Project Management View from Rail Transit Programs and Projects

Critical Components in Special Conditions/Supplemental Terms and Conditions  -  Part B

In most contracts, the Contract Terms and Conditions may be amplified using sections for Special Conditions (SC) or Supplemental  Terms and Conditions (STC).

This is the 12th in a series of discussions that is intended to prompt Project Teams to be aware of the entire contract document, including Information For Bidders (IFB), General Conditions/Terms and Conditions (GCs) and the Technical Requirements [Specifications and Drawings.] 

In the rail transit domain, there may be unique requirements that are created by work conditions, from implementation of alternative delivery methods, for multiple milestones with liquidated damages and for incentives to beat performance milestones.   By exception, these requirements are expressed in SC and STC.

INSURANCE :   Typically, insurance requirements cover General Liability, Workmen’s Compensation, automotive, and professional liability.  The scope and insured amounts are established by the Buyer’s legal and risk management groups.   In a railroad environment, the requirements are supplemented to include:

Railroad Protective:   This coverage applies to a contract work zone that requires the contractor to work under hazards such as moving passenger trains and on-track vehicles, high voltage third rail and overhead catenary systems.

Environmental:   This coverage applies to a contract work zone where there is known materials and risks of hazardous materials, such as contaminated soil, asbestos containing materials and cables, lead in paint and cable insulation, and hazardous materials in soils such as PCBs and mercury.

WARRANTY:   Generally, the standard contract form specifies the requirements for warranty of the products, including the period based on a defined date typically a contract milestones, such as Substantial Completion.    However depending on the complexity of systems, first time applications of technology or unique execution means and methods in an operations environment, trade standard warranty requirements may not be adequate.    In these cases, Buyer’s will supplement requirements with processes and metrics.

The SC and STC Warranty requirements such as:

• Seller’s time to respond to Buyer’s request
• Buyer’s right to perform repairs
• Seller’s time to complete repairs after Buyer’s request
• Seller’s inventory of spare parts
• Management of manufacturer’s warranties

TIP:    Warranty commercial requirements in the SC/STC should be coordinated with requirements that are identified in technical specifications.

MATERIALS PROVIDED BY BUYER:    Division of work on contract uniformly specify the contractor responsibilities for labor, materials, equipment and supervisory services to complete the work.   In unusual circumstances, the contract requirements stipulate the Buyer provides the Seller with materials for installation as part of the contract scope.    As a result, the contract will incorporate technical information in the Div 1 specifications, and commercial conditions for transfer of materials between Buyer and Seller and the responsibilities for accepting and storing materials for installation when required.   This may include warehousing requirements, bonding, insurance and processes for accepting materials.  

TIP:  Ensure the project risk management plan and the contract management plan includes the required resources and processes for executing and managing the work under this project requirement.

TIP:   Ensure a cost benefit justification is documented to support the decision for the division of work on the contract.

Critical Components in Special Conditions/Supplemental Terms and Conditions  -  Part A

In most contracts, the Contract Terms and Conditions may be amplified using sections for Special Conditions (SC) or Supplemental  Terms and Conditions (STC).

This is the 11th in a series of discussions that is intended to prompt Project Teams to be aware of the entire contract document, including Information For Bidders (IFB), General Conditions/Terms and Conditions (GCs) and the Technical Requirements [Specifications and Drawings.] 

In the rail transit domain, there may be unique requirements that are created by work conditions, from implementation of alternative delivery methods, for multiple milestones with liquidated damages and for incentives to beat performance milestones.   By exception, these requirements are expressed in SC and STC.

LIQUIDATED DAMAGES (LDs):    As discussed in Part 8 of this series, most contracts with liquidated damages are based solely on a performance milestone for substantial completion.    However, the Buyer can incorporate more milestones and different LD amounts depending on the contract delivery method and interdependencies with predecessor or successor contracts.    Contracts where these requirements may be applicable include design-build construction contracts, design-build system contracts, and bid-build construction contracts with Buyer furnished materials.    These contracts may incorporate milestones for delivery of major equipment, completion of design submittals, completion of construction submittals, and completion of construction corresponding to access constraints and work restrictions. 

