The Cost of Doing Business: Best Practices for Public Works Projects Part One

Transcription

1 The Cost of Doing Business: Best Practices for Public Works Projects Part One November 14, 2018 Best Best & Krieger Webinar Best Best & Krieger 2018 Best Best & Krieger LLP

2 Presenters Michael Maurer Partner, Los Angeles Office (213) Haviva Shane Of Counsel, Riverside Office (951)

3 Goals of Presentation 1. Identify the potential risks that can arise on major construction and public works projects 2. Understand tools that can be used to control those risks

4 Initial Considerations We have an idea how do we make it a reality?

5 Initial Considerations How is the project funded? What help is needed? What procurement mechanism is used Design-bid-build? Alternatives? What type of contract is used?

6 Why is There Risk? Low bid contracts mean that: Contractors are encouraged to bid low and make up the difference through change orders, but Public agencies control the contract terms

7 Assessing Types of Risk What can cause unanticipated costs? Loss of grant funding Unqualified contractors Bid challenges Injuries to third parties Construction claims DELAYS Legal Challenges

8 Risk # 1 PROTECTING GRANT FUNDING

9 Grant Funding Know your funding source(s) local, state, federal, which agency(ies)? Make sure procurement process complies with terms of grant Verify procurement documents include all required flow down provisions Considerations: DBE requirements? Buy America? Davis Bacon?

10 Risk # 2 FINDING THE RIGHT CONSULTANTS AND CONTRACTORS

11 Hiring Consultants TIP: Do not overlook hiring the right architect and construction manager Use the RFQ/RFP process to: Find a professional experienced in your type of project Check references Define expectations Consider should the architect and CM be separate?

12 Hiring Question How do you know you re getting a good contractor if you have to award the contract to the lowest bidder?

13 Hiring Answer Use your bid documents to clearly define the minimum qualifications Responsive Bid meets requirements of Invitation to Bid Responsible Bidder is qualified to perform the work TIPS: Tailor your bid documents so that clearly unqualified bidders are nonresponsive Tailor the qualifications to the project make sure that qualified bidders have (successfully) completed similar projects Consider using a prequalification process but note requirement to allow bidders to qualify during solicitation period if using federal funds Identify red flags

14 Risk # 3 LIMITING LIABILITY TO THIRD PARTIES

15 Third Party Liability The Three I s: Immunity Insurance Indemnity

16 Third Party Liability Design Immunity: Neither a public entity nor a public employee is liable under this chapter for an injury caused by the plan or design of a construction of, or an improvement to, public property where such plan or design has been approved in advance of the construction or improvement by the legislative body of the public entity or by some other body or employee exercising discretionary authority to give such approval or where such plan or design is prepared in conformity with standards previously so approved... (Gov. Code 830.6) Meaning, if the design is properly approved, the City is not liable if the design causes an injury. So how is a design properly approved?

17 Third Party Liability Castro v. City of Thousand Oaks City Council approved street rehabilitation project with pedestrian safety improvements Plans approved by Council did not include warning beacons City engineer approved installation of additional warning beacons Pedestrian was struck by car; claimed beacons created a false sense of security

18 Third Party Liability Castro v. City of Thousand Oaks Court held that the City Engineer had purchasing authority, but not authority to approve adding beacons TIPS: Ensure that plans are approved by Council or other appropriate official Include delegations of approval authority Follow approved design or clearly document change orders prior to implementation

19 Third Party Liability Insurance Types and coverage limits should be considered on a project-by-project basis Engage your risk manager early in the process to determine specific requirements Indemnity Make sure there is unilateral indemnity from all consultants and contractors Preserve the duty to defend

20 Risk # 4 CONTROLLING AGAINST ADDED COSTS DURING CONSTRUCTION

21 Added Construction Costs Can occur for: Unforeseen conditions Design flaws Extra work

22 Added Construction Costs How do you protect against costs that are unforeseen? Change order/claims procedures Limitations on mark-ups * Note federal funding constraints applicable to change orders

