COLLINS COCKREL & COLE A PROFESSIONAL CORPORATION
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1 COLLINS COCKREL & COLE A PROFESSIONAL CORPORATION PAUL R. COCKREL JAMES P. COLLINS ROBERT G. COLE TIMOTHY J. FLYNN EVAN D. ELA LINDA M. GLESNE DAVID A. GREHER ATTORNEYS AT LAW 390 UNION BOULEVARD, SUITE 400 DENVER, COLORADO TELEPHONE: TOLL FREE: FACSIMILE: ASSOCIATES KATHRYN L. GARNER ALLISON C. ULMER OF COUNSEL ERIC C. JORGENSON rcole@cccfirm.com aulmer@cccfirm.com CONSTRUCTION CONTRACTING AND INTEGRATED PROJECT DELIVERY ROBERT G. COLE & ALLISON C. ULMER SPECIAL DISTRICT ASSOCIATION ANNUAL CONFERENCE KEYSTONE, COLORADO SEPTEMBER 19, 2012 [The materials included in this packet and the matters presented, discussed or answered by the presenter at the presentation for which these materials are prepared are for general educational purposes only and do not constitute legal advice. No attorney-client relationship is intended or entered into by these materials or attendance at this event. Direct legal counsel should be sought for any specific questions. We are licensed to practice law in Colorado and this presentation is based on Colorado law. Copyright 2012.]
2 1. TYPES OF PROJECT DELIVERY At the outset of the construction contracting process, the District must determine how the project will be delivered. The project delivery method is the process by which the project is designed and constructed, including development of the scope of work, organization of designers, contractors and other consultants, and the scheduling and sequencing of design and construction work. Each project must be individually evaluated to determine which project delivery method is most appropriate. There are several types of project delivery methods. This presentation is limited to Design-Bid-Build and Integrated Project Delivery (sometimes referred to generally as Design-Build), which are commonly used by Special Districts. (a) Design-Bid-Build. (i) Design-Bid-Build is the most traditional and common method of project delivery and is uniformly considered to be acceptable for Special Districts. It typically involves competitively bid, lump sum construction contracts that are based on complete contract documents prepared by a licensed architect or engineer. The phases of work are usually conducted in a linear sequence. The owner contracts with an architect or engineer for design and construction management, uses the design documents produced by the architect or engineer to secure competitive bids from contractors and, based on an accepted bid, contracts with a contractor for construction of the project. characteristics: (ii) Design-Bid-Build is identified by the following defining circulation within the District; (1) Notice for bids published in a newspaper of general 2
3 contractor; owner & contractor; and (2) Three prime players: owner, architect/engineer, and (3) Two separate contracts: owner & architect/engineer; (4) Final contractor selection based on lowest responsive and responsible bid, which provides a reliable market price for the project. (iii) The following are typical characteristics of Design-Bid-Build: (1) Three sequential phases - design, bid, and build; (2) Well-established and broadly documented roles; (3) Contract documents are typically completed in a single package before construction begins, requiring construction-related decisions to be made in advance of actual execution; (4) Construction planning is based on completed design and contract documents, which tends to produce clear quality standards; and (5) Configuration and details of finished product agreed to by all parties before construction begins. (b) Integrated Project Delivery (IPD). (i) Special Districts are expressly authorized to use IPD by the Integrated Delivery Method for Special District Public Improvements Act , et seq., C.R.S. 3
4 (ii) In IPD projects, the owner enters into a contract with a single entity (consisting of the architect/engineer and the contractor) that is responsible for both designing and building the project. The architect/engineer and contractor function as a team, and they collaborate with the owner from the commencement of the project to mutually establish the performance, budget, and schedule within the owner s parameters. IPD requires an explicit determination of the roles and responsibilities of the design-build team. While the team can be led by the architect/engineer or the contractor, the latter is more common. (iii) IPD has gained popularity in recent years, primarily because owners favor having a single source of responsibility for design and construction. IPD reduces the likelihood of disputes between the architect/engineer and the contractor, because, being a single entity, they can t blame each other for faulty design or faulty construction. IPD is typically a faster process than Design-Bid-Build. In addition, project costs can be determined in the design development phase, as opposed to the bidding phase, which makes it easier to deliver the project within the budget. (iv) IPD is identified by the following defining characteristic: (1) There is one contract (or series of contracts) between the owner and the design-build team (referred to as the participating entity in the IPD statute), which consists of the architect/engineer and the contractor; (v) The following are typical characteristics of IPD: documenting roles; (1) Project-by-project basis for establishing and (2) Continuous execution of design and construction; 4
