Bruce A. Cohen
III.
• Document A111 allows owner to obtain benefits
of cost-plus and fixed price agreements
• Most prevalent contract form in use
• Often used when design not fully complete
• GMP akin to Not to Exceed Price
Bruce A. Cohen
206-287-9900
III.
…Continued
• Advantage to contractors − potential for
additional profit through shared savings
• Disadvantage − Financial complexity of
administration resulting from analysis of
contractor’s actual costs
Bruce A. Cohen
206-287-9900
Initial Issue
• Is GMAX contract right for the project?
Bruce A. Cohen
206-287-9900
Considerations
• Size of project vs. complexity of administration?
• Who will be administering project?
• Is price the most important objective?
Bruce A. Cohen
206-287-9900
• Other Notable Points
– A201 – 1997 is adopted by reference
– Approved and endorsed by AGC of America
– Similarity to Exhibit B Attachment to AIA DesignBuild Agreement
Bruce A. Cohen
206-287-9900
Scope Definition
Articles 1 and 15
• Article 1
– Contract Documents consist of:
• This Agreement, Conditions of the Contract
(General, Supplementary and other Conditions),
Drawings, Specifications, Addenda issued prior to
execution of this Agreement, other documents
listed in this Agreement and Modifications issued
after execution of the Agreement.
Bruce A. Cohen
206-287-9900
Scope Definition
Articles 1 and 15
… Continued
• References Article 15 for specific enumeration of
documents
• Document A111 takes precedence over
conflicting provisions of other contract
documents
Bruce A. Cohen
206-287-9900
Scope Definition
Articles 1 and 15
• Article 15 enumeration (15.1.1 - 15.1.6)
–
–
–
–
–
–
–
Document A111
AIA General Conditions A201-1997
Supplementary Conditions (as enumerated)
Project Manual (as enumerated)
Specifications (as enumerated)
Drawings (as enumerated)
Addenda (as enumerated)
Bruce A. Cohen
206-287-9900
Scope Definition
Articles 1 and 15
… Continued
• Article 15.1.7 − Other documents
– Examples include: contractor bid proposal, scope
inclusions and exclusions, GMAX budget
document, project schedule
• Articles 15.1.3 − 15.1.7 should be completed in
detail to define scope
Bruce A. Cohen
206-287-9900
Scope Definition
Drafting Issues
• Need to include and reference Article 15.1.7
documents which define the parties’ agreement,
i.e., schedule, scope inclusions/exclusions;
• Need to delete references to documents
referenced in the boilerplate but not used
• No order of precedence clause
Bruce A. Cohen
206-287-9900
Establishment Of Guaranteed
Maximum Price
Article 5
• Contract Sum = “Cost of the Work” plus
Contractor’s Fee
• Cost of the Work — Defined Term
• Contractor’s Fee — typically a defined
percentage of COW but can be lump sum
• Article 5.2.1 establishes GMP − costs in excess
borne by Contractor
Bruce A. Cohen
206-287-9900
Establishment Of Guaranteed
Maximum Price
Article 5
• Issues to Consider:
– Article 5.2.1 does not provide for contractor
participation in savings unless specifically
inserted
– Typical contractor participation 10−25%
– Without contractor participation in savings,
contractor lacks incentive to achieve project
savings
Bruce A. Cohen
206-287-9900
Establishment Of Guaranteed
Maximum Price
Article 5
…
Continued
• Strategies for dealing with incomplete design
– GMP within range to be finally determined when
design completed
– Set date-certain for design completion
Bruce A. Cohen
206-287-9900
Establishment Of Guaranteed
Maximum Price
• Issue to Consider:
– Pre-construction costs − Paid separately, as part
of GMP, or not at all
Bruce A. Cohen
206-287-9900
Changes
Article 6
• Negotiation and payment not as straightforward
as on fixed price contracts
• Adjustment to GMP = Adjustment to Project
Budget
• Contractor not necessarily paid full amount of
change order
Bruce A. Cohen
206-287-9900
Changes
Article 6
• Contractor’s actual cost + fee = amount paid to
contractor for the change
• Unspent budgeted amount becomes part of
project “contingency” and perhaps project
savings
Bruce A. Cohen
206-287-9900
Changes
Article 6
• Article 6.2 — Subcontract adjustments
computed
traditionally
• Article 6.3 — GMP adjustments computed
using
“Cost of the Work” + “Fee” instead
of overhead and profit
• GMP Adjustments are typically negotiated as
fixed-price change orders
Bruce A. Cohen
206-287-9900
Articles 7 and 8
• Articles 7 and 8, which define which costs are
and are not reimbursable, are the most
important clauses in the A111 document.
