CON 496 Midterm Study Set

Performance Bond

Assures the project owner that the project will be completed even if the work is completed by someone other than the contractor.

Access to Bonding Capacity

Not all people have access to bonding capacity. Bond companies use financial capability to determine bonding capacity. This capability is determined by bankruptcy records, assignments for the benefit of creditors, judgements entered against you, or fraudulent acts. They will also request a personal financial statement from each member as well as an income statement, balance sheet, accounts receivable and accounts payable aging reports, and other financial statements and documents concerning the health of the business. All of these are used to determine the creditworthiness of a business.

Non-Compete Provision

Prohibits a former employee from competing against their former employer in the industry for a certain time and geographic area.

Bid Bond

Protects the owner in the event that a contractor refuses to execute the contract after being awarded the project.

Cost Plus a Percentage

This pricing structure involves the owner being liable for the cost of construction plus a set percentage of the total cost, commonly referred to as retainage. This has the potential for abuse.

Directors and Officers Insurance

This type of insurance covers the personal assets of owners, officers and directors from decisions made by a director or officer on behalf of the company.

Disability Insurance

This type of insurance is used to cover loss in wages due to a workplace injury or illness. This type of insurance differs from worker's compensation by providing compensation for an injury or illness that results in permanent disability. This is NOT required by any government but should be purchased if the business may not be able to survive without your work.

Registrar of Contractors (ROC)

An Arizona state government agency that promotes quality construction by Arizona contractors through a licensing and regulatory system designed to protect the health, safety, and welfare of the public.

Workers Compensation Insurance

An entitlement for employees to receive due to temporary industry-related injuries on the job site, no matter who is at fault. These insurance policies are typically mandated by state law.

Automobile Liability Insurance

Covers personal injury or property damage as a result of operating a vehicle by the employer or employee. The insurance policy applies so long as personnel were operating the vehicle in connection with operation of the business, it typically does not matter if the vehicle is owned by the employer or employee.

Payment of Wages

Not paying wages at least twice a month, not more than 16 days apart is illegal in the State of Arizona.

Inland Marine

Provides coverage for heavy construction equipment while in transit and in use on the construction site.

RFQ/RFP/IFB

Request for Qualifications/Request for Proposal/Invitation for Bids In construction, these are used by a public owner to search for qualified general contractors. The private sector can select individual contractors to share project information and form a bid without these instruments.

Indemnity

The act of one person or entity holding harmless another person or entity. This can be a useful tool in shifting risk to other parties.

Anti-Piracy or Non-Solicitation Provision

This is a provision that prohibits a former employee from soliciting work to the former employer's clients and customers for a certain period of time, however the employee may still work in the industry.

Key-Man Insurance

life insurance that protects a firm against losses due to the death of a key employee or partner.

Payment Bond

A surety bond posted by a contractor that guarantees payment to subcontractors that supply labor and materials to a project.

Additional Insured

A third party added to the primary insurance holder's policy using an endorsement. The additional insured enjoy the same benefits as the primary insured.

Wage Claim

Filed by an employee as a result of failed wage payments by an employer can entitle an employee to treble damages, which are 3x the amount of the wages due.

Sole Negligence Indemnity

For example, in Arizona a person may indemnify another person from that person's own negligence so long as the damage or loss was not caused by the SOLE negligence of that person (the person did it willfully)

Licensing

General contractors licenses are required by some states, but not all.

Contract Types

Generally, two organizations provide templates for contracts, including the American Institue of Architects and the Association of General Contractors.

Crane Service Insurance

Most CGL insurance policies do not cover crane and helicopter operations, so this policy is an additional policy that covers this.

Bond Ratio

Multiplier given to a company based on working capital, which represents the capital in a business (or personally) that is not encumbered or otherwise subject to claims by other or potential future creditors. New companies are usually 10:1 (so if the company has $1,000,000 working capital they have $10,000,000 aggregate bonding capacity). This multiplier changes based on performance, capability, character, and credibility of the contractor.

Confidentiality Provision

Prevents a former employee from using proprietary or confidential information owned by the employer.

Risk

Risk manifests itself in a variety of ways in construction, but generally it is the level of uncertainty in different aspects of a project. Examples are located on Page 77/78 in the textbook.

Design Bid Build (DBB)

The project is designed 100%, then bid for construction and then built.

Overtime

Time and a half paid to employees who work more than 40 hours per week, regardless of amount of work for preceding or subsequent weeks.

Rules for Contract Review

1. Go through the definitions outlined in the beginning of a contract. If you disagree with definitions, negotiate them before executing the document. 2. If a word is capitalized, it generally means that it is defined in the document. 3. Never assume anything

Corporation

A business owned by stockholders who share in its profits but are not personally responsible for its debts All of the previous articles of organization apply from LLCs as well as an addition of the following: - A provision limiting the liability of each director - A provision establishing indemnity of each director.

Cost Plus

A cost method that is based on the cost of the work, plus a fixed variable or constant that represents the Contractor's fee (profit).

ISO Form

A form in which an insurance policy is written.

Offer

A manifestation of willingness to enter a bargain.

