Evidently, there is no right or wrong approach to composing a successful agreement between a commercial drywall contractor and his general contractor counterpart.
By all accounts, there seems to be an air of apprehension related to any approach made by a specialty contractor with respect to successfully negotiating a contract agreement with a general contractor. Of course, the key to an attempt at any sort of mediation lies with preliminary preparation. Fortunately, for most specialty contractors, whether wittingly or not, they have already done the lions’ share of the preparation in advance.
What I am alluding to is the fact that an astute estimator has previously included a great deal of the groundwork for negotiations with a well-crafted initial proposal, therefore alleviating any of this unwarranted angst. Of course, well-crafted is the pivotal phrase here, and canny specialty contractors everywhere should take critical notice that their estimators and project managers have compiled a thorough itemization of the essential contractual elements strongly suggested below.
Known by a number of aliases (cover letter, bid abstract, scope letter and bid proposal), this multi-purpose dispatch delivers a detailed statement of values, conditions and terms as conveyed from the author (the specialty contractor) to the general contractor. In addition to the value of the work one proposes to do, it establishes the original sources of those values and clearly defines the scope of the intended performance.
In effect, the initial proposal is the Readers’ Digest version of the contract itself. Case in point: there’s a little-known but very poignant maxim of contract law that states that the contradictory terms of a counter offer to those of an original offer are considered to supersede those of the initial offer. Considering that the invitation to bid by a general contractor is an original offer, it follows that the intended response in the form of a specialty contractor’s proposal carries superior weight. In short, the initial proposal trumps the general contractor’s original offer to request a bid. And while this rather remote case may not be the strongest point of debate during actual negotiations, it does tend to dispel the flawed notion that the specialty contractor’s position is inferior to that of the general contractor (see “terms,” below).
But the real strength of a specialty contractor’s position lies with power of their proposal and its attendant components. Essential elements to the proposal include values, sources, inclusions, exclusions and terms and conditions. Subsequent additions to this list might include contingencies and qualifications.
Values
An opening paragraph should site the proper title of the project, the location, the phase and the architect and design team’s name. Of course, the focal point of any drywall proposal is going to be the combined total of framing and drywall, the “meat and potatoes,” so to speak. A total of values should be placed front and center in bold for the general contractor to focus on upon opening the bid. The “bottom line” is where their eyes will always go first, but it will also present them with the inevitable breakouts that will complement the bid.
A commercial drywall proposal will typically incorporate such complementary sections as EIFS/plaster, insulation, acoustical ceilings or paint in addition to the generic interior/exterior framing, drywall and sheathing. Each of these corresponding sections will be broken out into CSI codes to be included below the top-line combination. Yet many of these breakouts must be further explained to express any overlapping or unrelated elements within the intended section.
For instance, acoustical insulation/acoustical caulk may be included in the scope, whereas thermal insulation may not. Certain combinations may also enter in. For example, the subcontractor may be including the paint section, but only if combined with the finish, in the drywall section, as high-build primer can gain some cost savings. And while most clarifications can be achieved under the inclusions/exclusions segment of the proposal, these more critical explanations should be included up front to avoid being mistakenly applied or misconstrued as stand-alone numbers.
Other prices to be incorporated into the values portion of the proposal include bid bonds (where applicable), performance and payment bonds and special insurances (OCIP, CCIP).
Sources
Obviously, a comprehensive proposal is incomplete if the sources upon which the values are based are not thoroughly and clearly stated. Plans and specifications are identified along with their sequence of issue (i.e., 50% drawings, bid set, permit set, construction set, deltas) placed in order to ensure that the latest issues are included in the proposal. Additional sources include addenda, project schedule, sample contract (see “terms” below) and instructions to bidders (ITBs). ITBs are particularly critical, as they not only convey the intent of the general contractor in terms of scope (such as, “all drywall in wet areas to be tile backer”), but also in terms of bid breakouts: (“2nd floor buildout only; assume 3rd floor to be core/shell only”), for instance.