5 (3) Overlapping phases: design and build (fast track); (4) Two prime players: owner and the design-build team; the start of the project; and (5) Some construction-related decisions can be made after (6) Overall project planning and scheduling by the designbuild team prior to mobilization (made possible by the single point of responsibility). (vi) Note on Procurement: As described in paragraphs 3 and 4, procurement of an IPD project is more nuanced than a typical Design-Bid-Build project. Up-front consultation with legal counsel is advised in order to properly structure the procurement process. (vii) In order to do an IPD project, the owner needs to develop a clear statement of its needs and requirements at the outset of the contracting process. Additionally, the owner will be responsible for reviewing design and construction issues and providing required approvals, decisions, and information in a timely manner. If the owner lacks in-house staff to perform these tasks, third party consultants are available (at a cost). (viii) Because the design-build team selection process, design process, and building process are much more fluid than in Design-Bid-Build projects and are tailored to each project, there are many contract variables that are often not fixed at the outset of a project. 5
6 2. TYPES OF CONTRACT DOCUMENTS (a) Forms. There are several types of construction contract forms depending on the type of project and the parties involved. For example, the following groups publish comprehensive sets of documents in several different iterations (e.g., Guaranteed Maximum Price, Fixed Price, Stipulated Sum, Cost Plus, Construction Manager At Risk) for virtually all types of construction projects, including Design-Bid- Build and IPD: (i) American Institute of Architects (AIA); (ii) ConsensusDOCS Coalition (created by a coalition of construction industry groups and endorsed by the Associated General Contractors of America); and (iii) Engineers Joint Contract Documents Committee (EJCDC). The benefit to using form documents is they are familiar to engineers and architects. The drawback is they are created by industry groups and, despite their effort to create balanced agreements, they tend to tilt in favor of the industry group, not the owner. Modifications are always needed to form contracts to correct this natural bias and tailor them to Colorado law, as detailed in paragraph 4. Of course, the District is not required to use form contracts. The District can negotiate its own contract documents. This tends to be efficient on small, design-bidbuild projects, but rarely on large projects or IPD projects. 6
7 3. OVERVIEW OF THE PROCUREMENT PROCESS (a) Bidding. (i) Design-Bid-Build. (1) $60,000 Threshold. The District must solicit competitive bids on all construction contracts for work and/or material of $60,000 or more by publishing notice for such bids (1)(d)(I), C.R.S. a) In order to satisfy the publication requirement, the notice for bids must be published in a newspaper of general circulation that is printed or published in the subject county and has been in continuous and uninterrupted publication for a certain period of time depending on the publishing frequency of the newspaper , C.R.S. (2) Bidding Process. The District must insure that its bidding process is open, competitive, and fair. Within these boundaries, the District has substantial discretion to determine how the bidding process is conducted. Special Districts typically provide Instructions to Bidders that describe the project, the design specifications, and the contract and bid requirements, along with a Bid Form. The District can require bidders to attend a pre-bid conference, where the District and the architect/engineer can answer the bidders questions and give bidders a tour of the work site. If the District makes significant clarifications to the contract requirements, they must be communicated to all bidders to avoid giving one bidder an unfair advantage. (3) Accepting or Rejecting a Bid. In keeping with the principle of openness, the District should publicly open and read aloud all bids. The contract is to be awarded to the lowest responsive and responsible bidder. Responsive means the bid meets the material requirements in the invitation for bids. A non- 7