INCENTIVES:   Incentive requirements are the exception to 99% of contracts.  For Buyer’s with a defined benefit for early completion of milestones, the opportunity to utilize the contract provision may off-set the premium cost for accelerated work.  In these cases, the contract may incorporate incentives for Seller payments tied to performance schedule milestones.  

Incentives are intended to encourage contractor creativity to accelerate completion of milestones while achieving the form, fit and function of products.     Similar to decisions on LDs, Buyer incorporation of incentives needs to be carefully considered.   Schedule benefits should be tabulated and quantified in the Buyer’s business case that justifies the incentives in a contract.  

While LDs reduce a contract amount for delays, incentives can increase the contract amount for completion of milestones ahead of the contracted dates.   As a result the Buyer’s project finances need to ear-marked funding to cover the liability for Seller’s success.   

The contract language is likely to be more extensive and include specific criteria for the Buyer confirming entitlement for the Seller achieving early completion of defined milestones.    The contract will also amplify the claims, remedy and resolution requirements regarding variances between Buyer and Seller interpretation of entitlement.

TIP:   LDs and Incentives should be carefully balanced with the administrative effort to monitor, manage, document and enforce.   

TIP:   Contract language should define the coordination between LD and incentive requirements to ensure Buyer and Seller clearly understand enforcement, conflict resolution and remedies.    

TIP:    The Buyer’s procurement/contractor acquisition should select either the LD or Incentive requirements to avoid conflicts in focus by the contractor during contract execution.   LDs and Incentives in a single contract will create distractions as the contractor makes internal decisions to capitalize on milestones tied to incentives while accepting delays and cost liabilities on milestones tied to LDs.   

TIP:   Incentive estimate should be vetted thoroughly to ensure the document can be defended by the Buyer in response to a claim from the Seller or subsequent litigation action by the Seller. 

Critical Components in Division 1 Specifications - Part B

This is the 10th in a series of discussions that is intended to prompt Project Teams to be aware of the entire contract document, including Information For Bidders (IFB), General Conditions/Terms and Conditions (GCs) and the Technical Requirements [Specifications and Drawings.] 

In the rail transit domain, construction contracts may include items that are executed under unique conditions.  The conditions include sharing property by multiple prime contractors, work progress while maintaining Buyer’s use of surrounding assets, restoring asset use after each work period, scheduling work within defined outages and service plan changes.  

Div 1 Railroad Operations:  This section contains the requirements for executing work in a work zone while the Buyer maintains full service for train operations.   The topics may include roadway worker protection, service changes, track/power outages, on-track vehicles, railroad provide services, work during operational emergencies, operating vehicles and vehicles on Right-Of-Way (ROW).

Div 1 Temporary Construction:  This section contains the requirements for constructing and removing temporary work to support work execution, and protecting railroad assets throughout the contract.  The topics may include supervision and employee facilities, parking and storage areas, facilities for railroad personnel, and customer flow through work areas. 

Div 1 Site Conditions Monitoring:   This section contains the requirements for monitoring site conditions  and railroad assets, and implementing corrective actions that may result from influences of passing vehicles on or adjacent to tracks, bridges, buildings, utility poles and equipment rooms and enclosures.     The topics may include soil grade and density, track bed and right of way slope, erosion at abutments and retaining walls.  

Div 1 Pre-Construction Planning and Controls:   This section contains the requirements for the startup, protection  and maintenance of work site conditions throughout the contract.   The topics may include relating the Safe Work Plan with the use of labor and equipment at site specific locations, and utility mapping, excavation monitoring, and mark-out of known subsurface utilities and infrastructure.

Div 1 Code Enforcement Coordination:  This section contains the requirements for coordination of progress on inspections and validation of compliance with the code requirements throughout the contract.   The topics may include a summary of the products in the contract requiring inspection, and the processes, procedures and records that are required for the Buyer to use the work completed under the contract.  

TIP:   Div 1 requirements should be correlated and consistent with the other Division specifications.

TIP:   Depending on circumstances and management requirements, additional Div 1 specifications can be created and incorporated into the contract.   However, more specifications mean more prescriptive requirements.  In turn, it means allocating more management resources to monitor and document compliance, and increase risk threats to progress and critical schedule dates.

