Owner directed products

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Author Message Tom Peck Senior Member Username: tom_peck_csi Post Number: 29 Registered: 08-2004 Posted on Monday, May 08, 2006 - 12:32 pm:    Given a state university project, the university has a specific manufacturer that they desire for specific electrical products. Along with a other areas of work, the project extensively involves the products of the specific manufacturer. The manufacturer also installs their own products. Due to the required time frame for completing the project, the project has a liquidated damages clause. (We also just completed a much larger project for the state university with the same basic parameters (ie., specific electrical product manufacturer specified, liquidated damages) but this manufacturer had a much smaller role in that overall project, and no objections were raised, to our knowledge.) A GC has bid the current project and signed the contract with the owner. In the GC's subsequent communications with the electrical product manufacturer, the manufacturer has refused to accept the liquidated damages clause in the Owner/GC contract - only noting they will not be subject to this damages. As far as we know, there are no issues with time of completion, etc. We've suggested that this is a GC/Owner issue, not a sub/Owner issue. The GC entered into the contract, and is now bound by the contract. The GC now claims their hands are tied with respect to a closed spec regarding the specific manufacturer's products. The owner requires this manufacturer's products for uniformity throughout the university. Are the options .... 1) Owner accepts the GC's position and do not assess LD's (if applicable). 2) Void the contract, cash the bid bond (if the owner so elects), and go to the next bidder - although the next bidder will run into the same situation. 3) Say "too bad, so sad" and continue with the contract and assess LD's if appropriate. 4) Owner accepts alternative product manufacturers. 5) Other?? Thoughts? Doug Brinley AIA CSI CDT CCS Senior Member Username: dbrinley Post Number: 216 Registered: 12-2002 Posted on Monday, May 08, 2006 - 12:42 pm:    None of the above. The Contractor signed the Contract. The Contractor is responsible for The Entire Contract, not just a part. In the event the Contractor cannot persuade, cajole, beg, insist that a subcontractor meet a certain condition, the Contractor is required to meet the requirements. That's why there are General Contractors, and there are subcontractors. There is no difference just because the Owner identified a single manufacturer for one or more components. The Contractor knew of the requirements beforehand, even though the single manufacturer may have come along after the Contract with the caveat that it would not be responsible for L/Ds. This is not unusual; L/Ds highlight the responsibility-shifting gene in subcontractors. Just because the GC wants / and is subject to some provision does not mean every sub, including the 'appointed' subcontractor is also. The GC must attach that responsibility to a subcontractor. And just because the GC fails to attach that responsibility to a subcontractor does not mean the GC is any less responsible to the Owner. Tom Peck Senior Member Username: tom_peck_csi Post Number: 30 Registered: 08-2004 Posted on Monday, May 08, 2006 - 12:52 pm:    So, Option 3 is indeed correct ... continue on with the contract as signed, and assess LD's per the contract. That's what we thought ... but double checking. Thanks for the input, Doug. Tom Ron Beard CCS Senior Member Username: rm_beard_ccs Post Number: 130 Registered: 10-2002 Posted on Monday, May 08, 2006 - 12:55 pm:    Another option would be to have the GC find out exactly what time frame the manufacturer can live with and ask that the Owner “relax” the time deadline only for that portion of the contract pertaining to that specific equipment. The manufacturer has a lot to lose by alienating the Owner. Is there an early completion incentive clause in addition to the liquidated damages clause? If not, the Owner may be on shaky ground in the enforcement of the LDs. Ron Doug Brinley AIA CSI CDT CCS Senior Member Username: dbrinley Post Number: 217 Registered: 12-2002 Posted on Monday, May 08, 2006 - 12:57 pm:    Tom, Since L/Ds are never (at least in my experience) paid by Contractors without a claim, it is helpful to recognize that the University's counsel specializing in construction contracting will be responsible to interpret any claims that arise, since the L/D clause will surely attract a claim if your project gets to that point. Therefore, it is a good idea to make a recommendation on specific action to that attorney, and to obtain his/her concurrence. Lynn Javoroski CSI CCS LEED AP SCIP Affiliate Senior Member Username: lynn_javoroski Post Number: 356 Registered: 07-2002 Posted on Monday, May 08, 2006 - 12:59 pm:    I think it's #3. The contract with L/Ds is between the Owner and the GC, is it not? The GC then contracts with the subs. The problem then is between the GC and the sub. If the sub doesn't perform within the contract, causing the GC to not be able to perform within HIS contract (with the Owner), that's when L/Ds become the issue and are assessed on the GC (not necessarily on the sub, but that's up to the GC). And yes, it is important to have an incentive clause when you have L/Ds. (the stick AND the carrot) It holds up much better in court. Tom Peck Senior Member Username: tom_peck_csi Post Number: 31 Registered: 08-2004 Posted on Monday, May 08, 2006 - 01:04 pm:    Ron, There isn't an incentive