Bid

A proposal by the contractor in which the owner will select. There is no contract until the owner selects a bid.

Code of Conduct

A set of ethics that professionals are obligated to obey. The enforcement of these ethics varies by organization. Each organization has a code of contacts, and those involved in construction include: - American Institute of Architects - Association of General Contractors - Association of Civil Engineers

Contract Formation

A set of promises for the breach of which the law provides remedy

Piece Rate

A wage paid based on the productivity of an employee. For example, an employee paid by the number of units installed is a piece-rate employee. These employees are entitled to overtime compensation as well.

Lump Sum

Also known as a fixed-price contract, the contractor agrees to do a fixed SOW for a fixed amount of money. The contractor assumes the risk that the work will exceed the price, and the contractor must cover that cost and vice versa.

Insurance

An instrument in business used to share, control, or shift risk to or with other parties. Most insurance is used to protect you or the business from negligence or omission of work regarding a contract.

Endorsement

An instrument used to change an insurance policy. Kinda like a change order for insurance.

Employers Liability Insurance

An insurance policy that protects employers from loss due to occupational disease or injury. This will typically expand coverage beyond the statutory benefits of Worker's Comp, which include medical bills and lost wages. Required by most project owners and general contractors.

Duty to Defend

An obligation of an indemnity provision that may require one party to be defended on behalf of another based on the indemnity agreement.

Indemnity Scope

An outline of indemnity obligations in an agreement.

Collateral

Collateral in a bond agreement between a contractor and a bond company is usually given in indemnity provisions. This essentially allows the surety to pierce the limited liability protections of the company in order to obtain direct access to the personal assets of each member.

Consideration

Consideration exists when a promise or return bargain are bargained for. In construction, this is usually a promise from the owner to pay for the Contractor's services in exchange for the Contractor performing the work.

Pollution Liability Insurance

Covers bodily injury and property damage as a result of water or soil contamination in relation to construction activities, leaking storage tanks, spills, storm water runoff. This typically includes the clean-up costs as well.

Builder's Risk Insurance

Covers damage to materials, fixtures, and equipment that may occur during the course of construction.

Commercial General Liability (CGL)

Covers loss or damage resulting from contractor's negligence, including property or bodily injury. This does not include the labor cost to repair or replace the contractor's work.

Riggers Liability Insurance

Covers the liability arising from the transportation of equipment.

Privity of Contract

Direct contractual relationship between two parties. This is important because it is critical for a contractor to be aware of which parties you have contractual privity with.

Exceptions from Licensing

Equipment Manufacturers and Material Suppliers, Owner/Builder, Architects and Engineers, Multi-Family Housing, Handyman, Gardener, Federal Government Construction

FLSA

Fair Labor Standards Practice Act; wages are regulated by this piece of federal legislation.

Meeting of the Minds

In order for a contract to exist, both parties must manifest a mutual assent. In other words, both parties must meet and discuss the terms of a contract and agree on the same set of conditions.

Independent Contractor Status

Independent contractors are not considered employees under state and federal law. Because of this, an employer is not responsible for payroll taxes, insurance, or other employee related expenses normally incurred by the employer.

Excess Liability Insurance

Intended to cover losses that exceed the policy limits of the CGL and automobile insurance policies. Does not go into effect until the primary insurance policies are exhausted.

Davis-Bacon Act of 1931

Sets forth wage determinations on federal projects that are set based on local wages for each trade. Failure to comply with this act may result in a breach of contract and black listing from other federal construction projects.

Cost Plus a Fixed Fee

Similar to Cost Plus a Percentage, but the payment to the contractor is a fixed cost.

Cause and Effect Chain Reaction

Stakes for each player in the construction project that can falter due to failed performance of one party.

Transaction Privilege Tax

Tax charged by the State of Arizona on construction. The amount varies city by city.

Contract Documents

The Contract Documents consist of the Agreement between the Owner and Contractor, Conditions of the Contract (General, Supplementary, and other Conditions), Drawings, Specifications, Addenda issued prior to execution of the Contract, other documents listed in the Agreement and Modifications issued after the execution of the Contract

Exemption

The federal government allows for an exception from the overtime pay regulations. An employee that is a bona fide executive, administrative, or outside sales may be exempt from being paid overtime for work performed over 40 hours in a week. To be exempt the employee must: 1. Earn at least $455 per week. Effective December 1, 2016, this amount will change to $913 per week. Also, effective December 1, 2016 the highly compensated employee threshold will increase from $100,000 to $134,004 per year. Additionally, these figures will be adjusted every three years beginning on January 1, 2020; 2. Perform primarily office or non-manual work directly related to the management or business operations of the employer or the employer's customers; and 3. Be authorized to exercise discretion and independent judgment with respect to matters of significance to the employer.

Subrogation

The right of an insurance company to assert the claims of its insured. For example, an insurance may sue a party responsible (that is not the insured) in relation to a claim made by the insured.

Rate of Pay

There is a federal minimum wage that all states must meet, but some states have higher minimum wages. All employers are required to pay at least the minimum wage rate.

