1. 2 Solicitation and Procurement Process – Bidding on Public Jobs What do you need to do? Where are the squalls that might throw you overboard? 3.

Solicitation and Procurement Process – Bidding on Public Jobs What do you need to do? Where are the squalls that might throw you overboard? 3

Forms of Solicitation: What is right for your project? Firm Fixed Price Pros: – In some states, it is only option available. – Allows maximum competition (so, probably lowest price). – “tried and true” court precedents for interpretation, protests, mistakes. – Requirement for surety bond does some qualification. 4

Forms of Solicitation: What is right for your project? Firm Fixed Price Cons: – May end up with marginally qualified bidder. – Limited opportunity for constructive input from contractors. – Longest process, requires complete design. 5

Forms of Solicitation: What is right for your project? Cost Plus (something) – Generally has a guaranteed maximum price (“GMP”). – Could be cost plus a percentage of cost. – Could be cost plus a set fee. – Could allow for savings if cost less than GMP. 6

Forms of Solicitation: What is right for your project? Pros of Cost Plus: – Allows owner savings if comes in under GMP. – Avoids ‘padding’ by contractors to avoid risk. 7

Forms of Solicitation: What is right for your project? Cons of Cost Plus: – May violate state competitive bidding laws. – Harder to evaluate different proposals. 8

Forms of Solicitation: What is right for your project? Construction Management/At-Risk (“CM/At-Risk”): Owner hires Contractor to be agent/advisor in pre-construction phase, and at-risk contractor (generally with a cost+, guaranteed maximum price contract) during construction phase). 9

Forms of Solicitation: What is right for your project? Construction Management/At-Risk (“CM/At-Risk”): Generally involves requesting Requests for Proposals (RFP) from contractors, where owner and designer select group of contractors or specific past experience criteria, and invite proposals from them only. 10

Forms of Solicitation: What is right for your project? Pros of CM/At-Risk: – Lessen chance of award to unqualified contractor – not totally price-based. – Allows for more pre-screening. – Gets experienced contractor involved in pricing, design alternatives early. – Invites alternative ideas and solutions. – Can allow for fast-track construction, saves time and money. 11

Forms of Solicitation: What is right for your project? Cons of CM/At-Risk: – Less clear price comparisons. – Less clear definition of roles of designer vs. contractor. – Less court precedent for interpretation. – Not legally permissible in all jurisdictions. 12

Forms of Solicitation: What is right for your project? Construction Management/Agent (“CM/Agent”): Owner selects contractor to serve as its advisor and agent, for a fee and not to perform any work with its own forces. 13

Forms of Solicitation: What is right for your project? Construction Management/Agent (“CM/Agent”): Generally, all “trade” contractors contract directly with owner. CM acts as owner’s agent. 14

Forms of Solicitation: What is right for your project? CM/Agent - Pros: – CM has total allegiance to owner. – Owner pays fee to CM, not a mark-up on trade work, can be less expensive. – Owner gets benefit of CM’s expertise. – More likely permissible for public owners. 15

Forms of Solicitation: What is right for your project? CM/Agent - Cons: – Owner now holds contracts with many subs, is responsible for conflicts between them, gaps in scope of work. – Owner can’t look to CM to be financially responsible; what is the owner getting for money paid to CM? 16

Forms of Solicitation: What is right for your project? Design-Build – Owner hires one entity to be responsible for design and construction of project. 17

Forms of Solicitation: What is right for your project? Design-Build - Pros: – True one point of accountability. – Maximum opportunity for fast-track – fastest completion. – Maximum opportunity for creative options from proposers. – Generally only use short-list of qualified teams. 18

Forms of Solicitation: What is right for your project? Design-Build - Cons: – Not permissible in many jurisdictions. – May require payment of stipend to various proposers to cover some costs of proposals. – Inadequate representation for owner may result in end product not what owner wanted. – Hard to evaluate costs of one proposal vs. other. 19

Standard Form Contracts Some owner prefer to use form contracts developed by industry groups. Examples are: – American Institute of Architects (“AIA”) – has a fairly comprehensive list of contracts and forms that inter-relate. 20

Standard Form Contracts Some owner prefer to use form contracts developed by industry groups. Examples are: – Associated General Contractors’ (“AGC”) Consensus DOCS – supposedly endorsed by 17 construction organizations as an alternative to AIA. 21

Standard Form Contracts Some owner prefer to use form contracts developed by industry groups. Examples are: – Design-Build Institute of America (DBIA) – first documents specifically designed for design-build projects although now other organizations also have such documents. 22

Standard Form Contracts Some owner prefer to use form contracts developed by industry groups. Examples are: – Engineers Joint Contract Document Council (“EJCDC”) – designed for highway/heavy construction more than upright work. 23

Standard Form Contracts – All of these have biases and assumptions built in. – None of them is necessarily represented as complying with all state laws. – Someone on behalf of the client should review them and make appropriate modifications. 24

Individually Drafted Contracts Larger public owners with the staff, expertise and need, issue their own sets of contract documents, including bidding requirements, general and special conditions, insurance requirements and bond forms. – The “pro” of doing this is getting something that much better meets the needs of the owner, avoiding assumptions built into published form documents that are generic. – The “con” is that it takes much more time and expertise to generate such forms which might not be cost-effective if the user doesn’t do a large volume of construction work. 25

Supplemental and Special Conditions – The more different documents that have to be read together and integrated, the greater risk of error. – Physically integrating these “supplemental” or “special” conditions into the contract or general conditions, the better in the long run. 26

Supplemental and Special Conditions – Where these are used, it is essential to include an “order of precedence” clause to tell bidders which term controls in case of inconsistency 27

Ownership of Design and Documents What are your options? – Ownership of design (intellectual property) vs. license to use/reuse. – Ownership of documents (plans & specs) vs. right to retain copies. – Rights exclusive or non-exclusive? (Owner may not own design but no other customer of designer can use it). 28

Ownership of Design and Documents Traditional (AIA format): – Designer owns intellectual property (copyright). – Designer retains ownership of documents. – Designer grants non-exclusive right to owner to use for completion (only if designer found in default) and for maintenance/operation. – If designer not paid, license terminates. – Design can’t be used for additions or re-use on other projects. – Owner must indemnify designer for any re- use. 29

Ownership of Design and Documents Problems with “traditional” approach: – What if design is collaborative (Building Information Modeling – BIM)? – What if Owner does intend to replicate facility again? – What if designer is not around later to use? – Requires finding of fault (court verdict) before can re-use. – Limits use even for modifications in the future. 30

Ownership of Design and Documents Alternatives to “traditional” approach: – Owner owns design. – Owner allows designer non-exclusive right to re-use. – Owner does not own, but has exclusive right to use. – Owner does not own, but can re-use without prior finding of default. 31

Preparation of Bid Documents – Instructions to Bidders: what to include? How long bids must be kept open? – Generally, a minimum of 30 or even 60 days. – Longer than that may make it difficult for bidders to get vendor quotes that they can rely on. 32

Preparation of Bid Documents – Instructions to Bidders: what to include? Owner’s right to reject all bids or cancel or re-bid – To protect owner if not enough competition is obtained. – To allow owner to fix mistakes in the process without bidders asking for their bid costs or insisting on an award. 33

Preparation of Bid Documents – Instructions to Bidders: what to include? How questions will be answered – All bidders must get the same answers at the same time, and in writing. – To allow otherwise is to invite protests and problems. 34

Preparation of Bid Documents – Instructions to Bidders: what to include? That all addenda must be acknowledged – To avoid later claims that some bidders didn’t get the same information that others got. 35

Preparation of Bid Documents – Instructions to Bidders: what to include? Limitation on appropriated funds – If law limits your ability to award, or if the project may go over more than one fiscal year, such information should be included in the solicitation package. 36

Preparation of Bid Documents – Instructions to Bidders: what to include? Any prequalification criteria – If there are to be pre-qualification criteria, who will determine them? – Will there be a committee? If so, who selects them, and what are their qualifications? – Is there a conflict of interest disclosure requirement? 37

Preparation of Bid Documents – Instructions to Bidders: what to include? Any prequalification criteria – Much thought must be given to them, so that they can withstand court attack for restriction of right to bid. – They must be clearly expressed and limited to only what is necessary. – A paper trail justifying them should be maintained. – Who will be cut out by setting them? 38

Preparation of Bid Documents – Instructions to Bidders: what to include? When and how bids must be submitted – Exactly where (room number, not just “office”). – Exactly when (whose clock controls). – Exactly how (that bidder bears risk of using fax or Internet). 39

Preparation of Bid Documents – Instructions to Bidders: what to include? All forms that bidders must use – The more that the forms are given to the bidders, the less risk of bid protests or mistakes. – This includes contract forms, bond forms, insurance forms, tax-exempt forms, etc. 40

