Problem
BACKGROUND INFORMATION: You are the project manager at ABC Construction. You have been out of school for 5 years and up until now you have been a project engineer. The Sr. Project Manager is turning this project over to you. The Senior PM wants to make sure you are ready to handle this project so he or she is asking the following questions for you to answer.
You are responsible for overseeing the construction of a 10,000 square foot commercial office building in the City of Phoenix. The total contract price is $5,500,000.00. The soils report shows rock at 5 feet below existing grade. You excluded hard dig from the bid submitted to the owner.
During the contract negotiations, you asked the Owner to include ABC Construction's low bid as part of the contract. The Owner refused. The scope of work reads as "construct building per approved construction drawings". You excluded underground storage tanks, hard rock, architecture, sales tax, building permits, and all underground utilities from your bid. The agreement provided by the Owner for the project includes the following language:
Contractor represents and warrants to the Owner: (i) that Contractor is duly licensed in the state where the work will be performed, (ii) that Contractor was given a reasonable opportunity to review the project site before entering into the construction contract and has determined through its own investigation that the Contract Price represents a fair and reasonable amount to be paid for by the Owner for the construction of the project, and (iii) that Contractor is a professional and will perform all work in a workmanlike manner.
The Architect who designed the building is from Orcutt Winslow. You have never worked with them before. The project is being managed by CBRE. CBRE is managing the project on behalf of the project owner. This is your first time working with CBRE.
The project was awarded on a low bid basis. The five primary subcontractors you will be using for this project are:
Suntec Concrete (Tilt Panel & SOG) - $1,016,000
Manny's Air, LLC - $653,000
Plumbing (this is a plug number) $432,000
Haskin's Electric - $789,000
SoCal Excavating (Earthwork, Utilities, Paving) - $268,000
The project will be financed by JPMorgan Chase Bank. The lender is insisting on at least 30 days to review each payment request. This means payment may be processed 45-days after you turn in a payment application. The lender has also asked that no contractors serve 20-Day Preliminary Lien Notices for the project. A 20-Day Preliminary Lien Notice is the first step to enforce your mechanic's lien rights. If subcontractor does not take this step, they will not be able to enforce a lien against the property. If the construction loan is not converted to permanent financing within 12 months, the owner will be required to extend the loan, which may cost the owner additional money.
The end user for this building will be Microsoft (it will be used as a local call center). Microsoft has a local construction manager that will be at the jobsite at least 1 time per week.
Task
A. Identify the top three risks concerning the subcontractors selected for this project.
B. If the Owner refuses to include ABC Construction's bid as a contract document, is that a problem for ABC Construction? Yes or No? Explain your answer.
C. Explain how you intend to address the hard dig exclusion with the owner?
D. Identify 3 potential risks concerning the fact that we have never worked with Orcutt Winslow and the fact that the Owner's Representative (Microsoft's Construction Manager) will be onsite 1 time per week.
E. Will you be able to accept the requirements imposed by JP Morgan Chase on this project.