It is also instructive for sources to be ordered in terms of primacy. Virtually all project contracts grant the specification manual the final authority over architectural and even structural drawings, especially when there is a contradiction among the three. Unfortunately, this cardinal rule in the hierarchy of construction documents often falls prey to error of intent, as many specs are sloppily written or misdirected by redundancy and over-inclusion.
Inclusions
A thorough inclusions portion of the proposal should begin with a listing of somewhat generic items that would typically be expected with a complete commercial drywall package. Such inclusions as “level (4 or 5) finish is included at all exposed areas receiving drywall; level 2 at all concealed drywall areas,” or “5/8” type X at all drywall assemblies,” (unless, of course, type C is indicated) are basic.
These “no-brainers” may seem surplus to a trained drywall estimator’s eye, but they are essential elements to a general contractor, and they may even convey a sense of one’s diligence to him. This segment of the bid abstract should additionally include any complementary assemblies that may not be otherwise assumed, i.e., “fire caulk (head-of-wall detail) at rated walls.”
Part and parcel of the inclusions portion of the proposal should be an itemization of the relevant topics related to the general contractors’ “Instructions to Bidders,” per the aforementioned (sources) segment below. These are critical additions that the general contractor (or the design team) wants to incorporate into the work. For example, one meticulous general contractor requires moisture-resistant board at all concealed areas above ceiling height. Another may require abuse board at all corridors. In short, the inclusion segment of a complete proposal should comprise a total of any job-specific particulars that might be inferred or implied by the general contractor.
Exclusions
As always, the devil is in the details, and the exclusion section of the proposal is by no means any exception to the rule. In effect, while the inclusions portion of the cover letter focuses narrowly on specific details, the exclusions list generally uses the “shotgun approach,” that is to say, it is likely to incorporate a wide range of items in an effort to avoid any misconstrued assumptions to the drywall package.
Within this widened scope method, the thorough estimator must intuitively surmise what the general contractor or architect might speculate as an insertion within the bid. The enigmatic nature of such a laundry list has often been affectionately referred to by veteran estimators as “GOTCHAs”!
That ponderous list is likely to be as long as a bad movie. A thoughtful exclusions list might incorporate such obvious things as engineered drawings (unless specified), premium for overtime, wood backing and blocking, weather protection, out-of-sequence work, patch and repair for trade damage, temporary partitions, dumpster/trash hauling, facilities (temporary power/lighting), hoisting, specialty plaster, finish caulk, etc.—right on down to the most painstaking items as putty pads for outlet cutouts, stenciling for rated walls, specialty plasters, and bedded mesh tape for EIFS sheathing joints.
But even more troubling are the pricey semi-concealed or obscure details that almost seem to be deliberately ambiguous. Camouflaged details like this include horizontal shaftwall, extensive draft stops at crawl spaces, 33 mil metal for 20-gauge framing, G90 coating for structural framing, grease duct enclosures, framing below raised floors, rated closures at the top of CMU walls, and sound proof mullion end caps. Needless to say, such thinly veiled exclusionary details require a heightened awareness when scanning a thorough proposal.
Terms
As previously stated in the “sources” section of this writing, a general contractor is likely to submit a sample contract as a part of the bid documents. Many specialty contractors mistakenly assume that this is the final word regarding terms and conditions, and general contractors will often feed a specialty contractor’s anxiety by supporting that erroneous notion. But in truth, nearly everything is subject to negotiation in a contractor/specialty contractor relationship.
An astute specialty contractor would do well to muster their own confidence by reminding themselves that his bid must have been competitive and thorough, or they would not have gotten all the way to the table in the first place. It might also help to focus on the word sample. And a quick perusal of the general contractor’s sample contract will usually indicate a strong bias (in their favor, of course). This too should not be seen as a deterrent.
But how is a simple specialty contractor supposed to mount a strong counter to the general contractor’s sample contract, one that was likely assembled by an army of contract lawyers? Enter the gold standard of specialty contract law: the AIA 401A Standard Form of Agreement Between Contractor and Subcontractor—or, A401, for short. The A401 is an outlined compilation of typical terms and conditions that often arise in contract negotiations.
