"Complete Risk Avoidance by Buyers of Construction!"
Every day, and with each passing tender, the OGCA continually advocates on behalf of our members. Overall, the OGCA has been very successful in clearly and definitively communicating to the buyers of construction what our members will not accept as language within tender documents. However, sometimes we receive language in a tender that is so far outside the pale that it almost defies logic.
Before I get into the specifics of the tender language in question, I did want to quickly note why the OGCA is success at influencing tender language.
The OGCA is successful because we provide the "why" response for what makes the language unacceptable to general contractors.
To demonstrate this point, let''s use the rationale we provide the buyers of construction as to why validity periods need to be returned to thirty (30) days.
With the exception of only a few, most of the tenders that are issued do not denote a validity period of thirty days. Most are sixty (60) and ninety (90) days, and recently we have seen a shift back towards ridiculous thresholds of 180 and above.
The OGCA generally communicates that 30-days is a universally accepted industry standard and that this timeframe characteristically grants the owner sufficient time to review and subsequently award the tender to the most qualified recipient.
We communicate how the global pandemic has affected and continues to directly affect the supply chain, and that almost all construction products and items have subsequently been affected.
We clearly denote that this supply chain strain then directly influences all subtrades and suppliers, since they are now only holding their pricing to the general contractors for no more than forty-eight (48) hours.
We communicate the lowering of the validity period as a significant advantage that is completely within the control of the buyer of construction since this small detail directly provides the buyer of construction with a greater degree of accuracy and eliminates the potential risk being borne by the general contractor, who would typically price that risk component into the bid submission.
We continue to provide rationale by noting that by artificially increasing the length of time to award a construction project, something directly within their control, this then inadvertently causes an unintended consequence with respect to a contractor''s bonding capabilities. You see, most buyers of construction are unaware that the bonds on tenders, once submitted, are held outstanding until there is a successful award. They do not understand that this directly diminishes the contractor''s overall bonding.
The OGCA notes that Surety providers are becoming more concerned about price volatility and the potential for their bonded clients to incur significant losses from having to absorb a hefty price escalation for a key material component. Therefore, a contractor may find that their surety provider is reluctant to support a tender where the validity period goes beyond thirty (30) days, unless they are certain that the bid has been sufficiently qualified with provisions for price escalation.
This is typically the rationale we provide to communicate succinctly to the buyers of construction that the ability to control the pricing of the overall direction of tenders is completely within their direct control.
But, as I noted at the onset, sometimes we receive language that is so far offside it requires that we communicate this out to all the members, just to ensure that you are all made aware of the direction of some of the buyers of construction. The example I wanted to communicate is on the subject of liquidated damages.
The tender in question contains language that references that if the general contractor is not successful at completing the project by a specified date, liquidated damages in the amount of the Contract may apply.
Generally speaking, the OGCA believes all contracts should be fair and transparent, and should assign risk appropriately. Clauses that impose a one-sided penalty, such as "liquidated and/or monetary damages," are unfair and only hold one party of the project responsible for substantial damages. This ultimately causes extended litigation as it creates a scenario wherein the general contractor is suddenly set against others who may have actually been responsible for said damages.
The OGCA vehemently objected to this language since it is far and above the most punitive the construction industry has ever experienced. Potentially holding a contractor solely responsible for the entire cost of a project with no quantifiable cap on the exposure is something that will definitely lead most, if not all, contractors to either qualify their bid, or refrain from bidding completely.
The OGCA argued that this level of security is counterproductive since it attempts to ensure that the buyer of construction is completely insulated from any and all exposure, and to download all risks onto the contractor.
This type of language should never be allowed to proliferate into contracts or to be even remotely acceptable to general contractors. This language, if allowed to exist within a contract, will ultimately destroy contractors and erode the vary fabric of how construction is approached.
General contractors are not risk averse, but they price risk that is ultimately quantifiable and that can be appropriated within the costing of a project. Faced with the possibility of not being able to complete the project within the timeline specified, should not lead a contractor to declare bankruptcy due to external forces that impede the projects completion.
You don't believe that could happen. Then I'm hear to remind you that the global pandemic literally shut down the planet. Anything is possible and contracts need to reflect reality and not be so punitive as to literally become the Sword of Damocles!
Should any member come across this type of language, please contact the OGCA offices immediately. This new challenge should not be allowed to take root, since if it is allowed to grow with have serious implications for all of construction moving forward.
Should any member need assistance with any tender issues, or if you require any assistance from the OGCA, please contact me directly at firstname.lastname@example.org or via phone at 905.671.3969.