Project Management View from Rail Transit Programs and Projects

This is the 14th 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 Provisions/General Conditions/Terms and Conditions (GCs) and the Technical Requirements [Specifications and Drawings.] 

Part 14 of Know the Contract is Contract Completion/Closeout.   Closeout is the successor to all other work performed under the Contract and it is final set of activities between the Buyer and Seller.    While the requirements for Closeout may be scattered throughout the Contract document, the most important are described in the GC’s sections related to Schedule and Payments.   At this phase of the Contract, the Buyer’s Contracting Officer is the primary arbiter for determining that all requirements are met by the Seller and confirmed by the Buyer’s Project Manager.   

Part 6-Schedule Performance and Part 7-Progress & Milestone Payments of this series describe the content in the typical contract Form.   Satisfying these requirements precede completing the Closeout process and documentation, and includes substantiating completion of testing and start-up; training; delivering spare parts; submitting operation & maintenance manuals, software, as-built drawings, asset management data and warranty; and closure of all quality management  processes and deliverables. 

Regardless of the contracting method, such as Design-Bid-Build, Design Build and CM At Risk, the Closeout of the contract is governed by the GCs as well as any Special Conditions and terms negotiated for contract award.   The typical activities and topics include:

• Settling all change orders, requests for extension of time due to Buyer actions,  differing site conditions or claims for extra work and damages
• Reconciling all incentives payments and damage accruals from exceeding or delaying established milestone dates for completion of work
• Confirming receipt of all GC deliverables, including photographs, monthly progress reports and schedules, manpower utilization reports, certified payroll and prevailing wage records,  and prompt payment records.
• Resolving all claims, disputes, legal actions, or pending attorney actions between Buyer and Seller, including all contract issues with Seller’s subcontractors, vendors and suppliers
• Verifying all payments and release of retainage to prime contractor, subcontractors, vendors and suppliers 
• Processing all contract modifications and final contract amount
• Transferring all contract records in paper and digital format

During the Closeout phase, the Buyer may develop Lessons Learned from the Seller’s performance on the Contract.  The Lessons Learned will be utilized by the Buyer to consider changes in requirements as well as management processes and documentation on future Contracts.  Some of the topics from Lessons Learned may include:

• Effectiveness of the contracting delivery method and the Buyer’s and Seller’s organizational structure to support the work
• Realism in Buyer’s duration for contract milestones and effectiveness of incentives and liquidated damages
• Evaluation of Seller’s prime contractors, vendors and suppliers to meet the Buyer’s schedule deadlines
• Buyer’s and Seller’s risk threats and opportunities mitigated and realized during the Contract
• Change orders and claims encountered by Buyer that may be avoided by editing requirements in future Seller’s contracts.

TIP:  The responsible parties for Closeout are the Buyer’s Project Manager with support from the Buyer’s Contracting Officer and the Seller’s Project Manager with support from the Seller’s prime contracting/procurement official.

TIP:  While risking duplication of requirements, create a separate Division 1 specification covering the requirements and deliverables checklist for contract closeout.

TIP:   Most US contract Forms were written based on paper transactions throughout the Contract cycle.  Due to awareness of threats outside normal contract and project processes, security of products, deliverables and documentation is now part of controlling access to sensitive contract records.    As a result, EDMS has replaced paper documents and is used more effectively to segregate, store and restrict distribution of documents that contain sensitive information.      

TIP:  The use of electronic document control system (EDMS) has become a critical part of managing and executing the work at a project and contract level.   As a result, there may be a need to create requirements for content, format, compatibility and the transfer method of the Seller’s EDMS with the Buyer’s hardware, software and the organizational management of records.  

TIP:  Ensure Closeout requirements and terminology are well defined and are consistent with the process and requirements in the GCs.  Clarity of terms is essential for both the Buyer and Seller. 

TIP:  Buyer’s Contracting Officer should provide clear guidance to the Buyer’s Project Manager on the process, timeline and documentation required to satisfy the contract closeout.

After the Buyer’s organization determines project execution will use the Design-Build contract delivery method, the Project Management Office (PMO) will undertake changes to transition from the more traditional Design-Bid Build processes, procedures and best practices.  