clause ... and agreed. And regardless of any of the available options, we've provided our input, and we'll see what direction the Owner wants to go. Tom Mitch Miller,AIA ,CSI,CCS Senior Member Username: m2architek Post Number: 76 Registered: 02-2004 Posted on Monday, May 08, 2006 - 01:05 pm:    In my opinion, and thats what it is, reality has to come into play here. The Owner has required the use of a certain manufacturer, and if that Mfg. cannot perform, then the Owner should relax the LD's and extend the completion time to accomodate the manufacturer. If the sub delayed his acquisition of the products, then there may be reason to go after the sub, however the GC signed the contract, and he is responsible for the actions of his subs. In reality, I believe the Owner should; 1) consult his counsel, 2)relax the LD requirements and extend the Time, 3) allow for substitute products if time os of a factor. Doug Brinley AIA CSI CDT CCS Senior Member Username: dbrinley Post Number: 218 Registered: 12-2002 Posted on Monday, May 08, 2006 - 01:07 pm:    Ron, Early completion clauses and L/Ds are two unrelated topics. Many people try to connect the two. Every state being different it is difficult to make accurate generalizations. However, it is generally true that the Owner (assuming a public agency) should make a non-public (but discoverable) written calculation in advance of the authoring of the Contract, indicating the net effect or loss of revenue resulting from a loss of service. Cases have show that judges do not find it necessary to offer the Contractor an incentive opportunity for an L/D clause to be enforceable. Doug Brinley AIA CSI CDT CCS Senior Member Username: dbrinley Post Number: 219 Registered: 12-2002 Posted on Monday, May 08, 2006 - 01:09 pm:    Geez Mitch, that's a bit soft. Mitch Miller,AIA ,CSI,CCS Senior Member Username: m2architek Post Number: 77 Registered: 02-2004 Posted on Monday, May 08, 2006 - 01:12 pm:    We can all stomp our feet, but in the real world, you still have to do business. You could end up in a work stoppage, which doesnt benefit anyone. I would check to see when the sub placed his order, check all the timelines, then let the attorneys fight it out. Nathan Woods, CCCA Senior Member Username: nwoods Post Number: 90 Registered: 08-2005 Posted on Monday, May 08, 2006 - 01:16 pm:    Colin, this thread should be moved the Construction Administration forum. Tom, Doug Brinley has given you the Correct Answer. However, in a dispute, he would probably not win. He might win in court, but it is more likly a jury would side with the GC on this, despite the documentation. It is also highly likely that an Arbitrator would side with the GC on this, and spread the damages to both Owner and GC, as they seem fond of doing. The timing of sub's refusal to agree to the LD's is important. If the GC knew about it prior to signing the Owner's agreement, then Option 3 is the correct stick to beat them with. Check carefully in the bid to see if that was qualified in any way. If the MFR's bid was attached as backup, then the courts may argue that the Owner knew about the qualification, even if the GC did not specifically declare it. Option 4 touches on the core issue. Since this is the Owners chosen vendor, that vendor is holding the Owner "hostage" to some degree. Should the Owner allow another company to bid, then the GC would have more control and wuold be able to find a vendor that would agree to the LD stipulation. Without that possiblity, I think the courts and/or an arbitrator would not hold the GC fully responsible for performance. There is another option to proceed with this without having to argue about potential claims, contractual disputes, etc... The GC should credit back to the owner that portion of the work. The Owner should directly contract with that vendor. The Owner should then pay an increase via change order to the GC for increased General Conditions to "coordinate" with the Owner's vendor. This reduces the GC's risk, saves money for the Owner, and places the vendor in a position where they are more inclined to be responsive to the Owner because of the direct relationship and a desire for more work. (Having a lock on an entire campus system is a sweet position to be in!) Ronald L. Geren, RA, CSI, CCS, CCCA, MAI Senior Member Username: specman Post Number: 249 Registered: 03-2003 Posted on Monday, May 08, 2006 - 01:21 pm:    Does the manufacturer require that they install their own products? If not, is the University requiring the manufacturer to install its own products? If it's neither, then the GC has the right to go to another subcontractor for installation. In that case, the purchase of the products falls under the Uniform Commercial Code, in which the supplier has to deliver within a reasonable time if not specified in the purchase contract. If delivery of the products can be directly linked to a delay, and the GC can prove that the subcontractor ordered the products with enough lead time for delivery and installation, then the manufacturer is subject to the LD clause of the UCC, regardless, and may be subject to paying the GC's LD costs. Doug Brinley AIA CSI CDT CCS Senior Member Username: dbrinley Post Number: 220 Registered: 12-2002 Posted on Monday, May 08, 2006 - 01:23 pm:    FYI - Our public agency requires Escrow Bid Documentation that is kept sealed after review soon after the apparent low bidder is determined. Access to the documentation is highly restricted, and it is kept in a 'secure location'. That requirement for information is controversial although it permits verification of items Nathan points