8 responsive bid might omit certain required items or modify the design specifications. Responsible means the bidder has the experience, skill, and financial means to perform the work. However, if it appears that the District can perform the work or secure materials for less than the lowest bid, it may reject any and all bids and do so (1)(d)(I), C.R.S. Absent fraud, corruption or bad faith, a court will not look behind the District s decision to award a contract. McNichols v. City and County of Denver, 274 P.2d 317 (Colo. 1954) (ii) Integrated Project Delivery. (1) Board Resolution. The District s Board of Directors must pass a Resolution authorizing Integrated Project Delivery procurement upon the determination that Integrated Project Delivery represents a timely or cost-effective alternative for a public project (1), C.R.S. The requirements contained in the IPD statute apply to all IPD contracts, regardless of the contract price. Thus, the $60,000 threshold for following the notice and bidding procedures for Design-Bid-Build contracts does not apply to IPD contracts. (2) Request for Qualifications (Optional). a) The District may prequalify design-build teams for an IPD contract by publishing notice of its Request for Qualifications (1), C.R.S. The requisites of a legal newspaper for purposes of such notice are set forth above under the bidding requirements for Design-Bid-Build contracts. b) The RFQ may contain a general description of the project; budget considerations; requirements of the design-build team (such as evidence that it has completed projects of similar size, scope, or complexity); the criteria 8
9 for prequalification; and any additional information requested by the District (1), C.R.S. c) Upon reviewing the responses to the RFQ, the District shall prepare a short list of the most qualified design-build teams to bid on the project, and the District will solicit proposals from such entities through a Request for Proposals (2), C.R.S. (3) Request for Proposals (Required). a) The District must publish notice of a RFP, unless notice of a RFQ was published (1), C.R.S. b) The RFP may contain the procedures to be followed for submitting proposals; the criteria for evaluation of proposals, which may provide for selection of a proposal on a basis other than solely the lowest costs estimates submitted (e.g., best value); performance standards; the procedures for making awards; a description of the drawings, specifications, or other submittals to be provided; budget considerations; and proposed project scheduling. In addition, if the contract includes operation or maintenance services, the District can require the life-cycle cost analysis for the contract, and it can include the stipend, if any, to be paid to design-build teams who respond to the RFP and make the District s RFQ short list, but whose proposals are not selected for award of the IPD contract. (4) Accepting or Rejecting a Proposal. After the District evaluates proposals pursuant to the RFP criteria, it may award the contract to the bidder that represents the best value to the District (2), C.R.S. However, if it appears that the District can perform the work or secure materials for less than the lowest bid, it may reject any and all bids and do so (1)(d)(I), C.R.S. Absent fraud, 9
10 corruption or bad faith, a court will not look behind the District s decision to award a contract. McNichols v. City and County of Denver, 274 P.2d 317 (Colo. 1954) (iii) Bid Bonds. While not required by law, the District can require bidders to submit a Bid Bond with their bids (usually in the amount of five percent of the bid amount). The bond protects the District in the event the successful bidder on a project gets cold feet after bids are opened and fails to enter into a contract. In such a scenario, the bid bond would indemnify the District for the damages incurred as a result of the bidder s failure to enter the contract. (b) Construction Contract; General Conditions. The contract is the document that controls all other contract documents. It is to be signed by the District and the contractor, in the case of Design-Bid-Build, or the District and the design-build team, in the case of IPD. The provisions described in paragraph 4 must be included in the contract per Colorado law, regardless of the type of project delivery. The substance of Design-Bid-Build and IPD contracts is very different and, thus, it is critical to use the appropriate form of contract (for example, an IPD contract requires the design-build team to perform design work and contains a warranty provision for such work). The General Conditions establish much of the mechanics of conducting the project, including inspection, approval and payment procedures. (c) Notice to Proceed. The Notice to Proceed authorizes the contractor or design-build team to begin performing work and starts the clock ticking on certain project deadlines. (d) Change Order. When there is a change in the scope of work, the contract price, or the schedule due to a change in the plans and specifications or for any other reason, a simple letter or other writing evidencing the change is executed. The 10