Preparation of Bid Documents – Instructions to Bidders: what to include? All evaluation criteria – If the owner reserves the right to “waive minor irregularities in bids” it must say so. – If the owner will use a weighted system with some aspects counting more than others. – If owner reserves the right to negotiate with low bidder. – That unbalanced bids will be rejected. 41

Preparation of Bid Documents – Instructions to Bidders: what to include? All protest procedures – If there is a particular administrative procedure required to be utilized, it should be stated in the bid documents. 42

Preparation of Negotiated Procurement Documents – what to include? All evaluation criteria – This is even more important for negotiations because there is more opportunity for appearances of impropriety. – Clear criteria for evaluation must be articulated up front. – Take time to “vet” them, to assure that they will stand up. – Make clear that the owner is reserving as much discretion to be flexible as possible (as your law will allow). 43

Preparation of Bid Documents – who is reviewing them for the owner? Are the plans and specifications consistent? Generally, a number of different firms are involved in a bid package. – Is the owner relying completely on a designer to do this, and if so, what is the contractual responsibility of the designer for the plans and specs? – Who on behalf of the designer is doing this coordination? 44

Preparation of Bid Documents – who is reviewing them for the owner? Do the contract documents unnecessarily incorporate industry codes? – Those codes were generally prepared by the representative contractors of their industries, and frequently impose duties on owners that may not be included in a project’s budget. 45

Preparation of Bid Documents – who is reviewing them for the owner? Do the “front end” sections contain legal terms that may not be what the owner asked for? – Most spec books contain a section “00700” or “00800” of general or special conditions. – These are typically boilerplate terms accumulated by the design firm. – They may not even comply with law. 46

Preparation of Bid Documents – who is reviewing them for the owner? Do the Technical Spec sections contain terms that are inconsistent with other contractual terms? – Mechanical, structural, electrical or other sub-consultants may use inconsistent terminology. – Warranty terms, definitions of substantial completion, etc. can appear in these sections and be at odds with other terms. 47

Preparation of Bid Documents – include the soils report or not? It is standard practice for project manuals to include a copy of the report obtained by the owner from a geotechnical firm. Generally, the report states that it is prepared for the exclusive use of the owner and cannot be relied on by others. Generally, the construction contract advises the contractor that it cannot rely on the geo-tech report and that it is “for information only.” 48

Preparation of Bid Documents – include the soils report or not? Pros of including soils report – It is generally impractical for multiple bidders to hire firms to go out and make borings on their own, in terms of time, cost and inconvenience to the owner. – The information is valuable to bidders who otherwise would have to guess, which means less reliable bids. – Most data is reasonably clear and reliable. – By adding a disclaimer, the owner can protect itself from liability for errors in the report. 49

Preparation of Bid Documents – include the soils report or not? Cons of including soils report – More courts are finding that an owner can’t furnish data to bidders for the purpose of taking risk out of their bids, and not be responsible for the accuracy of that information. INCLUDE CITES – If the geotech engineer has disclaimed liability to third parties, the owner will be responsible for errors in the report with no one to turn to. – Often, the owner did not pay the geotech engineer to do a “complete” analysis so reliance should be limited. 50

Preparation of Bid Documents – include liquidated damages or not? Virtually all courts will uphold the use of a daily, or hourly, rate used by a public owner to compensate for the failure of a contractor to complete on time – as long as it is reasonably calculated to approximate future damages and is not a “penalty” set just to incentivize a contractor to get done. It is, however, very easy to get this wrong. 51

Preparation of Bid Documents – include liquidated damages or not? Setting a rate with no effort to connect it to potential anticipated costs/loss. – Some courts and regulations (such as federal regs) require that there be an actual calculation of the anticipated costs of late completion – including items such as hold- over rent, storage costs, extra financing costs, inspection fees, re-inspection fees, staff time, etc. 52

Preparation of Bid Documents – include liquidated damages or not? Setting a rate with no effort to connect it to potential anticipated costs/loss. – While courts often give deference to public needs that cannot be easily quantified (the value of inconvenience to the public of a roadway torn up), at some point the amount is so great as to get you in trouble. – Many public owners use a sliding scale of liquidated damages based solely on the amount of the contract. This is problematic as it has no logical tie to the damage for late completion of the particular project. 53

Preparation of Bid Documents – include liquidated damages or not? Setting a rate that does not reflect all potential damages. – Care should be taken with the language of the liquidated damages clause. If there are potential damages from late completion beyond extra construction costs, the clause should be drafted to limit its coverage to just the construction costs. 54

Preparation of Bid Documents – include liquidated damages or not? Setting a rate with no effort to connect it to potential anticipated costs/loss. – Some courts and regulations (such as federal regs) require that there be an actual calculation of the anticipated costs of late completion – including items such as hold- over rent, storage costs, extra financing costs, inspection fees, re-inspection fees, staff time, etc. 55

Preparation of Bid Documents – include liquidated damages or not? Setting a rate that goes on past substantial completion. – Substantial completion is defined as the point at which the owner could use the work for its intended purpose, even if it is not totally complete (i.e., the plants are not all in). 56

Preparation of Bid Documents – include liquidated damages or not? Setting a rate that is the same before and after substantial completion. – Liquidated damages at the same rate that go on past the date when the owner can use the project probably won’t hold up past the date of actual substantial completion. 57

Preparation of Bid Documents – include liquidated damages or not? Setting a rate that goes on at the same rate despite partial occupancy. – Owners frequently overlook this in deciding to take partial occupancy of a project, yet courts will not enforce the same rate for use of only part of a project as was agreed for all of it. 58

Preparation of Bid Documents – include liquidated damages or not? Setting rates for milestone dates prior to substantial completion. – Again, the problem is lack of logic to tie this to damages arising from lack of meeting a milestone. – If the milestone is getting one building in a complex operating so that it can be occupied, the liquidated damages will probably hold up. – If the milestone is just being 50% done by a set date, it probably will not. 59

Preparation of Bid Documents – include liquidated damages or not? Imposing cumulative liquidated damages for different dates. – It is possible, but difficult, to justify this as other than a penalty to encourage completion. How much more revenue is lost on the 31st day than was lost on the 30th day? 60

Preparation of Bid Documents – how to handle inspections Virtually every public project requires inspections for billing/payment purposes, for permit/licensure purposes and for contract compliance purposes. 61

Preparation of Bid Documents – how to handle inspections Since the owner is paying for these inspections, it has the right to make sure that they are done right, done timely and that their results can be relied upon. 62

Preparation of Bid Documents – how to handle inspections Frequently, third-party inspections are an after-the-fact addition to the project, handled by a phone call or purchase order with few terms and conditions. 63

Preparation of Bid Documents – how to handle inspections To protect the owner, the agreement should cover: – Liability for mistakes in approvals or disapprovals. – Liability for failure to make timely inspections that hold up work. – Definition of who has responsibility and authority for stopping work. – Qualifications of persons doing the inspection work. 64

Preparation of Bid Documents – how to handle surety bonds All surety bonds are NOT alike. It is in the owner’s interest to specify the form of bonds it will require the contactor to supply. 65

Preparation of Bid Documents – how to handle surety bonds AIA form performance bonds, for example, are difficult to actually force a surety to honor. Many steps must be followed before they can be enforced. 66

Preparation of Bid Documents – how to handle surety bonds It is in the owner’s interest to tailor a bond form to meet its needs, within the parameters of state law, and make that form part of the bid documents. 67

Preparation of Bid Documents – how to draft insurance requirements Insurance is one of the most complicated areas of law today – particularly for construction. 68

Preparation of Bid Documents – how to draft insurance requirements Many sets of “boilerplate” insurance requirements included in bid documents (particularly if inserted by design professionals) are not appropriate to a particular project. 69

Preparation of Bid Documents – how to draft insurance requirements – Is the terminology current? – Does the document reference ISO forms that are currently in use or withdrawn? – Does the document require coverage that cannot be obtained or are prohibitively expensive? – Is the additional insured endorsement appropriate? 70

Preparation of Bid Documents – how to draft insurance requirements The owner’s insurance advisor should be asked to prepare appropriate insurance requirements for each job (if only to confirm that the existing ones are still appropriate). They are the experts and this is what they do every day. 71

Preparation of Bid Documents – use of alternates Often designers include a list of possible additions or deletions from the scope of work that the contractors are asked to separately price. 72

Preparation of Bid Documents – use of alternates Pros of using alternates: – Allows flexibility to add work if all prices come in under the owner’s budget. – Allows flexibility to delete work if all prices come in over the owner’s budget. – Allows owner to mix and match to come up with “best value” package of items. – Pre-prices work items that might later be added as changes. 73

Preparation of Bid Documents – use of alternates Cons of using alternates: – Risks violation of competitive bidding laws if clear advance criteria for selection of alternates is not stated to bidders. – Not always easy to evaluate, leads to protests. – Not a good substitute for good advance price estimating. 74