Bruce A. Cohen
206-287-9900
Articles 7 and 8
• Issues to Consider:
– Articles 7 and 8 definitions do not necessarily
mirror the parties’ expectations on the issue of
cost reimbursability
– Highly recommend the parties review and
negotiate the specifics of cost reimbursability up
front
Bruce A. Cohen
206-287-9900
Reimbursable Costs
Article 7
• Article 7.1 − Cost of the Work “shall include only
the items set forth in this Article 7”
– Items not set forth in Article 7 − Not reimbursable
• Article 7.1 − Rates shall not be higher than
“standard paid at the place of the Project”
Bruce A. Cohen
206-287-9900
Reimbursable Costs
Article 7
• Issues to Consider:
– Ambiguous standard
– Potential source of dispute at audit
– Owner protected by GMP and contractor’s
incentive to share in savings
Bruce A. Cohen
206-287-9900
Example of Dispute
Bellevue Tech Tower, LLC v. DPR Construction
January 10, 2005 (Div. I Unpublished)
• BTT was owner of project to construct high rise
office building in downtown Bellevue
• Property was former ARCO station
• 500 cu. yards of contaminated soil anticipated in
initial geotechnical report
Bruce A. Cohen
206-287-9900
• DPR was general contractor
• DPR solicited per ton unit prices from excavation
subcontractors for removal and disposal of
contaminated soil
• J.R. Hayes & Son was excavation subcontractor
• Hayes bid included unit price of $100/ton for
contaminated soil
Bruce A. Cohen
206-287-9900
• Additional contaminated soils continued to be
discovered
• Ultimately Hayes removed 44,200 tons at
$100/ton price ($4.4 million)
• Resulting cost overruns halted the project and
litigation ensued
Bruce A. Cohen
206-287-9900
• Owner claimed it was overcharged for the
contaminated soils removal based on the
“standard rate” clause of Article 7.1 which it
claimed was incorporated by reference into
Hayes’ subcontract
• Court granted summary judgment in Hayes’
favor on the basis that A111 was not specifically
incorporated by reference into Hayes’
subcontract
Bruce A. Cohen
206-287-9900
Reimbursable Costs
Article 7
• Wages and salaries of workers, supervisory and
administrative personnel stationed at the site
(Article 7.2.1 - 7.2.4)
Bruce A. Cohen
206-287-9900
Reimbursable Costs
Article 7
• Issue to Consider:
– Project manager or other administrative
personnel not stationed at site, portion of salary
attributable to project is not reimbursable
– Article 7.2.2 can be amended to include off-site
employee costs
Bruce A. Cohen
206-287-9900
Reimbursable Costs
Article 7
• Taxes, Insurance and Benefits (Article 7.2.4)
• Issue to Consider:
– Most contractors do not calculate or track labor
burden based on actual cost per employee
– Better practice − negotiate wage rates or agreed
burden percentage up front
Bruce A. Cohen
206-287-9900
Reimbursable Costs
Article 7
• Subcontractor costs (Article 7.3)
• Materials and equipment - (includes “reasonable
waste and spoilage”)
• Temporary facilities, machinery and equipment,
cost of transportation, hand tools
Bruce A. Cohen
206-287-9900
Reimbursable Costs
Article 7
• Issue to Consider:
• Rental rates for contractor-owned equipment
(Article 7.5.2)
• Subject to owner’s prior approval
• Difficult to calculate actual cost
Bruce A. Cohen
206-287-9900
Reimbursable Costs
Article 7
