April 4, 2014
By Private: Kristine Kroenke & Dean B. Thomson
This briefing paper is Part 3 of a three part series discussing the Minnesota Department of Transportation 2014 Standard Specifications for Construction. In Part 1, which can be found here on our firm’s web site, we discussed MnDOT’s attempts to restrict the implied warranty of accuracy on data it provides, to expand the Contractor’s scope of Work without compensation, and to restrict claims through complex procedural hurdles. In Part 2, which can be found here on our firm’s web site, we reviewed more claim restrictions, site control restrictions, and insurance requirements imposed by MnDOT. In this Part 3, we conclude with a review of the scheduling and claim risk changes in the 2014 Standard Specifications Sections 1800 and 1900.
Section 1800 – Scheduling Requirements are Completely Changed and Expanded While Contract Time Extensions are Restricted
Probably the most sweeping changes to the 2014 Standard Specifications are the changes regarding scheduling requirements (§1803) and extensions of time (§1806). The changes to Section 1800 could be the subject of several briefing papers on its own. The discussion in this briefing paper contains some of the many new requirements, but it does not address every issue or change regarding scheduling and time extensions. Contractors should address scheduling requirements in detail with MnDOT even before bidding on a project to determine the extent to which MnDOT requires the provisions of Section 1800.
1. Progress Schedules
Section 1803 provides the new requirements for construction schedules. This section has been entirely rewritten from the 2005 Standard Specifications. The 2005 Standard Specifications contained general scheduling requirements and few specific requirements. The 2014 Standard Specifications provide detailed requirements for both Bar Chart and CPM schedules and permit MnDOT to withhold payments to the Contractor if MnDOT does not believe that the Contractor has submitted adequate schedules. The level of scheduling required permits MnDOT to micromanage the construction schedule, including allowing MnDOT to suspend the Work if the schedule does not reflect Work progress and requiring the Contractor to provide 24 hours notice before it makes any sequence change. Under §1803.4, if the Contractor performs Work substantially out of sequence, the Work will be considered unacceptable and unauthorized. The detailed requirements are not justified for all projects and most contractors do not schedule with this level of detail. The requirements, if followed by MnDOT, will impose a huge cost on contractors (which will increase the cost of construction to the public) and create a cottage industry of expensive outside consultants.
a) Bar Chart Schedules
The requirements for Bar Chart Schedules are set forth in §1802.3. We had some success in simplifying this section, but the requirements are really Bar Chart in name only – the detailed requirements are more like a “CPM Lite.” Initial Bar Chart Progress schedules are due at least seven (7) days before preconstruction and must include the following:
Although not required, MnDOT also “encourages” Contractors to include additional activities, such as third-party activities. The Engineer is required to review the schedule within seven (7) days and either provide comments or approve the schedule.
Contractors must regularly update the progress schedule. Under §1803.2 B.2, a Contractor must submit a “Weekly Look-Ahead Schedule” by the “midpoint” of the preceding week. Under B.3, the Contractor and Engineer must have monthly progress meetings to “jointly” add updated information to the initial schedule. The Engineer may also request a ‘Revised Schedule” if a “change” affects controlling items of work; work sequencing is changed; the project is significantly delayed; or the Engineer has granted an extension of Contract Time.
The Contractor has seven (7) days after the Engineer’s request to submit a Revised Schedule, which must include:
The 2014 Standard Specifications do not answer the question whether the duration of the delay and its effects may actually be determined in seven days. What if a claimed delay is not recognized or if effects of the delay are unknown? The Contractor must also submit a revised “Recovery Schedule” if the progress schedule shows completion date more than 7 calendar days after Completion Date. Given the time limitations on making claims (See Sections 1400 and 1500), Contractors should also consider submitting claims at the same time as they submit a Revised Schedule or a Recovery Schedule.
b) CPM Schedules
Section 1803.3 sets forth the requirements for Critical Path Method (CPM) Schedules. These requirements apply if either MnDOT requires a CPM schedule or if the Contractor decides on its own to use a CPM schedule. MnDOT uses Primavera Project Manager (P6). If Contractor uses other software, it is responsible for “conversion discrepancies.”
The many restrictions that the 2014 Standard Specifications place on the Contractor’s control over its CPM schedule include that the Contractor: (1) must use MnDOT’s file naming conventions; (2) must use Project-level calendars and codes and may not use user defined fields or global calendars; (3) may not suppress or sequester float (no logic between relationships or excessively long durations); (4) must obtain Engineer’s approval before using lags or leads; (5) must remove all lags and leads at Engineer’s request even if Engineer previously approved; and (6) is not entitled to extra time or compensation if it could have avoided the delay “by revising activity duration or logic used to sequester float.” The Contractor is also not given control over float. Float does not belong to the Contractor, but is “a shared commodity.” Unused weather delays become shared float.