Preparation of Bid Documents – use of unit prices Often designers include a list of items to be bid on unit price basis. 75

Pros of using unit prices: – avoids inflating bids if some items (such as rock removal) end up not being needed Not always easy to evaluate, leads to protests. – Avoids disputes later as to appropriate pricing of such extras. – Can be drafted to allow adjustment if quantities vary significantly (Variation in Estimated Quantities (“VEQ”) clause). Preparation of Bid Documents – use of unit prices 76

Cons of using unit prices: – Makes it harder to evaluate different bidders. – Can become a substitute for good estimating by designers. – If not drafted well, can end up with a windfall for one party or the other if quantities vary significantly (i.e., no VEQ clause). Preparation of Bid Documents – use of unit prices 77

Advertising for bids/soliciting proposals – where? – State law or regulation often dictates type of publication in which the procurement must be advertised. – If MBE/WBE participation is desired, specialty publications may be suggested. 78

Advertising for bids/soliciting proposals – when? – State law or regulation often dictates how many times or for how long the advertisement/solicitation must run. – This has to be built into the schedule. 79

Advertising for bids/soliciting proposals – how? – How much information needs to be in the advertisement? – The law may even say what size type must be used. – The goal is to maximize response. 80

Advertising for bids/soliciting proposals – when can it be canceled? – State law or regulation often dictates how many times or for how long the advertisement/solicitation must run. – This has to be built into the schedule. 81

Pre-bid Questions – Assume that there is no perfect set of documents, and that there will be questions. – Assure that all questions and all answers are shared with all bidders. – Requiring all bidders to attend mandatory pre-bid meetings, where all hear the same questions and get the same answers is generally helpful. 82

Pre-bid Questions All employees, agents, designers, CMs, etc. must be instructed that they cannot under any circumstances give information from one bidder that is not given to all, and that it all has to be in writing. 83

Issuance of Addenda This is the proper way to document clarifications and changes to the original bid documents. 84

Issuance of Addenda After the documents are “final” for bidding, it is helpful to ask the designer to incorporate the addenda into the original documents so that there is a set which is “complete” and nothing is overlooked. 85

Selection of Contractor: Responsibility vs. Responsiveness Responsibility refers to the qualifications of the bidder/offeror. – Has it previously defaulted on a project? – Is it properly licensed? – Did it submit proper bonds? – Does it meet the owner’s business integrity standards? 86

Selection of Contractor: Responsibility vs. Responsiveness Selection of Contractor: Responsibility vs. Responsiveness Responsiveness refers to the whether the bidder/offeror completely and appropriately submitted its bid or offer. – Did it qualify the bid? – Did it fill out all paperwork? – Did it acknowledge all addenda? 87

Selection of Contractor: Opening Bids – for publicly bid, firm fixed price contracts, transparency and public action is key. – Oral announcements should be recorded. – Paperwork retained in secure files. 88

Selection of Contractor: Opening Bids All required documentation must be carefully reviewed – Were all appropriate forms signed? – Were all appropriate forms used? – Are there any mistakes or qualifications which require rejection of a bid? – Are there any mistakes which allow withdrawal of a bid? – Does the bid appear to be “unbalanced”? 89

Selection of Contractor: Negotiating with Offerors Unlike open bids, negotiation sessions with offerors on cost-plus or design-build projects are confidential. Often, this is why they are not allowable under some state law. Where it is allowable, precautions must be taken to protect work product and proprietary information. Staff and consultants must be apprised of their duty of confidentiality. 90

Selection of Contractor: Negotiating with Offerors Generally, a committee will be assembled to negotiate and ultimately select the successful offeror. Care needs to be taken in the selection of committee members, for balance of expertise/skills brought, and avoidance of potential conflicts of interest. 91

Selection of Contractor: who makes the final decision? Generally, your public body must do this in formal session. It can be on recommendations of staff and committee. Be prepared for questions at public session – this is often their last chance to upset a proposed award. 92

Bid Mistakes – how they arise State law or local ordinance may dictate, but generally mistakes generally fall into one of two categories: – Clerical errors are ones that are obvious from looking at the bid – a list of line item prices doesn’t add up right. – Errors of judgment are not obvious (other than the fact that price might seem low (underestimated length of copper needed). 93

Bid Mistakes - remedies State law or local ordinance may dictate, but generally: – There is more leeway to allow a bidder to withdraw a bid than to correct it. – Mistakes that are clerical and obvious on the face of the bid are easier to allow to be corrected than those which are not obvious. – Mistakes that are errors of judgment cannot be corrected. – Where the fact that an error has occurred is “obvious,” it may be incumbent on the owner to ask the bidder to confirm its bid or withdraw it. 94

Bid Protests – how they arise Someone who is not low feels that the low bidder/offeror did not meet all the requirements. Someone who is low but was not accepted may feel that he/she was improperly rejected. The protest can be over the criteria for selection (ambiguous requirement, sole-source item), in which case it may be required to be lodged before bid time. Or the protest can be over the selection process, in which case it may not be possible to be lodged until the bids are opened or the successful offeror is chosen. 95

Bid Protests – how they are resolved Most states require the protestor to have standing – may require a taxpayer. Protests may have to go through an administrative process, or may require application for a court injunction. Often, the protest must be lodged before an award is made. Sometimes, a protest can require cancellation of a contract after award is made, which can be costly. Mere fact that a mistake was made does not mean that the next low bidder will automatically receive an award. It may be better for the public entity to cancel the process and re-advertise with corrected data. 96

Bid Protests – how they are resolved When protests arise, it is typical for the protesting party to request records associated with the procurement. Generally, these will fall within the criteria for an open records request under state law. It will be important that all work papers are retained in the event of a protest. 97

CPM Scheduling 101 : Your Project GPS System What are the basics CPM Scheduling? How do I buy this navigation system? – CPM schedule specifications Is the contactor’s navigation plan acceptable? – Reviewing a contractor’s schedule How will I know when I am off course? – CPM scheduling problem indicators How will this navigation system help to explain what happened when I arrive at my destination late? – CPM delay evaluation techniques 99

CPM Scheduling 101 Construction schedule purposes include: – Layout and communicate the plan – Compel timely action – Status progress to date – Forecast events – Document history and measure performance 100

CPM Scheduling 101 – How do you create a CPM schedule? To create a CPM schedule you need to define: The various work activities Activity Descriptions How long it will take to do each activity Durations How often the work will be done Calendars The chosen or required sequence of work Relationships or Logic What date we are scheduling from Data date 101

CPM Scheduling 101 – What’s Different about a CPM Schedule? The earliest possible time you can start and finish an activity Early Start, Early Finish The latest possible time you can start and finish each activity without delaying the project Late Start, Late Finish If there is more time than needed to do an activity, how much extra time there is ……………………….Float or slack time……………………… What chain of activities has the least amount of float The Longest Path The Critical Path has zero float When your project is expected to finish Completion date 102

CPM Scheduling 101 Relationships: a closer look Finish to Start (FS) Start to Start (SS) Finish to Finish (FF) Frame Walls Drywall Frame Walls Drywall Frame Walls Drywall 103

CPM Scheduling 101 Float and the Critical Path Float - Measurement of time indicating how late any activity or group of activities in a schedule can be completed without impacting the critical path and end date of a project. The longest path / critical path dictates the earliest possible completion Foundation, Backfill, Rough Grade Framing Roof and Siding Finishes Cleanup, Seed, Finish Project Plant Trees 104

Float “Ownership” & Critical Delay Who has the right to deplete float without consequence? – What does the contract say? – Ownership is shared - Float can be depleted by any party on a first come first serve basis. Why is the right to use float important? – Delays that consume available float do not delay the project completion. Delays to activities on the critical path (“critical delays”) extend the project duration. 105

Buying CPM Schedule Services Cost Estimated CPM schedule baseline preparation and updating cost. Additional cost to municipality may be small because CPM scheduling may be already be part of a contractor’s project controls. Cost to review – If in house expertise is not available, ask for CPM scheduling expertise with owner’s rep services or hire a consultant. Construction Cost0.30%0.60% $ 10,000,000.00 $ 30,000.00 $ 60,000.00 $ 20,000,000.00 $ 60,000.00 $ 120,000.00 $ 40,000,000.00 $ 120,000.00 $ 240,000.00 $ 60,000,000.00 $ 180,000.00 $ 360,000.00 $ 80,000,000.00 $ 240,000.00 $ 480,000.00 $100,000,000.00 $ 300,000.00 $ 600,000.00 108

CPM Scheduling 101 Software Primavera - Oracle – Primavera P6 Enterprise Project Portfolio Management Primavera Contractor 6.1 – Primavera P3 Project Planner ($4,000) – Primavera SureTrak ($700) – Primavera 5.0 for Engineering & Construction Primavera Contractor Microsoft – Project 2007 Professional ($1,000) – Project 2007 Standard ($600) 109

