Construction Contracting for the Owner: The Owner – Contractor Relationship
In choosing a Contractor, often the Owner chooses a Contractor through a bidding process. Sometimes the Owner engages a Contractor on their own. However the Contractor is contracted it is important to spell out the details of the terms. Courts will not protect an Owner from a bad deal that the Owner has voluntarily entered. This means that those multimillion dollar one page contracts floating around (I have seen a number of them over the years) will be enforced by a court if the Owner does not live up to the terms, no matter how one sided.
In the bidding process, the Owner, with the help of the Design Professional, sends out a bid packet to various contractors and invites them to bid on the project. The Owner and Design Professional then evaluate the bids and review the responsiveness of the bid, the responsibleness of the bids (is the bidder lowballing now in hopes of issuing change orders later, or has a bidder missed key components of the work) and of course the price itself. Once the Contractor is chosen the Owner must negotiate the terms of the contract with the Contractor. The relationship between the Owner and the Contractor is the subject of a separate contract from that of the Owner-Design Professional. Often the form of this contract is issued with the bid package.
The basic terms of the project should address what work will be done, the start date, end date and the amounts to be paid. We will address the specific terms in a future blog. However, this contract should also address what is included or excluded in the price. Are permit costs included? What specific materials should be used? Are specific subcontractors being requested? Or more likely, are specific subcontractors being excluded? These items need to be spelled out in the contract before the work begins on the project. The Owner does not want to wait until work begins as at that point most negotiating leverage has been lost.
There are forms of agreement between the Owner and Contractor. The AIA form most often used is the AIA 101, but depending on the project other AIA documents could be used as well. One key thing to note in the use of the AIA A101 is that the A201 is specifically incorporated by reference. The A201 is a 40+ page general conditions which is rarely, if ever, provided by the the contractor to the owner. This is often not nefarious as a lot of contractors do not realize that the A201 is incorporated by reference.
In addition to the AIA there also exists the Engineering Joint Contract Documents Committee(EJCDC) or Associated General Contractors of America (AGC) forms. In addition, some contractors have homegrown forms that they may feel comfortable working from. Remember all of these documents are forms. These are a starting point in negotiations of terms. Just because a term appears in the form does not mean the owner is obligated to accept it. As noted above, the parties are stuck with the terms they negotiate, no matter how bad they may be. Next week we will talk about the scope of the project.