Credit for work not needed as a result of alternate means/methods 1

We have a multi-million dollar sanitary sewer extension project that is currently under construction. The soil borings obtained during project design revealed extensive rock excavation would be required. Accordingly, language was incorporated into the specs to address a myriad of blasting concerns (e.g. blasting near watermains/services, gas mains/services, pre- and post blasting inspections of a nearby municipal well, etc.)

By using an excavator-mounted rotary grinder as well as drilling and jack-hammering techniques, the Contractor was able to avoid blasting, thus obviating the need for pre- or post-blasting inspections (and similar activities). While the Contract presupposed that blasting would be used, it also explicitly and exclusively obligates the Contractor to all means and methods. The Contract contains no provision for reimbursement of implicit work associated with an assumed means and methods when alternate means/methods are used. The means/methods chosen by the Contractor for rock excavation was still costly in terms of man hours required and wear and tear on equipment. The Contactor is well ahead of schedule in meeting the project completion date.

Recently, the Owner's Manager directed Staff to contact the Contractor and request a credit for the municipal well inspections NOT performed because of the fact that blasting wasn't used. Staff has no knowledge of what cost arrangements were made (if any) between the Contractor and the well inspection firm.

Question: Is it ethical for Management to demand reimbursement for work not needed as a result of a Contractor employing other means and methods?

 

[urgross]

Was this is firm-fixed price contract?

 

[minnjoe]

03. Awarded Contract was $4 million and was comprised of 50 pay items with individual unit prices. The awarded unit price for rock excavation was $110/CY. All ancillary tasks needed to complete the rock excavation (monitoring, inspections, etc.) were made incidental this pay item.

 

[JedClampett]

I'm not sure exactly what the owner wants. If it's just some unnecessary inspections thay want refunded, he seems to be missing a lot of costs. But I'd say the contractor got a windfall, and that's the way it goes. They're under no obligation to refund anything not spelled out in the unit costs and not done. If they want to be a good guy and refund something, that's up to them.

 

[KENAT]

It will depend on the wording of the contract, in firm fixed price type deals then the owner probably doesn't have a leg to stand on.

By going fixed price they put the risk management etc. on the contractor had things gone wrong. If the contractor finds a way to save on a few side items they get to keep that.

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[minnjoe]

The Owner is a unit of local government. It always looks good when a final cost can be presented to the Board that is less than the awarded project cost (which is the unmentioned underlying issue). But doing the right thing ought to trump how one appears to the Board. After all, the Board chose to award the project (and not to the lowest bidder, in this particular case, at that).

Thanks for the responses and validation.

 

[Ron]

This does not appear to be an ethical issue, but a contractual one.

The credit issue should work both ways. If the contractor's chosen means and methods resulted in a higher cost than originally bid, would the owner be willing to pay extra? If the answer is "No", then the contractor should keep any savings he had.

I also disagree that pre-and post-inspections were not necessary. Even drilling in rock transmits vibrations than can damage adjacent structures. Should have been done either way.

 

[IRstuff]

This would be the difference between firm-fixed price (FFP) and cost plus fee (CPF). An FFP contract places the risk on the contractor, so the profit or loss goes to the contractor, so long as the contractor terms have been met in full.

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[coloeng]

If the contract bid item was for "Rock Excavation" and didn't specify the means and methods that the contractor was to use, the contractor can use whatever means and methods that get the job done that are allowed by the contract. The contractor probably planned on using the rotary grinder instead of drilling and blasting when he bid the job, thus potentially being able to lower his bid compared to other bidders. If as you say the bid item lumped all tasks associated with "Rock Excavation" into one bid item, then the contractor is not obligated to give the owner a credit for not doing the pre and post inspections that would have been required if blasting was used.

 

[IRstuff]

The only obligation is what's in the contract. The contractor might "rebate" some monies as a means of fostering a long-term relationship, but that's a different matter and decision process.

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[monkeydog]

Isn't there a "Law-Tips.com" site?
Oh wait, those guys don't do anything for free - even the free advise is credited for taxes.

 

[PEinc]

The contractor will not offer any savings. He will claim that the method he used cost just as much as blasting with supervision but was safer, quieter, had less vibrations, etc. Good luck getting a savings. If you ask for a savings, he will ask for an extra on another item.

http://www.PeirceEngineering.com

 

[moltenmetal]

If it's fixed price, he not only won't offer any savings- he shouldn't. He was clever enough to choose a superior method that met the spec without requiring the other controls. He also took the risk that it wouldn't work out and he'd have to do blasting after wasting money trying the other method. That extra money is his to keep for his cleverness and to compensate for his risk.

But we don't know the details of the contract. If there's some reimbursable component to it, there may be some room for negotiation.

Anyone paying attention should notice that if you want innovation, fixed price is more likely to give it to you than a reimbursable contract is. If you're making money on every dollar of material and labour expended, slow and painful wins the race.

 

[GregLocock]

If he'd done it the original way and run into unexpected problems would the owner have stumped up for the difference?

Cheers

Greg Locock


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[JStephen]

So the sum of it, the contractor was obligated to include costs in his bid for item that might possibly be required or might possibly not be required, and since those items are now not required, the owner wishes to get a refund?
That's like wanting a refund of your insurance premium since it turned out that you didn't need to collect on it.

 

[IRstuff]

It's a classical buyer's remorse. Had the buyer not known about the elimination of cost, he would have, and did negotiate in good faith, to pay the full amount.

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[monkeydog]

Right or wrong, if there is potential for repeat business from the buyer, it would be good marketing to refund the excess funds.

 

[IRstuff]

Only if you want to establish a precedent of knuckling under to an unreasonable demand. I'm not sure that I would want to have future dealings with a customer that reneges on contracts.

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[BUGGAR]

This is the responsibility of the Contract writer. You can break your contract unit items down as fine as you want and include language to pay only for items actually used. We do this in tunneling contracts because of all the unknowns, but it makes for extensive Contract documents.

 

[JStephen]

If you break it out that way, that's great, but it moves the risk (with potential savings AND potential overruns) from the contractor to the owner.
In which case, that owner would balk at paying any of the extra items when they came up.