Buying CPM Schedule Services Specifying What You Want Scope of work, materials, quality control, methods of payment. Important provisions affecting schedule quality and usefulness. – Minimum scheduler qualification requirements – Level of detail (Maximum $ value or durations, one trade / activity) – Narratives – Get the electronic data Important ground rules to address. – Timing of submissions – Remedies for late CPM submissions – Inclusion, timing and duration of owner/third party work – Early completion schedules – Float ownership – Mitigation of delays – Weather delays – Recovery schedules 110

Checking the Contractor’s Navigation Plan Baseline Schedule Review Like physical work, CPM also needs to be reviewed / inspected – Quality control – Information that is documented and communicated IMLA Baseline Schedule Review Checklist 111

CPM Schedule Storm Warning Signs Late baseline schedule submission / approval. “The project started 10 months ago and we still don’t have an approved baseline schedule.” “ The contractor has told us we delayed the project, but we think the issue we are responsible for was not critical. We are waiting to receive the contractors schedule update to see what the completion date status is.” 112

CPM Schedule Storm Warning Signs Submittal issues – Start of work in the field not reflective of submittal and procurement realities – Submittal delays, revisions and resubmissions Submittal prep delays due to changes or design E/O’s Submittal lacks information required by contract Submittal indicates a deviation from the contract Submittal rejected by A/E asking for more Extended submittal review time due to other related submittals that are needed to perform a review 113

CPM Schedule Storm Warning Signs Float depletion Pen and paper progress “According to the previous schedule, the contractor was supposed to have this critical item of work done last month. Over a month has passed, the critical work is not done and the new, most recent schedule shows project will be completed on time” How its done: overlap, calendar changes, duration changes Side effects include – More critical work – Increased resource demands – Higher risk of delay situation – Possible unreasonable schedule Review schedule, ask questions, document concerns, monitor work carefully 114

CPM Schedule Storm Warning Signs Historical production on key work activities lower than planned. Example: Check forecasted production, ask questions, document concerns and monitor actual production. OD = 100 Days 50 Days in, only 25 days of work done Assume actual rate of progress maintained 150 days left to go Default condition of P3 Assume planned rate of progress is achieved for remaining work 75 days left to go 200 days 125 days 115

CPM Schedule Storm Warning Signs Insufficient Resources – Compare and document required resources versus actual supplied resources. – How do we know what resources are needed? CPM software has feature to plan resource usage. – Resource loaded schedule Have the authority to require contractor to submit its resource plan. Independently evaluate resource needs. – Compare and document required resources versus supplied resources. 116

CPM Schedule Storm Warning Signs Impending calendar impacts Planned Schedule Data Date = 10/16/02 Paving not allowed Dec. – Mar. Projected Completion = 12/27/02 No Paving – Dec. – Mar. 118

CPM Schedule Storm Warning Signs Schedule update on 10/31/02 Sub grade and sub-base construction is 5 days behind Projected Completion = 5/2/03 No Paving – Dec. – Mar. Late projected completion of sub grade pushes paving 1 day into December Projected completion is months later! 119

CPM Schedule Storm Warning Signs Defective work and rework Subcontractor no shows Material shortages, delayed delivery Management turnover Excessive RFI and changes 120

Late Destination Arrival Goals of Delay Evaluations What caused the project to finish late? For all the various causes, how much delay is associated with each cause? Only delays on the critical path at the time of delay can extend the project duration. With entitlement evaluation, the type of delay can be indentified for each cause. 121

Late Destination Arrival Types of Delays: – Non-excusable / Non-compensable – Excusable / Non-compensable Concurrent delays – Compensable – Pacing Delay Delay evaluation, together with entitlement and damage evaluation will determine who pays what for the delay. 122

Late Destination Arrival Delay evaluation techniques: – Total time approach – Impacted as planned AKA “What If” – But for evaluation AKA “Collapsed As Built” – Contemporaneous period analysis AKA “Time Impact Analysis”, “Windows Analysis” 123

Late Destination Arrival Total Time Approach Subtraction of planned duration from actual duration. Summation of “delays” without regard to criticality. Usually accompanied by a narrative describing all the alleged problems that created delays. 124

Late Destination Arrival Total Time Approach Advantages – Easy to do & can be done by layperson – Prove me wrong approach Disadvantages – Criticality of delays not analyzed/considered – Project schedule not considered – Contractor delays not considered 125

Late Destination Arrival Impacted As Planned Approach “As-Planned” CPM schedule used as the baseline to measure project delays. As-planned schedule is compared to an “as-built” schedule to identify project delays. The as-planned CPM schedule is “impacted” by inserting the delays of the owner into the planned CPM schedule. The length of owner-caused delay is calculated by comparing the project completion date of the as- planned schedule to the impacted as-planned schedule. 126

Late Destination Arrival Impacted As Planned Advantages – Relies on a project schedule Disadvantages – Assumes the as planned schedule was reasonable – The IAP schedule does not consider the actual performance of all the parties The impacted as planned schedule is a theoretical schedule Assumes baseline logic was followed Assumes no delay mitigation Does not consider contractor delays Non critical delays can be represented as delaying the project 127

Late Destination Arrival “But for” Approach An ‘as-built’ schedule is used as the baseline to measure project delays. Delays are identified by comparing the as-built to the as-planned CPM schedule. The as-built schedule is “collapsed” by adding logic, deleting the delays of the owner and using the CPM software to generate a but-for schedule. The length of owner-caused delay is calculated by comparing the actual completion date to the completion date of the collapsed as-built or but-for schedule. 128

Late Destination Arrival But For Analysis Advantages – Uses an as built CPM schedule Disadvantages – The project must be complete – There are many analyst determinations that can be subject to manipulation and error – The CAB schedule is a hypothetical schedule – Does not identify concurrent delay without further analysis – Does not apportion delay to periods or issues without further analysis – Difficult to relate analysis to issues 129

Late Destination Arrival Contemporaneous Period Analysis Breaks the construction period into discreet time periods and examines the impact of delays that occur during that period. Compares the CPM schedule at the beginning of each period to the CPM schedule at the end of the period. Examines each period and allocates responsibility for delays by period. If appropriate, adjusts allocation in later periods to reflect actual events. The allocation of individual discreet delays sums to the overall project delay. 130

Late Destination Arrival Contemporaneous Period Analysis Advantages – Can evaluate delays as they occur during an ongoing project – Evaluates delay in the context of the schedule existing at the time of the delay – Can evaluate concurrent delay – Incremental, period by period basis make it easy to explain 131

Recognize the Warning Signs: Is the project taking on water? Have project delays threatened the contractor’s ability to complete the project? Is the contractor in danger of default or experiencing cash flow/credit problems? Is the contract unable to complete the project because of inexperience? 133

Is it time to default the contractor? Is it time to notify the completion surety? This is a critical point in the project. If you don’t take the proper corrective action, the project might just well sink. You will need strategies to deal with sureties to get the project back to smooth sailing. 134

Remember: 1.U-Gotta-Believe (“UGB”) is an inexperienced contractor. 2.UGB’s $60 Million Bid is the same amount as has been appropriated for the project and there’s no reasonable anticipation that additional funds will become available. 3.The project was estimated as costing up to $80 Million to complete. 4.There are numerous factors present which may well have delayed the project: the project site is contaminated and requires remediation; there is a existing lawsuit based on the contamination; there is an existing DEP consent order; a U.S.A.C.O.E. permit is required before dock work can be performed; there are issues with an endangered species (Shortnosed Sturgeon); there is a right-of-way dispute; there is the potential for an injunction arising out of noise-related activities. 135

Contractor’s Default: (What to do before declaring the contractor in default) 1.Investigation Before Default 2.Notice to Cure – Default Notice 3.Surety Issues 4.Turnover Agreements 136

Investigation Before Default (Owner’s and Contractor’s Actions) Has the Owner complied with the terms of the contract? Has the owner properly administered the contract? Has the owner complied with the terms of the completion bond? 137

Investigation Before Default Has the owner regularly inspected the contract work? Has the owner maintained project records and other documents to support its claim that a material default has occurred? How has the owner documented the contractor’s performance and non- performance of the work during construction? 138

Investigation Before Default If the owner has hired an independent third- party project manager, does that project manager agree that a material default has occurred? What, if any, documents support the owner’s position that a material default has occurred? Has the contractor complied with the terms of the contract? 139

Investigation Before Default What specific sections of the contract have been breached by the contractor? Is this a material breach? Are there any architect and/or engineering reports which support the owner’s position that a material default has occurred? Are there any pending disputes between the contractor and its subcontractors and/or suppliers? 140