11 District must appropriate funds to cover any costs of additional work and such funds must be available for expenditure prior to issuing a change order , C.R.S. (e) Notice of Final Payment. If the amount of the contract awarded exceeds $50,000, Notice of Final Payment is required by statute and serves to bar claims against the District , C.R.S. See paragraph 4 for more detailed information about final payment requirements. (f) Criminal Penalties for Interfering with the Competitive Bidding Process. Colorado law prohibits collusion between public employees and competitive bidders. District employees involved with the competitive bidding process should be aware of the following criminal statutes: (i) Selection of Subcontractors and Suppliers. It is a felony for a public servant to require or direct a bidder or contractor to deal with a particular subcontractor or supplier , C.R.S. It is an affirmative defense if the public servant is acting within the scope of his authority exercising the right to reject a bid because it does not meet bona fide specifications or requirements. Heritage Pools v. Foothills Metro. Park & Rec. Dist., 701 P.2d 1260 (Colo. App. 1985) (holding that the District s request that the four lowest bidding contractors considering working with a more experienced subcontractor than the one designated in their bids did not violate , C.R.S.). (ii) Selection of Surety Bond or Insurance. It is a petty offense for a public servant to require or direct a bidder to obtain from a particular insurer, agent, or broker a surety bond or contract of insurance required in a bid or contract or required by any law, ordinance, or regulation , C.R.S. 11
12 4. CONTRACT REQUIREMENTS The construction contract must include the following provisions, pursuant to Colorado law, regardless of whether it is a Design-Bid-Build or IPD project. (a) Payment and Performance Bonds. Every contractor awarded a contract for more than $50,000 is required to execute a Penal (Payment) Bond and a Performance Bond in the amount of at least one-half of the contract amount, or other acceptable surety guaranteeing payment of subcontractors and laborers and performance of the terms of the contract documents and 106, C.R.S. The District has discretion to require a Payment Bond for contracts under $50, (2), C.R.S. (b) Retainage. If a contract exceeding $150,000 is awarded, the District may withhold payment for up to five percent (5%) of the value of the entire project. The retainage may be held until final payment procedures are followed. The District must make the final payment within 60 days after the contract is completed satisfactorily and finally accepted by the District , C.R.S. (c) Appropriations; Change Orders. The District may not contract for a public works project in an amount in excess of the amount appropriated by the District for the project. All construction contracts must contain clauses stating that money has been appropriated and, in advance of issuing a change order, the District must appropriate funds and such funds must be available for expenditure , C.R.S. (d) Final Payment. Pursuant to , C.R.S., if the amount of the contract awarded exceeds $50,000, notice must be published at least twice in a newspaper of general circulation published in the counties where the work was contracted for or performed. The last publication must be at least 10 days prior to making final 12
13 payment. At any time up to and including the time of final payment, persons with claims must submit a verified statement of the amount due and unpaid to them. The District must then withhold from payment to the contractor at least that amount of money stated in the verified statement for a 90-day period, by which time the claimant must bring suit and file a notice of lis pendens. At the end of the 90-day period, the District must pay the contractor the funds that are not subject to the lawsuit and retain only sufficient funds to insure payment of any judgments that may result from the suit. Failure to comply with this process can lead to the District paying twice for the same work. Before payment is made to a subcontractor or supplier who submits a verified statement, the District must determine that satisfactory and substantial reasons exist for the payment and must obtain written approval from any surety bond provider. 13
14 COLLINS COCKREL & COLE, P.C. Specializing in special district legal services, including transactional matters, related litigation, and intergovernmental relationships for over three decades. ROBERT G. COLE ALLISON C. ULMER
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