FAQ.01
Question:
The contractor has applied for their first progress draw and are requesting 14% of the general conditions. Actual construction has not fully started but there has been office admin as well as obtaining bonding and insurance. As the payment certifier, we have requested invoices indicating the cost for the bonding and insurance to help justify the draw request. The contractor has refused to provide the information indicating it is confidential. Is the general contractor obligated to provide the requested information per CCDC 2?
Short Answer:
Members expose themselves to liability if they over or under-certify. Without adequate information to justify more than 1/(number of months contract duration) for general conditions, members should not certify a higher amount.
Expanded Answer:
The question pertains to a CCDC 2 contract, and as such, one must refer to the requirements set forth in this form of contract, as well as consider normal industry practice.
- It is known that the contractor is applying for 14% progress of the general conditions.
- Since contract administrative work has begun, it is assumed that a contract has been signed between the owner and the contractor.
- There does not seem to be enough information provided to the architect in order to assess the requested progress draw percentage, including justification for bonding and insurance costs. In simple terms, bonding and insurance costs are part of the contractor’s costs in the signed contract. Therefore, these costs should be a part of the schedule of values agreed between the contractor, owner and architect.
If you review what is in the contract, you will find that:
• CCDC 2-2020, General Condition 5.2.5 states: “The schedule of values shall be made out in such form and supported by such evidence as the Consultant may reasonably direct.” and 5.2.6 states: “Applications for payment shall be based on the schedule of values accepted by the Consultant and shall comply with the provisions of any Payment Legislation.”.
o If the contractor has not appropriately broken-out the general conditions or any other line item in the initial schedule of values in enough detail to enable proper assessment of the value of work completed, the architect is within reason to require the contractor to provide further breakdown before accepting the schedule of values, all in accordance with the contract.
• General Condition 5.2.4 states “The Contractor shall submit to the Consultant, at least 15 calendar days before the first application for payment, a schedule of values for the parts of the Work, aggregating the total amount of the Contract Price, so as to facilitate evaluation of applications for payment.”
o Following contract award, and during review of the contractor’s proposed schedule of values, a good practice measure would be to have the contractor sufficiently break down the general conditions, to isolate one-time expenses from ongoing expenses. Thus, bond and insurance costs, which are usually paid upfront, would be separated from the ongoing monthly expenses.
If all other items in the general conditions of the schedule of values seem reasonable, but the overall value of bonds and insurance seem out of the ordinary (in industry practice), the architect may reasonably request evidence supporting any of the requested amounts in the schedule of values, including bonding and insurance - this evidence may not necessarily be in the form of an invoice. If the contractor invokes confidentiality as a cause for not providing justification for any direct or indirect construction costs, he/she may have to either reconsider, or come to an agreeable term, insofar as satisfying the architect in their responsibility to be fair in payment to both parties to the contract.
The architect may utilize the specifications to augment requirements already stipulated in General Conditions 5.2 through 5.7 inclusive. In this case, the specifications may identify the specific composition of the schedule of values or require supporting evidence for the review of applications for payment, including items related to bonding and insurance.
Note that some bonding and insurance costs may be included under general conditions rather than in a separate line item. Excluded should be the costs of bid bonds and general insurances carried by the contractor. Included should be the costs for labour & material, and performance bonds, and any project specific insurance. The costs for bonding and insurance may be placed on a separate line item of the Schedule of Values where the amount is significant enough for the contractor to want to be paid in full for them at the beginning of the project. Upon receipt of bonding and insurance documentation from the contractor, the architect should advise the owner to verify, prior to issuing payment, that the required bonds and insurances have indeed been obtained and that the appropriate named parties are listed, prior to certifying payment. Verification by the owner may include a call to the surety and insurance companies, or the owner’s legal counsel may determine the best way to confirm the validity of the bond and insurance certificates.
The architect should independently verify for their own protection that the consultant has been added as a named insured in the appropriate insurances.
All parties should refer to the current Construction Act, for related requirements and responsibilities.
References:
Updated: 2021/Mar/18