Investigation Before Default Did the owner pay a subcontractor or supplier after notice of such a dispute? Did the owner accept subcontractor work or material from suppliers without review of that work or material by the contractor or accept the work and/or material without the contractor’s consent? Did the owner directly pay a subcontractor or supplier, after notice of a dispute between the contractor and the subcontractor or supplier, without the consent of the contractor? 141

Investigation Before Default Did the owner directly pay a subcontractor or supplier, after notice of a dispute between the contractor and the subcontractor or supplier, without the consent of the contractor? Are there problems with the plans and specifications that the owner prepared or were prepared, at the owner’s request by a third-party architect/engineer? 142

Investigation Before Default Has the owner made demands on the contractor that is inconsistent with the terms of the contract? Have there been other contractor defaults on the project and, of so, how were they resolved? Has the owner waived any previous defaults on the project by the contractor? 143

Investigation Before Default Did the owner notify the surety and obtain its written consent to the waiver of these defaults before continuing with the project? Have any representatives of the owner made admissions against the interests of the owner? What statements, if any, have the architect/engineer made to the contractor and subcontractors regarding the performance of the contract and the construction of the project? 144

Investigation Before Default Has the owner timely paid the contractor for accepted work? What change orders and field orders were approved by the owner, the project manager, and/or the architect/engineer? What effect, if any, did change orders and field orders have on the scope of work, contract time, contract sum, the project schedule and the contractor’s ability to perform the contract? 145

Investigation Before Default Are there unresolved pending change orders that are interfering with the contractor’s performance? Have there been an excessive number of change orders? Have there been an excessive number of requests for information made to the architect/engineer? 146

Investigation Before Default Have there been material changes to the scope of work to be performed by the contractor? Did these changes in the scope of work amount to a “Cardinal Change?” Have there been changes to the contract time or the contract sum? Did then owner notify the surety and obtain the surety’s prior written consent before modifying the scope of work, the contract time or the contract sum? 147

Investigation Before Default Do the bonds waive notice to the surety of changes in the scope of work, contract time and contract sum? Has the owner taken any actions that impair the surety’s rights, including the surety’s right of equitable subrogation? 148

Notice to Cure – Default Notice a.Notice to Cure (1)Content (i)timing (ii)cure requirements (iii)partial vs. complete cure (iv)material vs. non-material breach (v)surety’s involvement 149

Notice to Cure – Default Notice b.Default Notice (1)content (2)timing (3)surety’s involvement (4)recovery schedule – acceleration 150

Surety Issues a.Release, Extension or Modification of the Contract (1)release of the contractor discharges the surety (2)extension of time (3)modification of the contract (underlying obligations) (4)consent by the surety 151

Surety Issues b.Impairment of the surety’s right of equitable subrogation c.Owner’s interference with the surety’s rights under the bond 152

Turnover Agreements a.Form and Contents (1)Who is going to do the work? (i)A new contractor? (ii)A former contractor? (iii)Will the surety self-perform? 153

Turnover Agreements b.Obligations c.Important Terms d.Issues in Restarting the Project (1)timing (2)permits (3)subcontractors and suppliers (4)encumbrances on the project funds (5)Investigations 154

Bankruptcy What is it? What does it mean to the Debtor/Contractor? What does it mean to the Owner? What does it mean to the Surety? What does it mean to the Subcontractors? 156

Pre-bankruptcy Issues Insolvent Contractor – The Signs of Distress – Cash flow problems – Contractor failing to pay subcontractors on time – Payment bond claims made by subcontractors – Lack of progress – work is behind schedule – Reduction of workers on the project – Contract Quality Control (CQC) issues – Lawsuits against Contractor – Lender involvement in day to day affairs – Surety involvement in day to day affairs – Subcontractors refusing to work – Suppliers refusing to provide materials to Contractor 157

What is bankruptcy? What is the policy behind bankruptcy? What is the effect of filing bankruptcy What is the “Order for Relief” What is the “Automatic Stay” Bankruptcy 101 - Fundamentals 158

Debtor (DIP?) Debtor’s counsel Creditors Equity security holders The Official Committee of Unsecured Creditors United States Trustee Panel Trustee Internal Revenue Service State and local governments Third-party professionals hired to perform services for the debtor, e.g. accountant, auctioneer, turn-around expert, etc. Who Are the Players and Their Roles? 159

Chapter 7 - Liquidation of assets Chapter 13 - Consumer reorganization Chapter 11- Individual and business reorganization Chapter 12 - Farm reorganization Available Bankruptcy Relief 160

Debtor “Fresh Start” 11 U.S.C. §727 discharge. Debtor’s assets liquidated to pay creditors. State and Federal exemptions allows the debtor to retain certain personal and real property. Trustee appointed to administer assets. Debtor loses control over assets, except “exempt” or “abandoned” assets. Chapter 7 - Liquidation of Assets 161

Chapter 7 Liquidation What does it mean to the project? – Delay – Additional cost – Another contractor will have to finish the project Effect on debtor/contractor. – Debtor is out of business Effect on owner. – Surety becomes the only recourse for owner Effect on surety. – Surety liable under the performance and payment bonds with limited recourse against the debtor – May or may not be a secured creditor depending on the agreement between the surety and the debtor 162

Chapter 11 Reorganization Debtor’s intent is to reorganize its debts to allow the continuation of the business. Debtor in control of company as a debtor in possession. Debtor will have to address the payment of secured and unsecured creditors in its Plan of Reorganization. Chapter 11 allows the debtor to assume or reject executory contracts. Chapter 11 allows the assignment of contracts to third parties. Debtor will have to address credit facilities. Debtor will have to deal with obligations to sureties. 163

Chapter 11 Reorganization What does it mean to the project? Effect on debtor/contractor Effect on owner Effect on surety 164

What Gets Filed? Petition Schedules Statement of Financial Affairs Corporate resolution List of creditors Anything else required by local bankruptcy court rules Who prepares bankruptcy documents? 165

When Contractor Files Bankruptcy – What the Owner Needs to Do Need to gather information about the bankruptcy case. Review the Petition, Schedules, Statement of Financial Affairs and other documents filed in the case. Attend the first meeting of creditors. 11 U.S.C. §341. The Trustee normally will permit the creditors to question the debtor about the bankruptcy case and about the creditor’s specific claim. If the questioning will be lengthy, relates to complex transactions or allegations of fraud, the creditor may have to request permission from the Bankruptcy Court to conduct a thorough examination of the debtor pursuant to F.R.B.P. 2004. What is the “Press” and “Public” saying about the contractor? Why did the contractor file bankruptcy? – What are the contractor’s stated reasons? – What are you hearing on the street? 166

During Bankruptcy – What the Debtor Needs to Do Role of Debtor in Possession – Firm up relationships with secured creditors – Negotiate a cash collateral order with secured creditors to continue to use cash to pay the debts of the business – Secure additional financing for reorganization Third party lender financing Insider loans or capital contributions – Determine how to deal with prepetition debts – Pay post-petition debts in ordinary course of business – Negotiate the amount of payout under a Plan of Reorganization to unsecured creditors – File adversary proceedings seeking to recover preference payments to creditors or fraudulent conveyances to third parties – File contested matters dealing with the treatment of creditors’ claims, executory contracts, determination of secured claims and other “core” matters – Cure defaults under executory contracts – Litigate the wrongful termination of a construction contract? 167

During Bankruptcy – What the Trustee Needs to Do Role of the Trustee – Ensure that the Debtor files quarterly statements with the United States Trustee and makes the required quarterly fee payments – Ensure that the Debtor files monthly operating reports with the Court – Look out for the interests of the unsecured creditors – Move to convert the Debtor’s Chapter 11 case to a Chapter 7 case – Move to dismiss the bankruptcy case in the event the Debtor fails to follow the Bankruptcy Code and Rules, the Debtor has failed to confirm a Plan of Reorganization 168

What are the administrative issues in the bankruptcy case? Cash collateral Payment of disputed claims Debtor financing Executory contracts under 11 U.S.C. §365 Automatic stay issues under 11 U.S.C. §362 – What actions constitute violation? – Penalties for violation Confirmation of reorganization plan Implementation of reorganization plan Continuing jurisdiction post-confirmation 169

What are the surety’s issues in bankruptcy case? Retainage held by owner subject to claims by surety. – Surety’s right of equitable subrogation. – Surety that undertakes the performance of the debtor’s contract obligations is entitled to the remaining contract sum from the owner. – In Pearlman v. Reliance Ins., Co., 371 U.S. 132, 137 (1962), the Supreme Court held that if a surety that completes a project, the surety is subrogated to the rights of the debtor in the remaining contract funds. – The Supreme Court further held that the surety’s right of subrogation was unaffected by the bankruptcy case and that the remaining contract funds were not property of the bankruptcy estate (11 U.S.C. §541). 170