Required Schedules (all of which are defined terms in Section 1100) include:
(1) Preliminary Schedule – Acceptance of the first Preliminary Schedule is a condition of contract approval and the first notice to proceed. Delay in submitting the Preliminary Schedule is a non-excusable delay. The Preliminary Schedule is subject to Engineer’s review and approval and must include all Milestone dates and the 30-day look-ahead period. Subsequent Preliminary Schedules must also include the 45-day look-ahead.
(2) Baseline Schedule – The Baseline Schedule is a required condition for the issuance of the second Notice to Proceed – NTP2. The Baseline Schedule must include the entire scope of work and many specific requirements, which are listed in §1803.3 B.2.
(3) Update Schedule – Although the Contractor is supposed to minimize the number of changes in the schedule, it is required to submit an Update Schedule. All changes must be described in a Narrative Report. If changes are significant, Contractor must submit a Revised Schedule. Otherwise the requirements for the Update Schedule are the same as the Baseline Schedule.
(4) Look-Ahead Schedule – The Contractor must submit a Two-Week Look-Ahead schedule to the Engineer every week. The Look-Ahead Schedule shall be in bar chart format, which can be created by hand or by computer. The Contractor must include different details for bridges and roadways.
(5) Revised Schedule – All substantial deviations from the schedule, including an altered Critical Path, must be submitted in a Revised Schedule. The Contractor may also be required to submit a Revised Schedule based on MnDOT’s request or if there is a Contract Revision. The Contractor may not perform Work substantially different from the approved Progress Schedule unless it obtains approval to make the Revised Schedule the new Progress Schedule. The requirements of the Revised Schedule are otherwise the same as the Baseline Schedule.
(6) Impact Schedule – The Contractor is required to quantify contemporaneous or prospective impacts to the Progress Schedule. MnDOT’s requirements for the Impact Schedule are not realistic as impacts may not be known contemporaneously or prospectively, particularly when the Contractor is attempting to complete the Project on schedule.
With the CPM Schedules, the Contractor is also required to submit:
All schedules must meet requirements on Table 1803-4, which provide the submission due dates, MnDOT review periods (7 Business Days), resubmission due dates (various) until accepted.
2. Extensions of Contract Time
Section 1806 sets forth the requirements for extensions of Contract Time. The Contractor is required to evaluate delays and time extensions based on restrictive rules. Among other restrictions, the 2014 Standard Specifications state that the Contractor cannot use schedules that did not exist during the project or create schedules after the delay to demonstrate entitlement. This requirement is arguably a change in existing law. As discussed in Part 1, this change was accomplished without proper administrative notice and hearings and may be illegal.
In §1806.1, MnDOT requires the Contractor’s evaluations and calculations to comply with Recommended Practices published by the Association for the Advancement of Cost Engineering, International (“RP”): Recommended Practice No. 52R-06, for future delays, and Recommended Practice No. 29R-03, Forensic Schedule Analysis, MIP 3.4 Observational/ Dynamic /Contemporaneous Split approach for past delays. MnDOT’s restriction to limit the Contractor’s submissions to the RP is not justified. The RP is not the only tool for a competent delay analysis, nor do many experts consider it to represent ‘recommended practices.’ The RP itself says other methods are available and can be used!
The limited usefulness of the RP for delay analysis has also been noted by some commentators. “Given the many issues and concerns with the RP, the RP should not be regarded as authoritative on the subject of forensic delay analysis.” Lifschitz, Barba, Lockshin, A Critical Review of the AACEI Recommended Practice for Forensic Schedule Analysis, Construction Lawyer, (Fall 2009), at 15 (Referring to 29R-03). “Second, …, forensic schedule analysis is inextricably intertwined with the law of delay and disruption. The RP ignores legal precedent and purports to discuss only the ‘technical’ aspects of delay analysis…” Id. (Referring to 29R-03). The requirement for use of the RP was a change from the initial draft of the Standard Specifications that MnDOT distributed. The original draft required a Time Impact Analysis. We objected and requested that any “reasonable method” be permitted. Instead, MnDOT went to further extremes by requiring the RP.