• Better practice − specifically negotiate rental
rates up front to avoid disputes over contractor’s
“costs” after the fact
• Attach equipment rental rate sheet or agree on
percentage of Blue Book rate
Bruce A. Cohen
206-287-9900
Reimbursable Costs
Article 7
• Debris removal, off-site storage, travel expenses
and site office expenses
• Issues to Consider:
• Computer rental, internet, pagers, cell phones,
other information technology not in existence in
1997 are not listed in Article 7.5.4
Bruce A. Cohen
206-287-9900
Reimbursable Costs
Article 7
• Better practice − Negotiate issue up front and
include costs intended to be charged to job but
not listed in Article 7
Bruce A. Cohen
206-287-9900
Reimbursable Costs
Article 7
• Article 7.6 − Miscellaneous Costs
– Highlights: insurance and bond premiums
sales taxes
permit fees
laboratory and testing services
royalties
lost deposits
relocation and temporary living
expenses
Bruce A. Cohen
206-287-9900
Reimbursable Costs
Article 7
• Issue to Consider:
• Per Article 7.6.2, sales tax is included in the
Cost of the Work and therefore the GMP
• Need to be clear whether Washington State
Sales Tax is included or excluded from GMP
Bruce A. Cohen
206-287-9900
Reimbursable Costs
Article 7
• Legal, mediation and arbitration costs are
reimbursable except when relating to ownercontractor dispute (Article 7.6.8).
• Issue to Consider:
• Legal fees for contractor-subcontractor dispute
are reimbursable.
• Should the owner be paying these costs?
Bruce A. Cohen
206-287-9900
Reimbursable Costs
Article 7
• Costs due to emergencies or to prevent
threatened damage (Article 7.7.2)
Bruce A. Cohen
206-287-9900
Reimbursable Costs
Article 7
• Major issue − Costs for repairing or correcting
damage on nonconforming work (Article 7.7.3)
– 7.7.3 Costs of repairing or correcting damaged or
nonconforming work executed by the Contractor,
Subcontractors or suppliers, provided that such damaged
or nonconforming work was not caused by negligence or
failure to fulfill a specific responsibility of the Contractor
and only to the extent that the cost of repair or correction is
not recoverable by the Contractor from insurance, sureties,
Subcontractors or suppliers.
Bruce A. Cohen
206-287-9900
Reimbursable Costs
Article 7
– Costs are reimbursable only if:
1.Not caused by contractor negligence or failure to
fulfill a specific responsibility of the contract; AND
2.Only to the extent costs are not recoverable from
insurance, sureties, subcontractors or suppliers
Bruce A. Cohen
206-287-9900
Reimbursable Costs
Article 7
– Narrow definition does not meet with most
contractors’ expectations on ability to use project
contingency
– Contractors should seek for broad reimbursability
of all costs as long as GMP is not exceeded
Bruce A. Cohen
206-287-9900
Reimbursable Costs
Article 7
• Example:
– Contractor agrees to pay flooring subcontractor
extra to prepare concrete surfaces
– Owner argument − must have been caused by
concrete subcontractor’s failure to perform its
contract
Bruce A. Cohen
206-287-9900
Reimbursable Costs
Example continued:
• Contractor argument − Concrete subcontractor’s
work not out of tolerance and more beneficial to
project and schedule to have flooring
subcontractor perform. Cost of managing the
work.