What can an owner do if the debtor’s bankruptcy case is failing to progress – The debtor has not filed a Plan of Reorganization? Motion to convert the debtor’s Chapter 11 bankruptcy case to a Chapter 7 liquidation. – How does this happen? – Who has standing to bring a motion to convert the debtor’s bankruptcy case? – What needs to be shown to convert the case? – Benefits and detriments to converting a bankruptcy case. Motion to dismiss the debtor’s case to a Chapter 7 liquidation. – Bankruptcy Code limits the grounds to file the motion to dismiss. 171

Confirmation of the Plan of Reorganization What is the Confirmation Process? – “Exclusivity Period”  Debtor has 120 days from filing Petition to file a Plan of Reorganization (11 U.S.C. §1121).  Thereafter it is “open season” for creditors to file their own plans, including liquidating plans.  Debtor that does not file their Plan during the exclusivity period must deal with efforts by creditors and/or the United States Trustee to convert its case to a Chapter 7 liquidation or it may have to deal with a creditor’s plan that calls for a reorganization of the Debtor’s business that is unacceptable to the Debtor. 172

Confirmation of the Plan of Reorganization Disclosure Statement (11 U.S.C. §1125) – Selling the Plan of Reorganization. – The debtor’s promises. – Influence over the contents of the Disclosure Statement. – Negotiations with creditors and parties in interest. – Court’s approval of the Disclosure Statement. – Approval of Disclosure Statement required before voting and confirmation of Plan. 173

Confirmation of the Plan of Reorganization Plan of Reorganization – What is “confirmation”? – Mechanics of confirmation – Requirements for confirmation (11 U.S.C. §1129)  Unsecured creditors will receive more under the plan then from a liquidation under Chapter 7 – Contents of Plan (11 U.S.C. §1123)  Classes of creditors – Acceptance of the Plan (11 U.S.C. §1126) – Assumption or rejection of executory contracts (11 U.S.C. §365) – “Side deals and promises” – Feasibility of the Plan (11 U.S.C. §1129(a)(11))  Will the Plan work as contemplated by the Debtor? 174

Confirmation of the Plan of Reorganization Confirmation hearing (11 U.S.C. §1129) – Votes required to confirm plan. – Tally of the votes. – Court required to conduct a hearing (11 U.S.C. §1128). – Debtor obligated to put on evidence to fulfill the requirements of 11 U.S.C. §1129. – Court deals with any objections to confirmation filed by creditors and parties in interest at the confirmation hearing. Confirmation Order Effect of Confirmation Order (11 U.S.C. §1141) Implementation of the plan (11 U.S.C. §1142) 175

11 U.S.C. §365 Executory Contracts and Unexpired Leases Assumption and rejection of executory contracts significant issue in bankruptcy cases 11 U.S.C. §365 provides: – (a) …the trustee, subject to the court’s approval, may assume or reject any executory contract…of the debtor. – (b)(1) If there has been a default in an executory contract…of the debtor, the trustee may not assume such contract…unless, at the time of assumption of such contract…the trustee –  (A) cures, or provides adequate assurance that the trustee will promptly cure, such default…  (B) compensates, or provides adequate assurance that the trustee will promptly compensate, a party other than the debtor to such contract…, for any actual pecuniary loss to such party resulting from such default; and  (C) provides adequate assurance of future performance under such contract… 176

11 U.S.C. §365 Executory Contracts and Unexpired Leases Debtor in possession (DIP) has the powers of a trustee (11 U.S.C. §1107). Remember construction contracts are executory contracts. Construction contract is usually determined to be executory until substantial completion. Debtor may have the right to assume or reject the construction contract if the contract has not been terminated pre-petition. Bankruptcy Code does not specify a deadline for the debtor to assume or reject an executory contract in a Chapter 11 case (11 U.S.C. §365(d)(2)). Plan of Reorganization must address executory contracts. Prepetition debts on executory contracts must be paid under the Plan. Debtor’s failure to perform under the construction contract prior to filing bankruptcy must be cured before assumption of the contract. Motion to assume or reject an executory contract can be made prior to the confirmation hearing by the debtor or the owner. 177

11 U.S.C. §365 Executory Contracts and Unexpired Leases Assignment of the construction contract? 11 U.S.C. §365 (c) provides: – The trustee may not assume or assign any executory contract…of the debtor, whether or not such contract…prohibits or restricts assignment of rights or delegation of duties, if:  (1)(A) applicable law excuses a party, other than the debtor, to such contract…from accepting performance from or rendering performance to an entity other than the debtor or the debtor in possession, whether or not such contract…prohibits or restricts assignment of rights or delegation of duties; and  (B) such party does not consent to such assumption or assignment;… 178

11 U.S.C. §365 Executory Contracts and Unexpired Leases Rejection of an executory contract (construction contract) – 11 U.S.C. §365 (g) provides:  …the rejection of an executory contract…of the debtor constitutes a breach of such contract…  (1) if such contract…has not been assumed under this section or under a plan confirmed under chapter…11…of this title… Rejection of an executory contract results in the owner having an unsecured claim for damages (remember the surety is obligated under the performance bond so the owner ultimately may not have a claim against the debtor) – Problem is the owner must then file a proof of claim – For what amount? – Mitigation of damages? 179

11 U.S.C. §365 Executory Contracts and Unexpired Leases Assumption of construction contract gives the owner priority treatment in the form of an administrative claim if the assumed contract is subsequently breached by the debtor – So what? - administrative claim against a debtor that can not subsequently perform the contract may be worthless – What happens to the surety if the contract is assumed? 180

Post Confirmation Process Implementation of the Plan of Reorganization Confirmation injunction Court’s retention of jurisdiction over the Plan – What does this mean to the owner, surety and other parties in interest? Success or failure of the Plan Recourse if the Plan fails? 181

Pre-bankruptcy Strategies Can you really draft contract clauses to make bankruptcy or insolvency an event of default? No. There is a prohibition on “ipso facto” clauses in contracts (11 U.S.C. §365(e)(1)) – What can you do at the contract drafting stage that helps the owner in the bankruptcy court  Strengthen performance and payment bonds  Ensure that the contract contains mechanisms that control the ability of the owner to restrict payments in the event of default  Ensure that the contract contains defined events of default so that the owner can declare a default and terminate the contract  Prohibit assignment of the contract 182

Pre-bankruptcy Strategies Once the bankruptcy case is filed, the contractor is protected by 11 U.S.C. §365(e)(1) Section prohibits enforcement of termination clauses that automatically terminate the contract upon the insolvency of the contractor (ipso facto clauses) 183

Pre-bankruptcy Strategies One strategy is to terminate the contract before the contractor files bankruptcy. Set up the termination of the contract. – Notice of default – Reasonable cure periods – Failure of the debtor to cure Terminate the contract before the contractor files for bankruptcy. – Good luck – the issue of whether the contract was properly terminated get litigated in the context of 11 U.S.C. §365 184

Post-Petition Strategies Meet with the debtor – Establish the debtor’s intentions with respect to your client’s project and the other debtor projects. – What is the timetable for the debtor’s reorganization efforts. – How is the debtor handling prepetition subcontractor debts and the post-petition subcontractor debts. – Determine whether the Chapter 11 case is merely a Chapter 7 case in disguise. – Is the debtor using the Chapter 11 to stay in control of the business to direct funds to the payment of obligations that are guaranteed by the debtor’s officers, directors or affiliated businesses (income and payroll tax problems?). – Determine the capacity of the debtor to perform work. 185

Post-Petition Strategies Meet with lender – Where are the operating funds coming from and what conditions are imposed by the lender? – Review the cash collateral order. – What are the terms of the cash collateral order? – Is the lender keeping the debtor on a short leash? 186

Post-Petition Strategies Meet with surety – Establish the surety’s intentions with respect to your client’s project and the other debtor projects. – Establish the surety’s role in the bankruptcy case. – Is the surety funding the construction activities? – Is the surety providing contract management oversight? 187

Post-Petition Strategies Determine status of the debtor’s projects. Access the percentage of completion for the owner’s project and how much work remains. Determine the ability of the debtor to complete your client’s project. Contemplate pursuing claims against the surety on the performance bond. – Demand on surety  What does the performance bond require  Unless the owner can default the debtor, the surety may not have an obligation to act on the performance bond – Default notice to debtor  Watch out for the automatic stay imposed by 11 U.S.C. §362  Obtain relief for the automatic stay  Not likely! 188

Post-Petition Strategies What if the debtor will not engage the owner in discussions or the debtor claims that the construction contract was never terminated despite the best efforts by the owner to terminate the contract prepetition? Force the debtor and the court to deal with the construction contract. File a motion to compel assumption or rejection of the construction contract. – “Contested Matter” under Bankruptcy Rule 9014 Surety usually does not want the process to drag out as there are sufficient economic incentives for the executory contract issue to be quickly resolved. – Can the surety file the motion to compel assumption or rejection of the construction contract  11 U.S.C. §365 refers to parties to a contract  It depends on the jurisdiction 189

