the Project that may be subject to shortages or price fluctuations. The parties agree on a Baseline Price for selected materials that is included in the contract fixed price. If prior to delivery either party puts the other party on notice and provides adequate documentation substantiating an adjustment, the Contract Price and Time is adjusted either up or down consistent with the substantiated documentation.