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Message |
Y. Lynn Jolley (Unregistered Guest)
Unregistered guest
Posted From: 68.53.146.54
| | Posted on Wednesday, July 28, 2004 - 06:42 am: |    |
Paragraph 7.3.7 of the 1997 A201 General Conditions only addresses increases in overhead and profit based on a net increased cost of work. There is no mention of crediting overhead and profit should a net decrease occur.
Is it reasonable for an Owner of a Guaranteed Maximum Price project to expect a decrease in overhead and profit as the overall price of a project is decreased?
Can anyone recommend supplementary conditions verbiage to address this?
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Randall L. Cox
Member
Username: randy_cox
Post Number: 3
Registered: 04-2004
| | Posted on Wednesday, July 28, 2004 - 09:33 am: | |
First, you should not edit general conditions, offer to edit general conditions, or comment to the Owner on general conditions except where your comments are understood as simply a conveyance of your experience or opinion - unless of course you are an attorney who is experienced in contract law. That said, in my experience, the owner is obligated to pay the at least the overhead (once the contract is signed) even if the project is cancelled in its entirety. When I was one of the youngsters drafting away back in the beginning of my career, I remember hearing about a VA project where the job was cancelled, but because the VA had awarded the contract, the VA had to pay the contractor their profit - I'm not sure whether they got overhead and lost work as well. I don't know if that is because of the unique handcuffs the feds put on themselves or if this is a generic element of contract law. So, in conclusion - the Owner needs to have this drawn up by an attorney. |
Anne Whitacre, CCS CSI
Senior Member
Username: awhitacre
Post Number: 104
Registered: 07-2002
| | Posted on Wednesday, July 28, 2004 - 12:25 pm: | |
to answer the original question though -- unless part of the agreement signed by Owner and Contractor specifically addresses overhead and profit credit in case of a project scope or cost decrease -- this is unusual and my experience has been that unless the signed contract specifically addresses this issue, there will be no credit back to the owner for a decrease in cost. The contractor can argue successfully that it costs him as much to process a cost reduction as it does to process a cost increase, and that part of the reward the contractor gets for accepting the downside risk is that the profit and overhead is constant.
Again, this should have been addressed by an attorney, but it is unlikely (and not typical) that there will be a cost reduction in the overhead and profit. |
Richard L. Hird P.E. CCS
New member
Username: dick_hird
Post Number: 1
Registered: 02-2004
| | Posted on Wednesday, July 28, 2004 - 05:08 pm: | |
The key problem with AIA A201 is the method of determining overhead and profit is not stated. Unless you address it in the Supplementary General Conditions the percentage is negotiable. I stipulate, or make it a matter of bidding, what the "net" overhead and profit percentage is.
If there ever was a project where the net decreased the cost below the original contract price, a good case could be made to pay the stated percentage on the original price. Since I never saw one go down in price after the award of contract, I have never had to wrestle with this problem. But all this is a matter of what is in the contract, and I would leave it up to the lawyers to decide theissue. |
John Bunzick, CCS, CCCA
Senior Member
Username: bunzick
Post Number: 246
Registered: 03-2002
| | Posted on Wednesday, July 28, 2004 - 06:04 pm: | |
I agree with Richard--the Supplementary Conditions should state the percentages, as determined by the Owner. But it's not that the overall contract may go down in cost, it's individual change orders, where the price of each is determined separately. Most projects do have a bunch of those. Anne is right that contractors try to use the persuasion that their cost of calculating change credits isn't covered for them for credits. But when it's stated clearly in the contract that O H & P is deducted on credits, I've never had any contractor challenge it. (Not successfully, anyhow.) Really, it only makes a significant difference when the credit is large. Plus, we all know that contractors can negotiate hard and add tiny amounts to cost estimates here and there to make it all up anyhow. |
Richard L. Hird P.E. CCS
Junior Member
Username: dick_hird
Post Number: 2
Registered: 02-2004
| | Posted on Wednesday, July 28, 2004 - 11:08 pm: | |
John: I agree that your up front statement is the best way to deal with the subject of OH&P credits on deducts. It is just that I usually see several changes aggregated in a single change order with OH&P calculated on the net. Either way, this works on normal changes in the work.
In the original posting of Lynn Jolley, he mentioned Guaranteed Maximum Price. This sounds more like a Construction Management or Design Build Agreement rather than a General Contractor Agreement. I wonder if he should be using AIA A 201 at all, and if his changes are totally different type than what we have been talking about. We have been talking about changes in the course of construction not in the course of a design effort.
Where “big” credits are involved, you cannot readily dismiss claims for loss of anticipated profit. The logic is that a Contractor did not pursue other projects in anticipation of his profit from your project. As Randall Cox stated above on the VA project, claims can be made for OH&P in termination of a contract and in fact is stated as a point of negotiation in AIA 201 termination procedures. If your changes are of such a nature that Contractor must switch a significant Subcontractor. Like a steel frame to a wood frame, I feel a claim for loss of profit by dismissed Subcontractors should be given fair consideration. |
Anonymous
| | Posted on Thursday, July 29, 2004 - 09:04 am: | |
Point of Parlimentary procedure: In South Florida, GMP contracts have become quite common for negotiated contracts with GCs. The last three big projects we've had, the owners went with a GMP with a shared savings clause. The Owners actually thought the contractors would not propose change orders with the GMP.....Ah, ha, ha, ha! |
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