Problem Project New 250,000-sq.-ft. steel and masonry DPW office and maintenance garage. New harbor patrol docks. Site of old, no longer used, City ferry terminal. Initial City study / cost estimate found project feasible but difficult, with a wide range of cost: $60 - $80 million. City council approval by slim margin, contentious approval process. $60 million appropriated. 20% Federal funding. Additional construction funds politically and financially difficult to obtain. The City hired the architect engineering firm of Care, Les & Often, PLLC to design the office and maintenance garage. 191

Problem Project Site groundwater and soils are contaminated with hydrocarbons from old, previously existing leaking marine fuel tanks. The City has a Phase I and Phase II EPA study of the site which confirms the existence of the hydrocarbons. Remediation efforts have not yet occurred and the City needs to remove the contaminated soil before construction. The City is presently a defendant in lawsuit filed by downstream property owners affected by the leaking fuel tanks. City under DEP consent order: clean up site by June 1, 2010. US ACOE permit required for dock work in river. No work in waterway during spring breeding season of Shortnose Sturgeon. 192

Problem Project Adjacent property owner, Steel Export Services: – Used the abandoned ferry terminal to load scrap steel on to barges for export since the City ceased operation of its ferry 30 years ago. – Claims it owns a right of way for use of the docking area, but there is no record of such ownership. – Wants access during and after construction. Adjacent retirement community - excessive construction noise. Preliminary subsurface investigations related to evaluating the contamination revealed that there is 10-20’ of unsuitable urban fill, over 10’-15’ of unstable silts, over 40’ of glacial outwash over bedrock covering a vast majority of the site, suggesting that deep foundations such as pile supported footings will be required over any heavy structural load. The City hired Care, Les & Often, PLLC to work with the City’s geotechnical contractor to address the geotechnical issues and design suitable footings for the building. 193

Problem Project Mayor and City Council asks you, the City Attorney, to draft contract documents to assure on time, on budget project completion. The City issued an Invitation for Bids (IFB) for the project. The City received three bids: $60, $75 and $81 million U-Gotta-Believe Construction Company (UGB) is lowest bidder. This is first major public or private project for UGB City Department of Public Works project management personnel express reservations about using UGB and its lack of experience. References for UGB are mixed – UGB has never completed a project this large. The City does not have procurement regulations to address “responsibility determinations.” Therefore, UGB’s bid cannot be rejected based on a lack of responsibility Mayor & City Council are under pressure to get the project finished, they want to proceed with UGB. 194

First Three Months U-Gotta-Believe Construction Company’s $60 million bid is accepted by the City. Contract time = 730 calendar days (730 days = 2 years) from NTP. The City issued a NTP thinking that it would have contaminated soil removed within three weeks. The soil contamination is broader and deeper than estimated. Clean up activities could take one additional month. Excavation work started by UGB in other sections of the project. The condition of soils in several areas where the structural supports will be located is worse than represented in the geotechnical reports relied on by UGB. Additional clean fill will have to be brought onto the site that exceeds the amount indicated by the plans and the geotechnical information provided to bidders. UGB issued several Requests for Information (RFIs) to the City questioning the design documents and specifically questioning Care, Les & Often’s design and suitability of the footings. Care, Les & Often has been very slow in responding to the RFIs and to the City’s inquiries. 195

First Three Months The City has sent several pre-cure notices to Care, Les & Often. There is a growing lack of confidence in Care, Les & Often’s design abilities and construction support. Care, Les & Often finally responded to the RFIs and to the City’s inquiries. The design of the footings is inadequate and defective. Helical piers will also have to be used in certain sections of the project. UGB has sent the County a change request for $3.5 million to cover the cost of the helical piers and structural steel changes. UGB also asserted a delay claim because the approved CPM schedule was impacted by the redesign delay. The City has not responded to UGB’s change request. 196

First Three Months Discussion – Handling a major design error. – Addressing an unresponsive designer. – Responding to potential DSC situations. Contaminated material and sequencing impacts. Unsuitable soils and additional required fill. – Responding to an extra work and delay claim. 197

Three to Six Months Dock work commenced. Immediately, the adjacent property owner, Steel Export Services, filed suit against the City for declaratory relief claiming a right of way for use of the docking area and access during and after construction. Steel Export Services has produced a written right of way agreement that has not been recorded, but which appears to have been signed by a former City mayor more than 30 years ago. Although the City is locked in litigation with Steel Export Services, there have been several high level meetings between City and Steel Export Services to work toward a possible settlement. 198

Three to Six Months The City and UGB agreed to direct costs for the foundation changes of $1.2M. No agreement could be made on delay. The City informed UGB that time would be addressed later. UGB was unsuccessful in contracting with its masonry subcontractor who quoted the job because the subcontractor objected to the project delays. UGB’s replacement mason cost $340k more, which was added to UGB’s claim. Evidence of UGB poor project management, jobsite coordination and supervision began to emerge. – Shop drawings frequently had to be resubmitted because they lacked required information. – UGB’s concrete subcontractor turned out not to be prequalified. The City helped mitigate the impact by rushing the sub through the prequalification process. – Under slab MEP work in several areas were not installed prior to the concrete slab requiring rework and changes. – UGB’s project manager was overloaded with work and was unresponsive to several owner requests. – The jobsite was not orderly and several safety violations had been issued. – A line of footings was placed off center, requiring engineering analysis to determine whether or not the location was ok. 199

Three to Six Months Discussion – Third party influences – SES dispute – Ripple effects of delay – UGB management issues 200

Six to Nine Months UGB continuing to poorly perform. Kryptonite Steel, Inc., the structural steel subcontractor, is failing to progress with the steel work. Kryptonite has notified the City that UGB is failing to pay it in timely manner in spite of the fact that the City has been paying UGB for steel work. The City’s project manager has learned from a disgruntled former employee of UGB that UGB has not been paying its payroll taxes and that UGB has been applying the payments it received from the City to other UGB projects. Structural steel is behind schedule and its affecting the critical path. 201

Six to Nine Months City and UGB still have not agreed to the amount of compensable delay for the redesign of footing and the structural steel changes. UGB not maintaining site safety precautions. The City has cited the UGB for safety violations on a number of occasions. 202

Six to Nine Months Discussion – Continued poor performance by UGB – Kryptonite Steel, Inc. – UGB financial troubles – UGB safety violations 203

Nine to Twelve Months UGB failing to progress with the work, including but not limited, completing the helical piers, manning the structural steel work, timely submittals, and submitting schedule updates. The project is six months behind schedule with contractor delay constituting five months of the delay. Elderly resident from nearby retirement community accidentally entered the job site and he was crushed by heavy machinery. Questions arise as to whether UGB maintained adequate perimeter controls. Wrongful death case filed against City, UGB and subcontractor. 204

Nine to Twelve Months City is very concerned about the lack of progress. After consulting with the Mayor, the City Attorney issues a notice of default to UGB. A copy of the default letter is sent to the surety that provided the payment and performance bonds. The notice requires UGB to provide and implement a recovery schedule and work plan that addresses: – UGB’s required resources – Supervisory changes – Commitments from subcontractors – Addresses subcontractor non payment issues – Addresses all owner site safety concerns on enclosed list – Anticipated submittal schedule 205

Nine to Twelve Months Termination for Default Scenario Contractor failed to cure in accordance with notice issued by the City. City notified UGB and the surety that is has terminated the contract for default. 206

Nine to Twelve Months Termination for Default Scenario Discussion – Material breach – Adequate notice – Cure period reasonable? – Has owner paid what is owed and granted time extension that is justifiable? – Did the City interfere with any of the performance obligations of UGB under the contract? – Did the City comply with its obligation under the performance bond? 207

Nine to Twelve Months Bankruptcy Scenario UGB fails to cure the default as required by the default notice issued by the City. UGB provides recovery schedule along with other items requested in the cure notice. UGB provides a $2.1 million price tag for the recovery. UGB’s work plan does not demonstrate that it can obtain the resources necessary to carry out the plan. Prior to the City terminating the contract, UGB files a Chapter 11 bankruptcy case. Work on the project has stopped with the filing of UGB’s bankruptcy case because UGB has not yet reached an agreement for interim use of cash collateral from its lender. 208

Nine to Twelve Months Bankruptcy Scenario Discussion – Poor performance by UGB – Structural steel issues and claim – UGB financial troubles – Wrongful death case – Notice of default and termination of contract – UGB Chapter 11 bankruptcy case 209