Critical Components in Division 1 Specifications - Part A

This is the 9th in a series of discussions that is intended to prompt Project Teams to be aware of the entire contract document, including Information For Bidders (IFB), General Conditions/Terms and Conditions (GCs) and the Technical Requirements [Specifications and Drawings.] 

Division 1 specifications (Div 1) are the most utilized requirements by the Buyer’s project manager for managing the Seller’s progress of work.    It is important the Buyer’s Project Manager, Contracting Officer, and PM support services (scheduler and estimator) verify content or provide input that ensures the contract is complete and executable.    The specifications should be consistent with the Buyer’s processes, procedures and practices of the Project Management Office, and with the funding partner conditions for financial assistance.

The Div 1 typically include:  A)  Summary of Work.  B) Meetings.  C)  Submittals.  D) Deliverables.   E) Schedules.  F) Quality.  G) Temporary Construction and Facilities.  H)  Safety.    Depending on the scope of contract, there may be sections associated with interdependent work by the Buyer or Buyer’s representative including:  I) Materials Provided By the Buyer.   J) Code Enforcement Coordination.  K)  Site Conditions Monitoring.   In the rail-transit domain, there may also be sections for:  L) Railroad Operations.  M) Security.  N)  Pre-Construction Planning and Controls. 

The format and content of the Div 1 usually follows a model established by the Buyer’s organization and as modified by the PMO and the recommendations from the Engineer-Of-Record.   Most specifications [Sections] include:  1)  General-Scope, Referenced Sections, Cited Standards, Restrictions, Quality, Submittals, Deliverables.   2)  Products-components and technical requirements.  3)  Execution-process and sequence requirements.    The content may also include unique requirements for coordinating with the Construction Manager, interfacing with other contractors and consultants, and accepting transfer of materials and related work by others to support Seller’s execution of work.  

Div 1 Summary of Work:   This section contains the high level description of the overall work that is consistent with the details provided in the specifications and drawings.    It may also include work performed by other contracts or entities preceding and during the Seller’s work period.

Div 1 Schedule:   This section contains the qualifications for the Scheduler and the requirements for the schedule and the format and contents of various monthly reports.   The topics may include 90day schedule, detailed contract schedule, 4 week rolling schedule, and monthly schedule report/analysis.

Div 1 Submittals:   This section contains the requirements for the submittals, the submittal process, review periods and disposition definitions, and the format and contents for submittal register/log, shop drawings, product data, samples, test procedures, and calculations.

Div 1 Deliverables:   This section contains the requirements for the schedule and the format and contents of various monthly reports.   The topics may include deliverable register/log, inspection reports, test reports, training lesson plans, training manual, operations and maintenance manual, monthly progress report, as-built drawings, pre-construction photographs and progress photographs.

Div 1 Meetings:    This section contains the requirements for various meetings and the format and content of Agendas, meetings announcements and meeting minutes.   The topics may include contract kick-off meeting, progress meetings, submittal review meetings, and schedule review meetings.

Div 1 Integrated Testing/Commissioning Acceptance Maintenance Plan (CAMP):   The section includes topics such as CAMP matrix, integrated test plan, acceptance test procedures, acceptance certificates, warranty statement/certificates, and warranty procedure, forms and contact information.

Div 1 Safety:    This section contains the qualifications for the Safety Officer and the requirements for the Safe Work Plan and Specific Work Plans.   The topics may include safe work practices; accident prevention; incident and accident responses; employee safety training and personal protective equipment; instructions for working on Buyer’s property; designated storage areas; fire prevention and protection tools and equipment; tool box safety meetings; key communication procedures; and fire drills. 

Div 1 Security:   This section contains the qualifications for the Security Officer and the requirements for  the Security Plan.   The topics may include personal identification; employee background checks; controls for employees, materials and vehicles entering and leaving the work area; incident and accident response; key communication procedures; and evacuation drills.

Div 1 Quality:    This section contains the qualifications for the Quality Manager and the requirements for Quality Managements System and the contract specific Quality Plan.   The section identifies the primary elements of the ISO Quality standard including topics such as tests and inspections, records, non-conformances, and correctives actions.

