How much does poor contract documentation cost Canada’s construction industry?
Ottawa Construction News staff writer
How much does sloppy and incomplete construction documentation cost the Canadian construction industry?
It is hard to quantitatively answer this question, some industry leaders say, but the implications are immense.
“The situation isn’t getting better,” Ontario General Contractors Association (OGCA) president Clive Thurston told a gathering at the national Construction Specification Canada (CSC) convention in Kitchener, Ontario in May. “On average, specifications are 70 per cent complete. Owners will not spend the money to put out a decent set of bid documents.”
John Cooke, an Ottawa-based professional engineer specializing in heritage restoration, agrees. “If you talk to anyone in the industry, especially contractors and owners, they will tell you the cost of poor specifications results in an excessive number of change orders, and this is a huge cost to the industry.
“It impacts on costs, both the final costs and schedule – the schedule impacts contractors’ ability to meet the deadlines, and the owners’ ability to bring the new structure into use.”
The consequence of incomplete or sloppy documentation on change orders is controversial.
Cooke says knowledgeable contractors study the bid documentation, and when they see the sloppiness, they know they can turn a “low bid” project into highly profitable work through effective change orders.
“They (the contractors) will go through it with a fine-tooth comb to find things that aren’t specified, or where things are specified that contradict the drawings. They will use that in most contract specifications to override the drawings.”
“They (the contractors) will price what is according to spec, knowing that that is not the intent of the designer.”
Thurston agrees that change orders are a problem arising from incomplete or inaccurate specifications, though he doesn’t suggest that contractors are actually looking forward to them.
“If my guys get really good specs, they (offer) better pricing, and fewer change orders,” Thurston said. “We have trouble with public owners who don’t go that way, because they think ‘low bid’ is the way to go’.”
He said, however, when New York State introduced a qualification-based design selection (QBS) process, it reduced its cost overruns. (The U.S. federal government, and several state and local authorities, have for many years mandated QBS through Brooks Act provisions, which make it clear that price should not be a primary consideration in selecting architects and engineers for public projects.)
Thurston says if architects need to compete on price, with the low bid winning, “architects don’t build in enough visits to the site.” This leads to the change orders – where “contractors will hit you on anything not specified. Owners then try to remove the change-order risk by building risk-transfer provisions into their contracts, denying contractors the right to be compensated for legitimate change orders.
The result: Unmanageable contract document that deter contractors from bidding on the work, resulting in significantly higher costs because of less competition and more stress (and completion risk) on the part of the contractors who accept the work under these circumstances.
Cooke says the problem with poor quality specifications isn’t entirely with owners not willing to pay for quality. There are challenges within the design industry, as well.
Many architectural and engineering practices are not “spending enough time on the specifications,” he said.
“If your specifications are wrong, or you have to issue change orders, or take remedial action, this results in more action on your time or the time of your staff. You are already paying for your mistake.”
“This results in longer site meetings and fighting over interpretations of the specifications,” he said. The time wasted and extra costs means that the architectural or engineering practice ends up paying out far more than the savings achieved by rushing or inadequately preparing the initial specifications, regardless of the actual design fee.
“If you have good specs, you should be able to operate within five to 10 per cent of an overage for change orders,” he said. “When you go above that, you are going to have an impact on costs.”
Cooke says the cost in time and money to send architects, engineers and technologists for specifications writing training is insignificant compared to the savings that can be achieved through clear specifications.
CSC, for example, offers courses that can be completed either on line or in classroom settings, require a modest amount of time and cost only a few hundred dollars to complete. “The costs for this training would be recovered in a single project that doesn’t go wrong,” he says.
He says clear specifications need to be combined with a systematic inspection program to ensure the specifications are observed throughout the construction process. “You need to have someone on site holding the contractor accountable,” he said. “You can’t wait until the job is finished for this inspection – you need to catch things when they are visible.”
These site inspections could add some short-term costs, but, Cooke says, will save money long-run, and avoid the consequences of building systems failures after the work is finished.
Cooke says, conversely, general and trade contractors might benefit from CSC courses to understand the specifications process more clearly, and be better equipped to see discrepancies and potential change order opportunities.
“There are far fewer structural engineers who take the CSC courses, and mechanical and electrical engineers, even less,” he said. ‘There are more contractors who take the courses than there are consultants – so contractors know what to look for.”
For more information about CSC’s certification program, see http://csc-dcc.ca/Certification.