Contracts and contracting isn't the most interesting area of facilities, but it has a large potential for harm. Ignore these issues at your own peril; you may find your name in headlines if you do not. As a steward of the public trust, contracts are your basic tools to ensure that your taxpayers dollars are spent appropriately and effectively.

Rules for construction contracting vary from place to place. It is important to find out not only what local laws regulate your contracts but also what the local construction industry is familiar with.

PART 1: ARCHITECT AND ENGINEER CONTRACTS

HIRING

Projects begin with planning, then move into design and construction. As this process progresses there is more and more certainty about the parameters of the project, what it consists of, where and when it will be built, how it will be paid for. Often, to begin this process, a planning study or project definition study must be done even before you know that you want to build. These initial contracts are often small, but still would fit into the category of architect and engineer contracts.

School districts are famous for making hash of the architect hiring process. The classic horror story is that the district starts the hiring process wanting to save a great deal on fee, and hires the architect whose proposed fee is lowest. Said architect gives relatively poor service, as per their compensation. Owner, near the end of the process, feels wronged by lack of choices, poor design, hasty construction documents, or whatever, and sues architect.

How can this nightmare be avoided? Most larger government agencies, as well as the Federal government, use some form of qualification-based selection process. In this process, the owner hires following these steps (or some variation of them):

1. The school or district establishes a hiring committee and procedures. The committee prepares information describing the project (a request for proposals, or RFP), the site, the budget, and any other pertinent information. This may require some work. The district may want to hire an educational facilities planner to help with this process. If the district has determined that a certain fee is reasonable for this work, the fee is described as well. It is made clear that this is not a design competition, and that design will not begin until after a contract has been signed.
2. In response to advertisements, architects submit proposals. The district reviews those proposals accrording to the criteria outlined in the RFP, either using a point system or at least by documenting their reasons, which most often relate to experience, size, availability, proximity, or references.
3. A certain number of firms are invited to an interview (usually at least three, most often no more than five or seven). If references weren't checked when the proposals were reviewed, it is important to check them now, and to forward the information to the committee members (see References, below).
4. After the interviews (usually 30-60 minutes in length), the committee deliberates, and, documenting why, forwards a recommended list of firms in rank order to the district.
5. The district negotiates fee and service level with the preferred firm. If they are unable to come to terms, the district breaks off negotiations and begins negotiating with the second firm. During this process, it is important for both sides to understand the expectations and committments. Sometimes architecture firms offer services which the owner neither wants nor is willing to pay for. Other times, the owner expects certain services to be included in the architects proposal which may not be there.

REFERENCES

Reference checking is a fine art. It is wise to make more than one check on each firm, and at least one of those should be a reference not listed in the firm's proposal. Make sure that the project references checked were the work of the same people in the firm, as a firm's performance can vary widely depending on the personnel assigned to the project.

References can prevent you from hiring a firm that would be a bad fit for your project. They can also warn you about weak points in a firm that you might be about to hire. For example, if you find that an otherwise excellent firm has an unfortunate tendency to change the personnel assigned to a project while it is underway, you may want to include a clause in their contract that prevents them from doing that without your permission (naming the people by name).

One bad reference need not prevent you from hiring a firm. Every firm has a project that has gone sour. If you do get a bad reference, it is important to continue checking until you are confident of the pattern that is emerging. What is this firm like? Do you want to work with them? What are their strengths and weaknesses?

Remember that reference information is confidential. It is considered very unprofessional to discuss a reference conversation with an outside party who is not part of the hiring committee.

The following reference check questions were developed at the University of Oregon Planning Office.

WHAT'S IN A CONTRACT?

It is very important for a contract to clearly spell out what is expected of each party. Here are a few questions that should be considered. How much is the compensation, and at how and when does payment occur? How and when can the contract be terminated? What are the basic services covered? How are extra services (for extra fee) incurred? Who has what rights to the plans or other product? Is the owner responsible for all survey information (incuding information about existing buildings)? If the bid price exceeds the estimate by a certain percentage, will the architect or engineer modify the plans and specifications to bring the project within budget without charge to the owner?

TRADITIONAL OWNER/ARCHITECT AGREEMENT

In this arrangement, the owner has a contract with the architect. All of the other design professionals have contracts with the architect. The architect has full responsibility to the owner for all design responsibilities. Advantages: • Owner only needs to deal with one entity, the architect. Disadvantages: • Architect may want to use engineering or other consultants that the owner doesn't want. • Owner doesn't have direct access to some team members. All information is filtered through the architect.

MULTI-PRIME AGREEMENTS

Multi-prime agreements are sometimes used in large or very specialized work. In these agreements, the owner has separate contracts with some or all members of the design team. Some firms may have subcontracts with a prime firm (as the landscape architect in the example above). In most cases, the owner has hired these firms separately and has imposed a team structure on the players. Each professional firm that has a contract with the owner has direct responsibility to the owner. The architect's contract usually includes a requirement that they coordinate the work of all of the other firms, but since they have no contractual relationship with some of the other team members, the owner may have to arbitrate disputes.