Section 1806.2 sets forth three types of delays:
If delays are concurrent, the Contractor gets the worst deal. For example, if an excusable delay occurs at the same time as a non-excusable delay, the Contractor does not get a time extension. This provision too is another arguable change in existing law.
In §1806.3, MnDOT determines working day charges. The Contractor must object, in writing, to Engineer’s determination of working day charges affecting the critical path within 10 calendar days of receipt of statement. If the Contractor fails to object, the Engineer’s statement is final. If the Contractor objects, an “administrative review” will occur. Given the restrictive time requirements under Sections 1400 and 1500, Contractors should also follow the requirements in those sections for making a claim.
3. Default and Liquidated Damages
Liquidated Damages are set forth in §1807.1. The 2014 Standard Specifications have increased the daily Liquidated Damages amounts. MnDOT did not provide us with the basis for the increases when we requested it. Typically, increasing the Liquidated Damages amounts should involve a fact-finding study or the rates are arguably invalid.
Liquidated Damages can continue to accrue “for each calendar day that the Work remains incomplete after the Contract Time expires.” Section 1807.2 provides that Liquidated Damages may be assessed even if the Work is available for public use if MnDOT determines work “requires ongoing inspection.” If MnDOT may use the Work, then assessment of liquidated damages after that date would arguably be a penalty. Liquidated damages are not enforceable when they are a penalty.
Section 1800 take away: Expanded scheduling requirements create significant burden and risk. Make sure to confirm scheduling requirements with MnDOT at the outset of the project.
Section 1900 – Restricted Measurement and Payment Provisions
By now, there should be no surprise that the 2014 Standard Specifications also restrict the Contractor’s ability to recover payments for changed quantities, force account work, changes, delays, and cost escalation. The initial draft of the 2014 Standard Specifications was more restrictive than the current version, but many restrictions remain.
MnDOT initially entirely deleted the section on Compensation for Altered Quantities, which contained the VEQ clause (§1903). MnDOT partially restored compensation for altered quantities, but only for “significant changes” (increases or decreases above 125% or below 75%) on major contract items. As discussed in Part 2, a major contract item is a contract item with an original contract value greater than or equal to five percent of the contract. MnDOT deleted the cost escalation provision that was previously in §1910. MnDOT has represented (outside of the 2014 Standard Specifications) that fuel escalation will remain in the special provisions that supersede the Standard Specifications.
For Contract changes made under Section 1402, the Contractor’s recovery is limited to the methods provided in Sections 1904.2 (Contract Unit Prices), 1904.3 (Negotiated Prices, according to stated methods), and 1904.4 (Force Account). For changed work that is to be paid by force account, force account records must be signed daily. MnDOT’s records govern over the Contractor’s records. Section 1904.5 lists the non-allowable charges, which include lost profits, consequential damages (loss of bonding capacity), indirect costs, and costs of litigation. At our request, field or home office overhead and interest were removed from list of non-allowable charges. Section 1904.6 lists what the Contractor may be compensated for compensable delay (see §1806) and includes extended field overhead, idle labor and equipment, and escalated labor and material costs. At our request, Extended or Unabsorbed Home Office Overhead was also restored to list of what is compensable for delay. The 2014 Standard Specifications require the Eichleay formula to be used. Section 1905 provides the requirements for compensation for eliminated items.
Not even acceptance of payment is without potential risk under the 2014 Standard Specifications. The Contractor’s acceptance of partial or final payment contains an implied certification under the False Claims Act, because it constitutes a certification by the Contractor that the Work covered by the partial payment meets the Contract requirements. MnDOT has also included a cross-default provision. If MnDOT has charges against the Contractor on any project, it may withhold payment from any contract.
Section 1900 take away: Know all costs, charges, expenses, and damages to which you are entitled and how they must be calculated.
In this three part series, we attempted to highlight many of the new risks to Contractors contained in Division I of the MnDOT 2014 Standard Specifications for Construction. Given the breadth of the changes, however, we necessarily did not discuss every new risk. Contractors seeking to contract with MnDOT face new and expanded risks, which make it all the more critical that Contractors seek clarifications from MnDOT before bidding and that Contractors know their rights under the Contract and under the law.
* Dean Thomson and Kristine Kroenke are shareholders in the firm’s Construction Law Department and were retained by MnAGC, MAPA, and other industry groups to review and comment on the new Standard Specifications. Dean Thomson can be reached at firstname.lastname@example.org or (612) 359-7624. Kristine Kroenke can be reached at email@example.com or (612) 359-7628.
This discussion is generalized in nature and should not be considered a substitute for professional advice. © 2014 FWH&T