Twelve to Eighteen Months Bankruptcy Scenario UGB in Chapter 11. It filed Schedules and Statement of Financial Affairs that list the contract with the City. UGB claims that significant cash flow problems in other projects drove it to file bankruptcy. UGB wants to assume contract with the City. Pre-petition defaults have not been cured. Financing for continued operation appears difficult for UGB to obtain. Surety supports UGB’s efforts to reorganize. UGB filed a Plan of Reorganization that seeks to assume the City’s contract. 210

Twelve to Eighteen Months Bankruptcy Scenario Discussion – UGB financial troubles Is UGB out of the woods – What is the status of the other UGB projects – Pre-petition defaults and UGB efforts to cure – Third party financing to support reorganization efforts and continued operations – What is the surety’s role – UGB’s Chapter 11 Plan of Reorganization Is the Plan feasible – Assumption of the City’s contract Conditions for assumption of the City contract 211

Documentation on Good Projects Communicates the plan and commitments Informs participants of progress and status Tracks status of open or uncompleted items Facilitates timely action and follow- through Memorializes decisions and understandings Documents project history 213

General Guidelines Take advantage of technology Consistent, central paper and electronic filing system for all projects Minimize the use of personal files by individuals Consider project management software or web-based project management 214

Document Retention Have a written document retention policy Definitions of policies for – –Drafts –Periodic cleaning of paper and file debris –Retention of back-up tapes Never destroy paper or electronic copies of any project record when in litigation 215

Recognize the Importance Train staff in procedures and documentation practices Practice quality control and assurance Keep filing current and complete Remember all projects have the potential to go bad 216

Build a Record You’ll Be Proud Of If the project goes bad, how will the documents be read? Look at and understand everything that you get “If it’s not written down, it didn’t happen!” Use good documentation practices 217

Recommended Practices Be timely Take care to say what you mean especially in e-mail Record facts not opinions Be constructive - provide solutions not excuses Document problems of others but not your own 218

Pre-Construction Documentation Programming and design documentation Plans and specifications Owner budgets, design fee estimates and bid work-papers Contracts, subcontractors and purchase orders Planned and baseline construction schedule 219

Key Construction Documentation Correspondence, memorandum and e- mail Meeting minutes Submittal/shop drawing and change tracking logs Construction schedules Contractor daily reports Digital photographs 220

Correspondence and E-mail Keep as short as possible Make easy to read Address one topic or issue per letter or e- mail Identify issue or topic in subject line Be clear in what follow-up is required from the recipient “CC:” to particular sub-files contemporaneously 221

Make Project Meeting Minutes Work For You Identify project questions, issues and concerns Track history and status of open and unresolved questions, issues and concerns Facilitates timely action and resolution of project issues Memorialize decisions and issue resolution Tell an “objective” project story 222

Make Project Meeting Minutes Work For You Fixed agenda and topics – anticipate needs Consistent and organized format Issue them timely Volunteer to keep them yourself If kept by others, review thoroughly. If there is something wrong, document it. 223

Submittal and Shop Drawing Logs Maintain logs electronically Format electronic logs so they can be sorted and filtered for best use Track all “received” and “transmitted” dates that you are aware of as you go Make re-submittals easy to track Tie to other project records if possible 224

Change Management and Tracking Documentation Use a consistent change-related document tracking numbering system project wide Maintain all change-related logs electronically Tie all change-related logs together Maintain complete files of potential and actual change orders 225

Change Management and Tracking Documentation Clear and early written notice of changes that may affect cost or schedule Fully documented price and time impact estimates Internal cost systems isolating and tracking costs of potential changes if possible Contemporaneous documentation of contingency usage 226

Contractor Daily Reports Owners –Consider requiring by contract that the contractor provide you with copies on a contractually mandated daily report form –Get the information you may need if the project goes bad - design the form for your particular project type –Make sure you look at what the contractor provides you 227

Contractor Daily Reports Key information –Manpower by trade and subcontractor –Work performed, location and quantities installed by trade and subcontractor –Key equipment onsite – working and idle –Visitors to the site –Material deliveries –Problems and delays caused by others 228

Digital Photographs Most important advance in construction project documentation –Inexpensive –Easy to organize, exchange and store Key documentation to communicate and illustrate –Project components –Problems –Status 229

Digital Photographs Take them early and often even if there are not problems Document existing and actual conditions if they differ Document problems and defective work by others Periodically take photographs of the overall project status and critical work in progress Take time to organize them as you go 230

Documentation on Bad Projects Good project documentation –Can make bad projects be better –Is essential for the fair and equitable sharing of the excess costs –Promotes cost effective dispute resolution –Provides strategic advantages in claim situations and litigation to the parties that have it and did it contemporaneously 231

Bad Projects = Disputes and Claims Document differently than good projects –Recognize the potential bad project as soon as possible –Fight the paper war proactively and strategically –Quality documentation is better than quantity for quantity sake –Minimize inconsistencies and conflicting positions on blame for problems in your project records 232

Bad Projects = Disputes and Claims Anticipate your need before you need it –What went wrong? –Why did it go wrong? –What did it cost you in money and time? –Why you shouldn’t pay for it and someone else should? –How do I prove it? 233

What You Probably Will Need Poor performing project participants and human dynamic –Complete documentation of project history –Contemporaneous notice  deficient performance  concerns  potential consequences –Recommendation of corrective action 234

What You Probably Will Need Differing site conditions –When were they encountered? –Was there written notice? –What were the actual conditions? –Why should they be considered differing site conditions? –Did the contractor mitigate the cost of dealing with them? 235

What You Probably Will Need Bad plans and specifications –Clean and complete RFI logs –What changes are related to design errors or omissions? –Why should they be considered design errors or omissions? –When were they encountered? –What work was affected? 236

What You Probably Will Need Blame for delays and recovery of delay costs –What was the nature of the delay? –When did the delay happen? Was there notice? –Did the delay impact the critical path at the time of the delay? –Who caused the delay? –Did the contractor mitigate the cost impact of the delay? 237

What You Probably Will Need Recovery of constructive acceleration costs –Did the contractor provide notice? –Who was responsible for the delay and the need for acceleration? –What was the nature of the acceleration? –What were the costs of the acceleration? –Did the contractor mitigate the costs? 238

What You Probably Will Need Productivity losses –What productivity should have been achieved? –What was the actual productivity? – quantities installed, level and unit cost of effort –Can the productivity losses be tied to the actions or delays by the owner? –Did the contractor contribute to the cost overruns? 239

What You Probably Will Need Termination for default –Were the terms of the contract governing termination of the contract met? –Was there clear notice of concerns and possible consequences? –Was the contractual breach cited to support the termination material? –What were the costs to complete and were they reasonable? 240

Special Documentation for Bad Projects Issue files Detailed as-built schedules Manpower tracking Tracking of installed quantities Contemporaneous expert reviews and analysis Legal correspondence and pleadings 241

Good Documentation Can make bad projects be better Is essential for the fair and equitable sharing of the excess costs Promotes cost effective dispute resolution Provides strategic advantages in claim situations and litigation to the parties that have it and did it contemporaneously 242

Remember When You Leave Practice good documentation on all projects Anticipate your special needs on bad projects and document according Count on all documentation being discovered when things go bad Be smart and don’t embarrass yourself!!! 243

Presenters: Edwin M. Levy Senior Counsel Commercial & Real Estate Litigation Division New York City Law Department 100 Church Street New York, NY 10007 (212) 788-1185 elevy@law.nyc.gov John S. Rannestad Senior Consultant PinnacleOne an ARCADIS company 213 Court Street Suite 700 Middletown, CT 06457 T: (860) 704-6100 F: (860) 704-6120 jrannestad@pinnacleone.com Roy Cooper Associate Vice President PinnacleOne an ARCADIS company 213 Court Street Suite 700 Middletown, CT 06457 T: (860) 704-6100 F: (860) 704-6120 rcooper@pinnacleone.com Susan L. McGreevy Stinson Morrison Hecker LLP 1201 Walnut, Suite 2900 Kansas City, MO 64106 (816) 842-8600 (816) 691-3495 (Fax) (816) 691-3480 (Direct Dial) (816) 412-8115 (Direct Fax) (816) 806-3001 (Cell) smcgreevy@stinson.com John P. Markovs Associate County Attorney Division of Finance and Procurement Office of the County Attorney Montgomery County, Maryland 101 Monroe Street, 3rd Floor Rockville, Maryland 20850 Office (240) 777-6725 Cell (301) 525-3643 Fax (240) 777-6706 john.markovs@montgomerycountymd.gov 244

1. 2 Solicitation and Procurement Process – Bidding on Public Jobs What do you need to do? Where are the squalls that might throw you overboard? 3.

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1. 2 Solicitation and Procurement Process – Bidding on Public Jobs What do you need to do? Where are the squalls that might throw you overboard? 3.

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Presentation on theme: "1. 2 Solicitation and Procurement Process – Bidding on Public Jobs What do you need to do? Where are the squalls that might throw you overboard? 3."— Presentation transcript:

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