Advantages: • Owner can select team members that they want. • Critical team members can be directly responsible to the owner.

Disadvantages: • Responsibilities may be confused, especially in the area of coordination. • Owner is the only means of resolving disputes between team members.

RETAINER AGREEMENTS

Some owners maintain retainer agreements with architects, engineers, or landscape architects. These are especially useful for small projects or emergency work, as the contract is already in place, and no hiring process other than agreement on fee is required before undertaking a project. If you use retainer agreements, it is important to limit their duration (usually one to three years). It is probably a good idea to "spread the work around" either with retainer agreements with more than one firm at a time, or changing from one firm to another, in order to foster a competitve environment.

PART 2: CONSTRUCTION CONTRACTS

Construction contracts can be structured in a wide variety of ways, some of which are discussed below. Before choosing one of these, it is important to learn what the legal requirements are for your schools, and what arrangements have or have not been successful in the recent past. Generally speaking, the construction industry will be leery of using a contracting arrangement that has had a bad track record.

No matter what the contract structure, it is extremely important that all responsibilities be spelled out in the construction documents. These consist not only of the design team's drawings and specifications but also the "front end", which includes the advertisement for bid, requirements for bid bond, performance bond (if required), prevailing wage rates (often required on government work), and especially the general conditions. The general condtions describe the roles and responsibilities of the owner, contractor, and architect. There are many model general conditions available. Not unexpectedly, they tend to be written to protect the interests of whoever wrote them. For many years, the American Institute of Architects set of general conditions and other contracting forms was the industry standard, but recent versions are perceived by some facility managers as written to protect the architect in the event of a dispute.

Generally speaking, it is wise to either use a standard form such as those available from the AIA (American Institute of Architects), a model general conditions produced by government agencies in your area, or have an attorney specializing in construction law create general conditions for your use. THIS IS NOT A DO-IT-YOURSELF OPERATION.

CONVENTIONAL DESIGN, BID, BUILD

This is the traditional arrangement in modern American construction. The owner hires an architect who prepares plans and specifications. A contract is awarded from the owner to the contractor who offers to build the work for the lowest price. Advantages: It's simple. Everyone is familiar with the process and the relationships. Disadvantages: Contractor's can offer an artificially low bid, then find ways of charging exhorbitant amounts for extras during construction. Design team can't take advantage of the expertise of the contractor during design.

NEGOTIATED BID

This arrangement is the same as traditional Design, Bid, Build, except that rather than take bids from contractors, an owner negotiates a price with a contractor selected on the basis of other criteria such as experience. In some cases, the negotiation process starts early in the design process, and the contractor becomes part of the design team (see also Construction Management/General Contracting).

Advantages:

• Expertise of contractor during design.
• Excellent control over costs.

Disadvantages

• Not allowed under most public bidding law.
• Depends on all parties (architect, owner, contractor) acting in good faith.

DESIGN-BUILD

Design build is based on maximizing cooperation and efficiency between contractor and architect, somewhat at the cost of owner control over design. After preparing a preliminary description of the project (but not designing it), the owner solicits proposals from contractor-architect teams. These proposals, which consist of a preliminary design plus a proposed price, are evaluated with a point system specified in advance, and the selected team (usually with the contractor as prime) designs and builds the project to the criteria specified in the original solicitation.

CONSTRUCTION MANAGEMENT

In construction management, the owner hires a construction manager to assist with day-to-day dealings with the contractor and architect, freeing the owner from many management responsibilities. However, since there is no contractual relationship between the construction manager and the architect or the contractor, the owner generally finds it necessary to be directly represented in many if not most meetings. Larger organizations generally have a construction manager (or inspector or clerk-of-the-works) on their own staff who fills this function. Smaller entities may want to hire a construction manager as a temporary employe rather than as a consultant. Advantages: Owner is insulated from day-to-day management of project Construction manager's expertise may reduce costs or increase quality.

Disadvantages:

• Lines of responsibility between architect, owner, and contractor are blurred by a third party giving direction but with no contractual authority.
• Added level of management may be costly.

WHOLE PROJECT MANAGEMENT

It is also possible to hire a management firm to handle the entire design and construction process. They, as owner's agent, hire an architect, direct them during the design process, manage construction, etc. This comes with certain costs. Typically, management costs are higher and owner control are lower than with traditional project development.

CONSTRUCTION MANAGEMENT/GENERAL CONTRACTING (CM/GC)

CM/GC is an attempt to have the advantges of the participation of the contractor's expertise during the design process, while still meeting public bidding requirements. In it, the contractor is selected early in the design process in much the same way as the architect (based on qualifications, references, etc), although price is also usually part of the criteria. Owner, architect, and contractor then negotiate a Guaranteed Maximum Price (GMP) for the construction.

Price is included as two factors. One is the amount of contractor fee, usually expressed as mark-up on the subcontracts. The other is the amount of the contractor's fee that would be incurred if the contractor and owner are unable to agree on a GMP.

RESOURCES:

Current edition of contracts for construction; American Institute of Architects

Local members of the Construction Specifications Institute

State model public agency contracting rules

updated 12/05
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