23 Added Construction Costs Opinski v. City of Oakdale Contracts may include provisions for giving notice of and requesting change orders The contractor may be allocated the risk of added costs unless it follows the required procedures TIPS: Use contract terms that require notice of potential changes within certain timeframes Have a contract procedure for requesting change orders within certain timeframes Require supporting documents with all change order requests

24 Added Construction Costs 2018 Greenbook : a reasonable allowance shall be added for overhead and profit What is a reasonable allowance and how is it determined? TIPS: Require documentation of actual costs Use defined percentages for mark-ups Use unit prices with no mark-up where applicable

25 Risk # 5 CONTROLLING DELAYS

26 Delays Delays tend to be the biggest risk on construction projects. Two types: Agency-caused delay i.e., you owe the contractor additional money Contractor-caused delay i.e., the contractor doesn t complete the project on time

27 Delays Agency-caused delays: Public Contract Code section 7102: Public agencies cannot preclude damages for unreasonable delays Contracts may require notice, settlement procedures, liquidated damages as a condition of receiving damages for delay Meaning you are the hook for unreasonable delays, but you have tools to control your risk

28 Delays Without utilizing section 7102 tools, how is a contractor compensated for agency-caused delays? Entitled to all of the detriment proximately caused. At least one court has stated this could include increased overhead and fixed costs, labor and material cost increases, loss of productivity, extended home office overhead etc.

29 Delays Section 7102 Tools: Notice contractor must inform of delay even if delay caused by agency i.e., no surprises Settlement Procedures contractor must request a time extension and damages and comply i.e., submit supporting documentation Reverse Liquidated Damages Set reasonable amount for daily delay i.e., limit on potential amount

30 Delays Reverse Liquidated Damages Must be a reasonable amount Advantages: Limits total potential cost Allows cost-benefit analysis Makes settlement easier/lowers litigation costs Disadvantages: Actual damages may be difficult to prove you may end up paying more using reverse LD s

31 Delays How to allocate responsibility for delay? Use Schedules Require to submit baseline schedule and regular updates Must show critical path Float belongs to the project, not the contractor Require Time Impact Analyses for delays TIPS: Be careful about issuing a Notice to Proceed if project is not ready Be careful with suspending projects No delay damages for extra work at unit cost or with mark-up (i.e., no double-dipping)

32 Delays Standard Liquidated Damages Public Contract Code 7203: contractor is only responsible for delay damages if there is a liquidated amount. TIPS: Consider the actual impact of project delays e.g., will you have to continue paying rent for temporary facilities? Will grant funds be at risk? DON T delete or leave the amount blank

33 Additional Considerations

34 Additional Considerations Be careful with standard-form contracts Look out for limitations on City s ability to recover damages Arbitration/attorneys fees? Getting out: Bonds Payment required if over $25,000 Performance recommended (required for federally funded projects if over $150,000) Termination for Convenience Include termination procedures Control costs on termination Required for federally funded contracts Prevailing Wages Ensure contractor is responsible Fines for failing to report project to DIR or verify that contractor is registered Davis Bacon applies for federally funded projects, require payment of the higher of the two rates; attach rate sheets to bid and contract documents

35 Final Thoughts Public agencies have tools to control risks. Use them! Take the time to review contracts before starting major projects Be project-specific and use contracts that you ll be comfortable administering Maintain communication with your funding sources

36 Reminder! Upcoming BB&K Webinars November 29, 2018 Emergency Procurement & Contracting Essentials: Being Prepared for Federal Disaster Funding January 24, 2019 The Cost of Doing Business: Best Practices for Public Works Projects Part Two Please visit the BB&K website for more information.

37 Questions? Michael Maurer Partner, Los Angeles Office (213) Haviva Shane Of Counsel, Riverside Office (951)