Richard E. Lambert vs. Houston Construction Company (Memorandum - NOT LEGAL PRECEDENT)

This is a case in which the Subcontractor (Houston Construction) submitted a bid to the General Contractor (Lambert) that indicated 12 qualifications as to how the bid was calculated. The owner submitted AIA contract documents unsigned, that indicated that Houston Construction did not have the manpower to uphold its contract, even though they had already submitted their bid. Because the general contractor had to go with a higher bid, they requested that the subcontractor (Houston) cover the increased cost of construction, which held up in the Court of Appeals.

Job Order Contracting

This is a delivery method, also based on qualifications, that allows Arizona cities to procure an indefinite quantity of construction. Work is not necessarily guaranteed in this contract type.

Counteroffer

This is a new offer submitted by the offeree to the offeror relating to the same matter as the original offer with a new bargain. THERE ARE OTHER CASES TO STUDY IN CH 1

Design-Build (DB)

This is a single contract that is also qualifications based, but the design is also handled by the same firm.

Cost Plus an Incentive Fee

This is an agreement between the Owner and Contractor that means that the owner will cover the cost of construction, and overruns/savings will be split based on an agreed upon ratio.

Unit Price

This is an agreement in which the owner agrees to pay a unit price term. This is common amongst specific trades that can be easily calculated in units such as square feet, cubic yard, gallon, ton... ex Concrete subcontracts.

Employment of Unauthorized Aliens

This is pretty self-explanitory, but this is illegal by Arizona state regulations/other state regulations and is punishable by law. In Arizona, working through a subcontract does not provide immunity, even if done unintentionally.

General Partnership

This is the business equivalent of a sole proprietor, except that there are two or more people that establish a business together. If a LLC is not formed, this business organization will be treated as a General Partnership.

Guaranteed Maximum Price

This is the maximum amount the owner is contractually obligated to pay. The contractor's fee is incorporated in the price of the contract, so the contractor must be sure not to overrun the cost of a project to ensure cost overruns do not dig into their profit. Change orders can adjust the GMP to account for work outside of the scope.

Limited Liability Company

This is the most common business structure. Allows for the greatest flexibility with the least restrictions on reporting and maintenance of the entity. This business structure has one or more members, who are not personally liable for debts or obligations of the business. Establishing a LLC involves filing Articles of Organization with the state. This includes: - Name of the Limited Liability Company - Name and Address of the Statutory Agent -Address of the Limited Liability Company's - Principal Place of Business The Latest Date on - Which the Limited Liability Company will - Dissolve Management will be vested in the - Members or Manager(s) - Name of the Members

Sole Proprietor

This is the one that does not make sense anymore. This level of business ownership is risky because business and personal assets are not separated. Your personal liabilities are exposed to business risks. This is the "Joe the Plumber" style of business where one person owns the business. Most general contractors will not allow sole proprietors on the job site because they present a heightened level of liability.

S-Corporation

This is the type of corporation that is taxed once, the tax is assessed with each shareholder. This is also known as a pass-thru entity, and cannot be publicly traded.

C-Corporation

This is the type of corporation that is taxed twice, once at the corporate level and then at the personal level. These types of organizations can be publicly traded.

Business Liability Insurance

This type of insurance typically protects business assets in the case of third party claims that occur on company property or damage to company property. This typically is used to protect a company from lawsuits

Double AA Builders vs. Grand State Construction

This was an issue regarding a bid that a subcontractor, in this case Grand State Construction, submitted in the amount of $115,000 for EIFS work on a new Home Depot. They were chosen to perform the work, but had already committed themselves to other work after submitting their bid. They declined to perform the work because they could not devote the resources for the project. Because of this, Double AA Builders was forced to accept a higher bid, of which the difference was $16,449. Double AA Builders took this to court, where all courts upheld that they were entitled to the difference on the basis of "promissory estoppel", which essentially states that since they promised to perform the work for a certain price, the GC is entitled to the difference in cost incurred by going with another subcontractor.

Motivation

Types of motivations in construction include money, repeat business, awards, personal satisfacton

Professional Liability Insurance

Typically a claims-based insurance policy that covers errors and omissions of licensed professionals (architects, designers, engineers). GC must purchase for design-build projects.

Bid Chiseling (Bid Peddling)

Unethical practice by a contractor which involves forcing a subcontractor to lower the price of a bid oftentimes by threatening to award the contract to another subcontractor.

Bid Shopping

Unethical practice by a general contractor which involves revealing the lowest bid to other subcontractors and asking them to undercut that bid. This is punishable by law in several states

Time and Material

Useful price term where there are unknown quantities or conditions to the Scope of Work. Circumstances where this may be applied is change order work for example where there may be an unforeseen hard dig or additional pipe installation.

Construction Manager at Risk (CMAR)

Work is awarded based on the qualifications of the contractor. It also allows for designs to not be 100% complete in order to start construction.

Acceptance

the action of consenting to receive or undertake something offered. After a bid is accepted, a contractual agreement is generally formed. An accepting of a bid is usually facilitated by writing a contract by the Owner.