TIP:   Personnel qualifications in Div 1 specifications should be referenced in the IFB or copied directly into the IFB Key Personnel.

TIP:    Div 2-16 specifications list submittals in each section for CM to substantiate, before the purchase/construction activities, the Seller’s compliance with product requirements.

TIP:    With exception of system contractors, submittals disposition is defined by the organizations best practices.    System contract may implement an acceptable alternate to submittal dispositions and Request For Information.

Critical Components in General Conditions   -  Liquidated Damages

This is the 8th in a series of discussions that is intended to prompt Project Teams to be aware of the entire contract document, including Information For Bidders (IFB), General Conditions/Terms and Conditions (GCs) and the Technical Requirements [Specifications and Drawings.] 

It is important the Buyer’s Project Manager, Contracting Officer, and PM support services (estimator) verify content or provide input that ensures the contract is complete and executable within the Buyer’s organizational assets and business processes.   

GC – Liquidated Damages (LDs):   LSs is an estimated amount of costs incurred by the Buyer for the Seller’s delay in meeting milestones in contract Performance Schedule requirements.     The amount is expressed in a unit measure for the delay.  For each hour, day or week delay, the amount is accrued for  deduction from the Seller’s future payment requests/invoices.     The deduction is at the discretion of the Buyer and it follows the contract requirements for payments, which includes reduction for cause.   It does not constitute a change in the contract. 

The use of LDs is determined by the Buyer during the contract development process, and they are a function of critical interdependencies with other contract activities, other project work or other projects in a program or portfolio.   LDs can also be the result of statutory dates in government regulations and mandates that were used to identify Performance Schedule milestones and completion dates.     However, the Buyer’s decisions on LD requirements comes with the potential of higher bid amounts as bidders seek to cover the risks with allocations to mitigate potential delays and respond to events to minimize impacts from delays to milestones, and thereby to avoid erosion of profits.   

The LD amount is based on an estimate created from a description of impacts on the Buyer due to the Seller’s delay.   This may include expenses  for dedicated staff to support the Seller’s work ,including stand-by crews and equipment for schedule activities.   The estimate must be a reasonable representation of expenses and be based on the cost metrics and conditions known at the time of the bid.   

LDs can apply to one or more specific milestones in the Performance Schedule.   The most common milestone is Substantial Completion, which allows the Buyer to use the Seller’s product with the condition that punchlist work is defined and a completion date agreed upon before the contract completion milestone.    However at the Buyer’s discretion, other milestones and LD amount can be identifying and added during the contract development.

 LDs can not be waived.   The only action/remedy to reduce the Seller’s liability for Buyer’s estimate of incurred cost is for the Buyer to change the contract date in Performance Schedule for the milestone associated with the LD.    The process for changing the Performance Schedule can be initiated by the Buyer as a contract changes due to an Owner delay or by the Seller as a request for time extension.    The implementation of a schedule change requires the same level of diligence and justification as to grant an excusable delay or scope change, and to the documentation to substantiate and process the change in the contract.        

Usually, the contract does not include a “capped” amount for the accrued amount of LDs.  There may be organizational Lessons Learned that necessitate the Buyer adjusting the LD requirements.    This may be needed based on questions during the bid period from numerous bidders.    In order to ensure bid responses, the Buyer may adjust the LD amount and/or add requirements to specify a maximum accrued amount. 

For contracts in the rail transit domain, LDs are commonly used for contracts involving locomotive and passenger car purchases, specialized work equipment vehicle/shop equipment procurement, and for infrastructure systems for signals, supervisory controls, train movement controls, power substations, and signal power that are interdependent with other contracts within the project or program. 

TIP:   LDs estimate should be vetted thoroughly to ensure the document can be defended by the Buyer in response to a claim from the Seller or subsequent litigation action by the Seller. 

TIP:   LDs should be monitored and as potential accruals near, the Buyer and Seller should address the topics at progress meetings and describe actions in the monthly progress reports.

TIP:   LDs on multiple milestones should be carefully balanced with the administrative effort to monitor, manage, document and enforce.