Strategies for Implementing Performance Specifications: Guide for Executives and Project Managers (2013) / Chapter Skim
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From page 28... ...
27 The preceding chapter focused on the implementation of performance specifi cations from the agency's perspective. However, performance specifi cations, particularly those including warranties or other postconstruction responsibilities, will also present unique risks and challenges to the construction industry.
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28 STRATEGIES FOR IMPLEMENTING PERFORMANCE SPECIFICATIONS: GUIDE FOR EXECUTIVES AND PROJECT MANAGERS MANAGING SUBCONTRACTOR RELATIONSHIPS RELATIVE TO PERFORMANCE REQUIREMENTS Subcontractors and suppliers play a major role in the successful implementation of performance requirements. Prime construction contractors assume the contractual responsibility for meeting performance guarantees.
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29 STRATEGIES FOR IMPLEMENTING PERFORMANCE SPECIFICATIONS: GUIDE FOR EXECUTIVES AND PROJECT MANAGERS contractor is obligated to provide to the owner. A performance specification can be so simple as to require only one trade to accomplish it.
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30 STRATEGIES FOR IMPLEMENTING PERFORMANCE SPECIFICATIONS: GUIDE FOR EXECUTIVES AND PROJECT MANAGERS suppliers to figure out compliance and coordination, will often find themselves struggling to determine how to meet their contractual requirements to the owner, likely without any recourse of going back to the subcontractor or supplier. BONDS, GUARANTEES, AND OTHER MECHANISMS Agencies have faced challenges finding bonds and other forms of guarantees to support programs that use a combination of performance specifications and warranties.
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31 STRATEGIES FOR IMPLEMENTING PERFORMANCE SPECIFICATIONS: GUIDE FOR EXECUTIVES AND PROJECT MANAGERS Unique Risks in Using Performance Specifications and Long-Term Warranties Regardless of whether the contractor's performance obligations are secured through a bond, corporate guarantee, letter of credit, or some other financial instrument, the first question to consider is the nature of the risk associated with providing such financial backstop. The factors used to assess the risks of performance specifications and long-term warranties include a determination by the contractor, and those providing financial backstops, of the following: • The ability to achieve the performance standards by objective means and measurable standards; • The impact on performance by factors outside their control; • An objective historical baseline to assess the ability to meet the performance standards; • Expectations and criteria clearly set forth by the agency in the contract; • The ability to demonstrate and validate the efficacy of the contractor's work years after the work is performed; and • The balance between risk and reward opportunities.
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32 STRATEGIES FOR IMPLEMENTING PERFORMANCE SPECIFICATIONS: GUIDE FOR EXECUTIVES AND PROJECT MANAGERS performance, smaller contractors may be unable to participate in any meaningful capacity, particularly if their bonding companies resist. • Inability to predict performance based on engineering properties or other parameters measured at the time of production or installation.
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33 STRATEGIES FOR IMPLEMENTING PERFORMANCE SPECIFICATIONS: GUIDE FOR EXECUTIVES AND PROJECT MANAGERS workmanship and materials versus inadequate design, use beyond expectations or maintenance issues (SFAA 2003)
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34 STRATEGIES FOR IMPLEMENTING PERFORMANCE SPECIFICATIONS: GUIDE FOR EXECUTIVES AND PROJECT MANAGERS tor at the time the warranty bond is placed and not years earlier. The amount of a warranty bond should be commensurate with the long-term warranty and not the entire project (i.e., the value of the warranty should correspond to the reasonable, expected cost of implementing the warranty work)
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35 STRATEGIES FOR IMPLEMENTING PERFORMANCE SPECIFICATIONS: GUIDE FOR EXECUTIVES AND PROJECT MANAGERS agreements in which the surety is obligated to the owner and the contractor, letters of credit run only to the benefit of the owner. As a result, letters of credit can generally be drawn on quickly and easily, since a contractor can validly raise few defenses to stop a draw.
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36 STRATEGIES FOR IMPLEMENTING PERFORMANCE SPECIFICATIONS: GUIDE FOR EXECUTIVES AND PROJECT MANAGERS maintenance agreements on highway projects using performance specifications. At present, no such product exists, and concerns remain as to whether such products would be viable given the nature of the risks.
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37 STRATEGIES FOR IMPLEMENTING PERFORMANCE SPECIFICATIONS: GUIDE FOR EXECUTIVES AND PROJECT MANAGERS performance specifications on highway projects, and the risk of using long-term warranties or maintenance obligations in conjunction with performance specifications, the long-range viability of bonds, insurance, guarantees, and other mechanisms cannot be ascertained with any certainty. Agencies should not simply mandate long-term security instruments without trying to balance the interests of the contracting and the surety/ insurance industries.
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From page 39... ...
38 STRATEGIES FOR IMPLEMENTING PERFORMANCE SPECIFICATIONS: GUIDE FOR EXECUTIVES AND PROJECT MANAGERS criteria and tolerances specified by the agency. The specifications allocate responsibility for quality control and testing to the contractor and establish targets for construction quality characteristics with incentives (disincentives)
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