Many of the changes in the Buyer’s organization and PMO were highlighted in the October 2017 article “Are You Ready for Design Build Project Delivery Method for Rail Transit Projects?”    https://www.projectmanagement.com/discussion-topic/73079/Are-You-Ready-for-Design-Build-Project-Delivery-Method-on-Rail-Transit-Projects.

This article expands on the TIPs regarding changes to contract content.   

Traditionally, design and deliverables for construction contract documents are completed under a service contract with an Architecture/Engineering (A/E) firm.   The acquisition process for design service contract typically uses a Request For Proposal (RFP) process.  The Buyer’s process evaluates the Sellers technical proposals before negotiating cost to award a contract.   Depending on the domain of the Buyer, the award process from the time of publishing an RFP to award can range from 4 months to 9 months.    The contract duration for preparing designs and deliverables can range from 6 months to 18 months. 

Typically, the contract documents are then bid for a firm price by a contractor to complete the construction.   The acquisition process for construction contracts uses an Invitation For Bid (IFB) process.  The Buyer’s process evaluates the responsive and reasonable bid from the Seller with the lowest price.  Depending on the domain of the Buyer, the award process from the time of publishing an RFP to award can range from 2 months to 6 months.

Under DB delivery, a partial design document is used to develop the requirements for the construction contract.  This eliminates the project duration for completing the design to100% and saves time to starting construction.     This schedule benefit is achieved by having the construction contractor team with an A/E firm to complete the remaining design as construction proceeds concurrently.   

As a result, the standard contract needs to integrate design scope and deliverables into the construction contract requirements.   While there are various DB Models available, this article presents changes used in the rail-transit domain for converting the traditional construction contract into DB contract by integrating design requirements into Information for Bidders, General Terms and Conditions, and Division 1 Specifications.

For a recent rail-transit contract, here are the changes to the BDD contract Model that were implemented to create a DB contract:

Information for Bidders (InfoFB)

• Add technical proposal requirement for Written Work Plans and Manpower Plans for managing design resources and subject matter experts throughout the contract.   This incorporates Plans that are normally part of design service consultant contracts.
• Add technical proposal requirements for statement on Risk Management approach throughout the contract, and a preliminary Risk Register, which will be monitored and managed by the DB contractor.  The Risk Management will follow the standards and best practices in Project Managements Institute (PMI) guides and practice standards.  This requirement is recommended by Design Build Institute of America (DBIA). 
• Add cost proposal requirements for identifying funding allocations in the proposed contract pricing that is assigned to mitigate and respond to risks identified in the proposal.   The funding allocations will establish a basis for the Buyer and Seller to manage risks after contract award through contract completion.   This requirement is recommended by DBIA.   

General Terms and Conditions (GT/C)

• Add new Article for Risk Management, which incorporates the requirements for managing risks throughout the contract.  This incorporates identifying risks, defining risk trigger metrics and threshold, monitoring process, mitigating actions and responding to triggered risks.    This requirement is recommended by DBIA.    

Division 1 Specifications

• Add description of design scope into Summary of Work.  This incorporates the technical description of design activities normally detailed in the design services consultant contracts.   In conjunction with Performance Milestones, the design and deliverables will be defined, such 60% Design, 90% Design and 100% Design.
• Add requirements for design review meeting into Meetings, the including discussion topics and deliverables.   This incorporates the technical description of design review meetings normally detailed in the design services consultant contracts.
• Add requirements for design documents into Submittals.   This incorporates the technical description of design deliverables normally detailed in the design services consultant contracts, including content and organization, and the requirements for addressing comments on predecessor design deliverables. 
• Add new Project Management Section, including requirements for Project Management Plan, including interdependency with Risk Management Plan cited in InfoFB and GC/T.     This incorporates the description of the contractor’s management of personnel, processes and schedule of all design and construction activities, which is normally associated with design services consultant contracts.  This requirement is recommended by DBIA and Project Management Institute (PMI).  

TIP:  Adapting BD requirements to the Buyer’s existing DBB contract Model should be less intrusive to developing a new DB contract Model.  

Henry Hattenrath is an experienced project/program management leader and consultant on rail transit capital projects, and he is a frequent contributor on Project Management.com and LinkedIn.com.

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.