Bonds, Insurance, and Liability
Bid Guarantee
Section F-1
When a Bid Guarantee is required, the Joint Committee recommends the following:
1. The Bid Guarantee should be in the form of a Bid Bond, certified check, or bank cashier’s check. A specific amount should be noted for the bid guarantee rather than a percentage of the bid amount, and this guarantee should not exceed ten percent (10%) of the estimated amount of the base bid.
2. All bid guarantees not forfeited under the terms of the bidding, except for the two lowest responsible bidders, should be returned on or before the sixth day subsequent to the bid opening. If the contract is not awarded, the bid guarantees of the two lowest responsible bidders should be returned within forty-five (45) days subsequent to the bid opening, unless an extension is granted by those bidders.
3. It is recommended that bid bonds be provided as bid guarantees, but the bidder shall have the option of furnishing a check as noted above. If checks are mandatory as bid guarantees, and the contract bond is not executed within ten (10) days subsequent to the bid opening, the retained checks shall be exchanged for bid bonds at the option of the bidders.
4. If a bid bond is furnished, it should include a statement to the effect that if the Contractor is awarded the contract, the Surety Company will also provide the Contract Bonds required under the contract.
5. The name of the a specific Surety Company should not be specified in the requirements, nor should the Owner be permitted to require that only one Surety Company be allowed to supply the bonds.
6. Standard AIA contract documents should be used wherever possible.
Glossary Terms for the Best Practices Guide
History of Recommendation:
Reviewed March, 2011
Reviewed July, 2010
Revised May, 1987
Reviewed April, 1986
Reviewed June, 1977
Revised November, 1971
Approved March, 1968
Hold Harmless Clauses
Section F-2
The Joint Committee recommends “Hold Harmless” clauses should never be used.
Since the Owner, Architect, Engineer and/or Contractor each has certain legal responsibilities in the design of structures and participation in the construction process, each must assume their own responsibilities.
The specifications should require the Contractor to carry comprehensive general liability insurance, stating the insurance requirements applicable to the project at hand.
If, in an individual situation, the Contractor is required to protect (hold harmless) the Owner, Architect and/or Engineer, the specifications must define specifically the risks, liabilities, legal costs, etc., involved in protecting the Owner, Architect or Engineer. Such protection should only be against claims arising out of negligence in performance of the contract by the Contractor, their employees or Subcontractors, and should limit such negligent acts to those occurring in the performance of the terms of the contract, and not as a result of the project in general. This will enable the Contractor to have included in his liability policy the protection covering provisions set forth in the specifications.
In all cases where “hold harmless” clauses are required by the Owner, or an authorized agency, an attorney should be consulted.
Glossary Terms for the Best Practices Guide
History of Recommendation:
Reviewed July, 2010
Revised May, 1990
Revised May, 1987
Revised July, 1986
Reviewed September, 1977
Revised November, 1971
Approved April 23, 1964
Insurance
Section F-3
The Joint Committee recommends that the Architect utilize the latest edition of the AIA Document A-201 ‘General Conditions of the Contract for Construction’ concerning “Insurance and Bonds.” This document should be modified with information furnished by the Owner by the Supplementary General Conditions to include the particular requirements for each project.
If there are any deductibles that are responsibility of the Contractor, these deductibles should be stated in the Supplementary General Conditions.
Glossary Terms for the Best Practices Guide
History of Recommendation:
Revised July, 2010
Revised April, 1987
Revised September, 1986
Reviewed September, 1977
Revised November, 1971
Approved November, 1969
Warranties
Section F-4
The Joint Committee recommends a clear understanding of the establishment and documentation of warranties so that applicable parties can minimize issues with defective material and/or workmanship incorporated into a project. The Owner needs to understand that notification is critical in the warranty process. Notification delays interfere with and impede the resolution of warranty issues.
It is recognized that varying and indefinite requirements pertaining to warranties exist in the construction industry. It should be clearly known for each type of warranty when it commences, which is typically when the Certificate of Substantial Completion is issued unless otherwise agreed to. Furthermore, the contract documents should state which party is responsible for providing the warranty and its term length.
Standard warranties by the supplier and/or manufacturer for equipment and material used in the project are for various lengths of time, depending upon the quality and manufacturer. Where there is a choice, the selection should be made a part of the specifications. Where none are listed, the longest time should be used as if written and specified. Where possible, supplier contracts should be negotiated to effect the start of warranty coincident with the Contractor’s warranty. Manufacturer warranties for required items should be delivered to the Owner at the commencement of the warranty period.
In the event that the Owner or Owner’s agent utilizes a system prior to completion, then it is recommended that a Certificate of Substantial Completion be issued on that portion of the work so that all relevant warranties become effective and that the building systems or equipment is turned over to the Owner for operation so that warranty periods for that system or equipment may typically begin at date of transfer of ownership from Contractor to Owner.
If at the time of full occupancy of the building, there are systems or equipment not yet complete, the warranty period for those systems or equipment should begin only after they have been completed by the Contractor.
The Contractor should submit a written Certificate of Substantial Completion, listing said system and equipment to the Design Professional for signature of the Owner for record keeping. If the Contractor wants to use permanent systems or equipment during construction, the Owner should provide written permission to stipulate the conditions of acceptances for such use and also establish the beginning of the warranty period.
The warranty requirements should be objective and determinable.
* The term “warranty” replaces the term “guarantee” throughout A-201. There is currently no legal or common usage determination between the terms, and “warranty”, with the added impetus of recent Federal legislation, is becoming the universally used term.
REFERENCES:
ConsensusDOCS 200: Owner/General Contractor Agreement and General Conditions
AIA Document A201 ‘General Conditions
Temporary Facilities and Controls Construction Guidelines
Glossary Terms for the Best Practices Guide
History of Recommendation:
Revised July, 2010
Revised October, 1998
Revised May, 1987
Approved December, 1976
Stored Construction Materials – Payment
Section F-5
When project materials are purchased in advance of their use, Contractors can assure a specified material is available for use in accordance with the construction schedule. In considering an equitable method of payment and transfer of title for stored construction materials, a basic distinction must be made between:
On-Site Materials:
The Joint Committee recommends that payment should follow the provisions of the contract documents when materials are stored on site, provided that they are stored in a location that does not create obstacles to the progress of the project. Builder’s Risk Insurance should cover this material once proper documentation has shown that the material has arrived on site. The Owner or Owner’s Representative should have access to inspect the materials. The materials should be insured to protect the Owner’s interests.
Off-Site Materials:
The Joint Committee recommends that payment should be made to the Contractor for construction materials stored off site upon a showing, by the Contractor, that these materials have been identified, fabricated, and properly protected for use on the project and are merely awaiting convenient delivery for utilization. The Owner or Owner’s Representative should have access to inspect the material. The materials should be insured to protect the Owner’s interests.
In any case of discrepancy, the definition of On-Site and Off-Site materials contained herein is subject to the condition of the Contract and /or insurance provisions. Upon payment, title should be transferred to the Owner.
Glossary Terms for the Best Practices Guide
History of Recommendation:
Reviewed March, 2011
Revised July, 2010
Revised February, 1998
Revised May, 1987
Reviewed November, 1986
Approved November, 1977