Third Party Obligations of Participants

Click here to download:
32_EBO_Construct_Specs_Spring_10_Full_Page.pdf (15.61 MB)
(download)
Today's slide demonstrates the common three-sided (or tripartite) arrangement of the parties in design and construction activities in a Traditional Bid or Negotiated Contract.

In this diagram from the CSI PRM, the Owner is bound to the A/E and Contractor by solid lines representing contracts (or agreements).  The A/E is bound to his consultants with similar lines and agreements, while the Contractor team is made up of materials suppliers and subcontractors, also under contracts to the Contractor.

The A/E and the Contractor do not have contracts with one another, but are bound by the dotted line designated Third Party Obligations. These are responsibilities described the Design Contract (Owner-A/E Agreement) and the Construction Contract (Owner-Contractor Agreement) that define the relationships of the A/E and the Contractor and their behavior and duties to one another.

The Third Party Obligations are necessary to the operation of the Construction Contract, and their performance is a requirement of the Design Contract, it is important that these obligations be clear, identically aligned, and reciprocal.  Since the obligations are described to two different parties in two different contracts, those contracts must be carefully prepared to ensure that what is required in one, is required in the other.  If this is not the case, then the differing expectations of behavior between the various parties could become a stumbling block to efficiency of contract operations or even cause them to fail altogether.

For this reason, the Model Contracts prepared by various organizations, AIA, EJCDC, AGC, ConsensusDocs, and others, include models of both types of agreements,  Design and Construction Contracts, so these third party obligations are properly described without conflict or error, in identical terms.  Often, however, Owners may choose contracts prepared by other sources.

While this blog is not dispensing legal advice, and every action taken with regard to a contract should be reviewed by the individual or firm's legal counsel, it is fair to say that coordination of the requirements of the Design and Construction Contracts is an important task.  However, it is not a task for the specifier to perform.

The specifier should review the Design and Construction Contracts, (which should be done as part of developing Division 01) and advise the Owner of conflicts observed in that review, then ask for written resolution of the conflicts prepared by the Owner's counsel.  I have often seen conflicts between these two contracts, particularly with reference to the duties of the A/E, when prepared directly by an Owner's counsel.  Sometimes these contracts are prepared by different attorneys, even years apart.

An example:  A Design Contract requiring that the Architect respond to RFI's in seven (7) days, while the Construction Contract says to the Contractor that the Architect will respond to RFI's in forty-eight hours.  Here, the Contractor is given a high expectation of the Architect's responsiveness, which the the Architect's agreement does not require him to provide.  How will this discrepancy be resolved during construction administration?  Which party will give way?  Will contract change orders occur?   I have seen similar conflicts in submittal review requirements, payment processing, and many other construction administration tasks.  No value judgments are to be inferred regarding any particular level or type of obligation, simply that the two expectations should match to prevent conflicts.

Even if model contracts are used, discrepancies can still appear and it is not possible for the specifier to resolve them or determine which to put into Division 01.  This latter action is the duty of the Owner and his counsel.

These difficulties also show why it is important when specifying Division 01,  to review the identical contracts under which the work is to be performed.  We will discuss this again in detail during the Division 01 topic.

Next Topic:  Single Prime Contract