out. Tom Peck Senior Member Username: tom_peck_csi Post Number: 32 Registered: 08-2004 Posted on Monday, May 08, 2006 - 01:53 pm:    We've even talked about throwing out the bids and re-bidding, but there isn't time to do that for this summer's work. And we still would've had the same manufacturer, unless the owner elected to adjust specific requirements. Nathan, I believe the GC did not become aware of the issue until after he had signed the contract (which was just a few weeks ago), and was following up with contracts with his subs. And, I do not believe there were any qualifications to the subs bid either. Plus, as I understand it, the manufacturer doesn't have an issue with time of completion, delivery of product, installation, etc. Just the attitude that they shouldn't be liable for LD's. Tom Nathan Woods, CCCA Senior Member Username: nwoods Post Number: 91 Registered: 08-2005 Posted on Monday, May 08, 2006 - 02:04 pm:    Tom, then I feel your Owner's vendor just learned a valuable lesson in bid qualification statements. I'm quite confident that your GC has language in their standard sub-contracts that the subs assume the duties that the GC has with the Owner. The Vendor, as pointed out by Mr. Garen, has agreed to the LD provisions by submitting a bid for the project, under the UCC, regardless of whether or not they like it. If they did not address it in their bid, then they beholden to it. Your Owner needs to get in contact with the senior person at the vendor's firm and have high level discussion about this. If the vendor truly has no real problem to accomplishing the job, and values the Owner's business, a "business" decision and agreement can be made. I feel your GC did the right thing. They bid it per the Owner's requirements, they agreed to all that the Owner required of them. Upon discovering this problem, they immeadiately notified the Owner. If the GC really applies the screws to the vendor, they are likely to damage their own ability to facilitate meeting the projects deadlines and quality requirements. This problem needs to be, and easily can be, addressed and resolved by your Owner. Tom Peck Senior Member Username: tom_peck_csi Post Number: 33 Registered: 08-2004 Posted on Monday, May 08, 2006 - 02:05 pm:    Ron, I am only aware of the manufacturer installing their own product; although I am not sure that someone else couldn't install their product. [Reminds you of the Bill Cullen days and 'What's My Line', doesn't it ] TP Tom Peck Senior Member Username: tom_peck_csi Post Number: 34 Registered: 08-2004 Posted on Monday, May 08, 2006 - 02:19 pm:    Nathan, Knowing the GC, I would think that the GC has similar language for subs' contract as he does with the Owner. Unfortunately, the GC was in the process of contracting with his sub when he found out about the issue. Yes, it appears he did everything as he was supposed to. But he did sign the contract ... no doubt with some level of confidence there wouldn't (couldn't?) be an issue in their GC/sub agreement. TP Anne Whitacre, FCSI CCS Senior Member Username: awhitacre Post Number: 335 Registered: 07-2002 Posted on Monday, May 08, 2006 - 02:25 pm:    another way of handling this would be to back out the electrical sub's work out of the General contract, and have that be an owner/vendor contract that is then assigned to the General Contractor. The GC provides coordination and administrative costs as part of his work, but in that case, he is able to provide some leverage by way of back charging the owner for delay. I've usually recommended that if the Owner had a vendor they specifically wanted, that subcontract NOT be part of the General work but be the Owner's responsibility. it would then be possible for the General Contractor to have delay damages against the owner written into their contract for services. Russell W. Wood, CSI, CCS Senior Member Username: woodr5678 Post Number: 55 Registered: 11-2003 Posted on Monday, May 08, 2006 - 05:19 pm:    I have shown your thread to our contracts dept. We have builders who try to apply an order of precedence to contract requirements all the time. The unfortunate truth is, you can't change your bet after the horse race is run! The contract is still the contract, and the requirements apply whether easy or difficult for the parties. So my contracts people say hold their feet to the fire. Converesly, my legal people would term this either a substantial deviation (meaning noncompliant or a breach) or a waveable technicality. Our counsel generally says "I can't see myself arguing this case to a judge saying we're assessing L/D to a builder who we're forcing to use only one supplier". Therefore, as much as the tiger in me says go after them, I've seen that we follow the advice of counsel, so I'd feel the prudent move is to come to an accommodation with the builder on this one. Tom Peck Senior Member Username: tom_peck_csi Post Number: 35 Registered: 08-2004 Posted on Monday, May 08, 2006 - 06:06 pm:    Nathan and Anne, We've discussed crediting back the E portion of the contract as an option, too. We'll have to feel that one out with the Owner. Russell, As you and others have pointed out (and depending on with whom we communicate), the options are to either stand by the contract, or accept some flexibility in contract requirements. My guess is, ultimately, the owner will relax the contractual requirements to allow this manufacturer. We'll see where tomorrow brings us. Thank you all for your time and input. It sure helps to have a forum like this, with so many knowledgeable and willing people who are open to sharing and assisting others. Tom