Bruce A. Cohen
206-287-9900
Non-reimbursable Costs
Article 8
• Wages of home office personnel
• Home office expenses
• Overhead and general expenses
• Rental costs of machinery and equipment
(except as set forth in Article 7.5.2)
Bruce A. Cohen
206-287-9900
Non-reimbursable Costs
Article 8
• Article 8.1.5 − Costs due to contractor,
subcontractor, supplier negligence
• Article 8.1.7 − “Any costs not specifically and
expressly described in Article 7”
Bruce A. Cohen
206-287-9900
Non-reimbursable Costs
Article 8
• Issues to Consider:
• Contractor − want to delete 8.1.5 and 8.1.7
• Article 8.1.7 − Contractor wants flexibility to
include project costs not enumerated (or
anticipated)
Bruce A. Cohen
206-287-9900
Progress Payments
Article 12
• Not straightforward because Document A111
attempts to incorporate actual cost analysis into
the process
• Basic Problem − Actual cost analysis on monthly
basis may be overly burdensome
– Monthly mini audit
– May be acceptable and appropriate for large
project
Bruce A. Cohen
206-287-9900
Progress Payments
Article 12
• Progress payments based on schedule of values
(Article 12.1.5) and/or actual costs
– Article 12.1.4
• Contractor required to submit payrolls, petty cash
accounts, invoices, etc., with each payment
application
Bruce A. Cohen
206-287-9900
Progress Payments
Article 12
– Article 12.1.6
• Percentage of completion is lesser of:
1.Percentage complete
2.Percentage of expense actually incurred compared to
share of GMP for portion of work
Bruce A. Cohen
206-287-9900
Progress Payments
Article 12
– Article 12.1.7.5
• Allows deduction by owner to cover shortfall from
analysis of previous month’s submission of cost
documentation
Bruce A. Cohen
206-287-9900
Progress Payments
Article 12
• Issue to Consider:
• Per A201, Architect is tasked to review and
certify progress payments
• Architect may not be suited to this detailed
financial analysis
Bruce A. Cohen
206-287-9900
Progress Payments
Article 12
• Alternate Practice:
– Schedule of values/percentage complete analysis
used to calculate monthly payments
– Contractor supplies owner with monthly cost
summary/job status report
– Audit of actual costs to occur only periodically or
at the conclusion of project
Bruce A. Cohen
206-287-9900
Progress Payments
Article 12
• Retainage
– Held only on contractor’s fee and subcontract
costs (Articles 12.1.7.3 and 12.1.8)
– Not held on any other general contractor costs
such as wages, materials and equipment (i.e.,
general conditions)
Bruce A. Cohen
206-287-9900
Accounting And Audit Rights/ Final
Payment
Article 12
• Article 12.2.3
– Owner’s accountants review and report on
contractor’s “final accounting” within 30 days of
delivery from the contractor.
• Issue: Contractor must submit its “accounting” as
prerequisite to review and final payment. Form of
“accounting” not specified or defined in the
contract.
Bruce A. Cohen
206-287-9900
Accounting And Audit Rights/ Final
Payment
Article 12
• Reimbursability issues often arise for the first
time during the audit if not addressed up front by
the parties
• Architect issues “Final Certificate for Payment”
within 7 days of accountant’s report
Bruce A. Cohen
206-287-9900
Accounting And Audit Rights/ Final
Payment
Article 12
• If disagreement over cost of the work, Contractor
must file demand for arbitration within 30 days of
receipt of Final Certificate for Payment (Article
12.2.4)
• If arbitration not demanded, Owner’s accounting
becomes “final and binding” on Contractor (See
Martel v. Bulotti, 138 Idaho 451 (2003)
• Article 11 − Contractor records open for audit for 3
years after final payment or longer as required by
law
Bruce A. Cohen
206-287-9900
Accounting And Audit Rights/ Final
Payment
• Other Notable Clauses
– Article 9 − Discounts and rebates accrue to owner
– Article 13 − Contractor receives full fee if owner
terminates for convenience
Bruce A. Cohen
206-287-9900
Accounting And Audit Rights/ Final
Payment
• Issue to Consider:
• Early termination for convenience due to
subsurface conditions would result in payment of
contractor’s entire fee
• Limiting fee recovery to a capped amount if
Owner terminates for convenience
Bruce A. Cohen
206-287-9900