construction corner

LCW represents and advises private schools and colleges in various business, construction, and facilities matters, including all aspects of construction projects from contract drafting and negotiations to course of construction issues. Through this Construction Corner, LCW will be giving private schools and colleges monthly helpful tips on a variety of topics applicable to campus construction projects. LCW attorneys are available should you have any questions or need assistance with any construction projects no matter what phase you may be in currently.

The Appropriate Construction Contract for Your Project

By: Abigail W. Clark

Careful planning can minimize the risks of cost overruns for private school construction projects. One aspect of planning that schools sometimes overlook is selection of the best fee structure for their construction project, which varies depending on the type of project and potential unknown variables impacting construction costs.

The two most common fee structures are Fixed Price (also known as Stipulated Sum or Lump Sum) and Cost of the Work plus Fee with a Guaranteed Maximum Price (also known as GMP) fee arrangements. As a general matter, under Fixed Price contracts, schools agree to pay contractors a stipulated or lump sum for all work performed. Under GMP contracts, schools agree to pay contractors for work performed plus a fee that encompasses the contractor’s profit, and the total amount the school agrees to pay is subject to a guaranteed maximum price. Below is a chart regarding the key differences between each type of fee arrangement. Schools should consult with an attorney to determine the best fee arrangement for their project.

Fixed Price Contracts GMP Contracts

Who Bears the Risk Contractor must estimate hours, materials and costs up front, and therefore assumes the risk of unforeseen cost overruns. The contractor bears the risk that it has incorrectly estimated the cost of the project and that it will not be profitable.

Contractor Mark-up

A fixed price contractor may quote a higher fixed price to mitigate its risk, particularly for large or complex projects for which it is harder to estimate the cost of work and account for unforeseen conditions.

Transparency Fixed Price contracts are typically less transparent. The fixed price contractor typically submits invoices to the School based only on the percentage of work completed as compared against the fixed price.

Savings If the contractor underestimates the cost of project and it is completed under budget, savings inure to contractor. Contractor will likely attempt to recoup material costs in excess of the fixed price through change orders.

Contractor bears the risk that project will exceed the guaranteed maximum price, which is the highest amount the school is willing to pay for the project.

There may be somewhat less risk of contractor markup with GMP contracts because school agrees to pay the actual costs of the project plus a percentage of the cost as profit, and audits work of contractor as project progresses.

GMP contracts are more transparent. The GMP contractor submits invoices for the actual cost of the work performed and obtains a set percentage or the actual cost as a fee.

Any savings typically inure to school, or the parties may agree to share in savings to encourage completion of a project under budget.

Administrative Costs Fixed Price contracts involve fewer administrative costs. There is a greater administrative burden associated with GMP contracts because a school representative or construction manager/project manager typically reviews invoices received from GMP contractor to ensure they accurately reflect the actual cost of work performed.

If you would like to receive more information about our Consortium services or would like to join, please contact Jaja Hung at jhung@lcwlegal.com.

LCW has four private education consortiums across the State! Consortium members enjoy access to quality training throughout the year, discounts on other LCW products and events, and unlimited, complimentary telephone consultation with an LCW private education attorney on matters relating to employment and education law questions (including business & facilities questions and student issues!). We’ve outlined a recent consortium call and the provided answer below. Client confidentiality is paramount to us; we change and omit details in the ERC Call of the Month.

Question:

Because the deadline for employees to exhaust their COVID-19 supplemental paid sick leave was December 31, 2022, can the School continue to offer leave for COVID-19 on its own?

Answer:

The attorney advised the School that it can offer leave for reasons related to COVID-19 if it wants to do so. If it chooses to do so, it should either update its sick leave policy or prepare a separate COVID leave policy as appropriate. It should have the leave in writing so that the leave is implemented consistently. The School can also stop providing SPSL (although it should not deny other, appropriate forms of leave for COVID-related reasons –e.g., a person is sick with COVID and uses sick leave.) The attorney advised that whatever the School does, it should be consistent in its leave policies.