Generally speaking, the content appears to be stated in a neutral context. That is to say, the terms and conditions are often accepted as fair and impartial by specialty contractors and general contractors alike. As such, the A401 appears to be an objective remedy to counter a general contractor’s more onerous terms. But a canny specialty contractor will recognize that an A401 is merely a template for the creation of relevant terms and conditions, and as such, may not always express terms in the specialty’s best interest.
In fact, there are several areas staked out in the A401 that would behoove a specialty contractor to consider modification. These are often referred to as risk transfer conditions. Common elements of risk transfer include hold-harmless clauses (indemnification), waiver of subrogation and insurance procurement clauses (additional insured).
Indemnification, put simply, is an assurance to reimburse a loss inflicted on another party. In the case of a general contractor and specialty contractor, it is common for the one party (say, the specialty) to indemnify the general contractor for any potential loss or damage incurred due to the negligence of the specialty contractor. This may seem reasonable at first glance, but many specialty contractors fail to recognize the potential for abuse here.
Waiver of subrogation is a contractual provision in which the insured (specialty contractor) waives the right of his insurance carrier to seek damages or compensation for such damages stemming from a negligent third party. This will usually result in added cost for the carrier, which will inevitably be passed on to the specialty contractor.
Additional insured endorsements can increase the liability insurance coverage beyond the named insured to include other individuals or groups aside from the originally named insured. Such an endorsement protects the additional insured under the named insured’s policy. This extends liability in addition to increasing cost.
In spite of the assurance of the A401, it apparently falls incumbent upon the specialty contractor to research these and any other obscure contract terms before entering into an agreement. It is highly recommended that the specialty contractor contacts their CGL provider, to confirm that their modified insurance terms are acceptable.
But common law practices are not the only obstacles a specialty contractor must navigate. Payment terms are bound to arise during any meaningful contract negotiations, and many payment terms are protected by statute. The most common payment issues that are likely to surface are “pay-if-paid vs. pay-when-paid” clauses, prompt pay clauses and retainage issues.
Pay-if-paid vs. Pay-when-paid clauses are pretty self-explanatory. Pay-if-paid clauses are perhaps the most onerous terms of all. The condition states that the general contractor does not have to pay the specialty contractor unless the owner pays the general contractor. Most courts have found that pay-if-paid clauses are too egregious to be followed. In fact, many state statutes have been written to modify the payment terms to essentially be a pay-when-paid condition, in which the general contractor temporarily withholds payment until the owner has paid.
Prompt payment conditions set deadlines under which the owner of a property or project is required to make payment for construction improvements within a specified amount of time—usually 45 days. State statutes sometimes make a distinction between public and private agreements, but most are written to expedite the general flow of progress payments downstream in a timely manner, on pain of penalty.
Retainage is the withholding of a portion of funds that are due to the specialty contractor (or in the case of the general contractor, due from the owner) until the construction project is completed as incentive to complete the work in a satisfactory manner. Retainage is typically held at a rate of 10% until half the project is completed, and at 5% thereafter.
As this short list of terms accumulates, it becomes clear that a less experienced subcontractor may find himself adrift in a sea of questions with regard to contractual terms. While the AIA-A401 may be a valuable framework, another worth source lies with the American Subcontractors Association. The few ambiguities cited above and other possible contractual pitfalls can be remedied with the extended knowledgeable assistance of the ASA.
Clarifications
Any completely thorough proposal will raise some relevant questions or qualifications regarding the elements put forth in the body of the sections. Clarifications may be indicated in the form of submittals. For example, a subcontractor may be including tile backer board in wet areas, but he must submit whether he is indicating cement board or dens glass. Similarly, several differing levels of abuse board may be associated with a requirement in that area.
Conclusion
Evidently, there is no right or wrong approach to composing a successful agreement between a commercial drywall contractor and his general contractor counterpart. The elements of this article clearly illustrate the complexities that may arise. But the basis of such an endeavor is built with good preparation, and good preparation should begin and hopefully end with a well-crafted initial proposal.
Vince Bailey is an estimator/project manager in the Phoenix area.
