Unit 3 Preparing, Awarding, and Managing Coatting Contracts

Preparing, Awarding, and Managing Coating Contracts

Scope and Objectives • Accept the satisfactorily completed work and

make payment for it.
Scope

This unit describes the various aspects of preparing, It is the responsibility of the contractor to:
awarding, and managing coating contracts. It also • Provide complete and conforming work.
discusses how owner and contractor personnel work • Complete the project by the agreed-upon date.
together in this process. • Provide a warranty for the work, as specified.

Objectives The minimum requirements necessary for a contractor

to fulfill these tasks:
After completing this unit, students will be able to:
• Duty to inquire (of ambiguities, omissions, etc.)
• Describe the different types of contracts and
• Duty to inform (of problems)
contract payments.
• Review contract for discrepancies, omissions,
• Recognize the basic steps in the contracting
etc. and advise owner within a defined number
process.
of days of award
• Perform complete project planning.
Basics of Contracting
• Develop procedures sufficient to ensure that
A contract is a written agreement, usually between an product is complete and conforming.
owner and a contractor, to produce a specified end • Verify those procedures before starting work, or
product. In the process, owners and contractors have in beginning stages of work.
specific responsibilities. • Inspect, verify, and document work throughout
the project.
It is the responsibility of the owner to:
Contracting officers requiring contractors to have
• Identify the desired product and estimate its
quality management systems (QMS) in place for
costs.
inspection and documentation should expect the
• Procure the necessary funding for the project.
contractor to:
• Prepare a specification precisely describing
the project in terms of scope of work, technical
• Plan and prepare to produce complete and
requirements, and level of quality expected.
conforming product.
• Take appropriate actions to select a contractor
• Identify contract discrepancies for resolution early
for the project, evaluate proposals, and award
in planning process:
a contract.
–– Requirements impossible to perform.
• Manage the contract to support the contractor in
–– Requirements unfavorable to owner.
completing it.
–– Conflicting requirements.
• Take appropriate actions, as necessary, to ensure
completion of the project.

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Unit 3 Preparing, Awarding, and Managing Coatting Contracts
–– Additional requirements for complete and
usable product.
• Develop procedures that will result in complete
and conforming product.
• Verify procedures, and modify plan as required.
• Execute to the plan
• Identify and correct nonconformities.
• Perform Corrective Action (CA) to identify root
cause(s) and eliminate nonconformities.
• Document complete and conforming product.
• Submit invoice and project closeout certifications
that:
–– Verifies correction of all non-
conformities.
–– Verifies documentation of complete and
conforming product.
It is beneficial when the contractor identifies problems
with the plans and specifications early in the planning
process, rather than creates a crisis during production.
When contracts are administered with appropriate
expectations, crises will occur only very rarely, and will
not normally slow progress. In fact, it is a reasonable
expectation that there will be very, very few crises
in a properly planned project. This will allow the
owner sufficient time to make informed decisions on
technical issues, including involvement of the designer
as necessary.
Types of Contracts
There are two basic types of construction contracts:
competitive bid and direct selection and many
variations of each. The term bid also means tender.
Competitive Bid Contracts
The competitive bidding method is used to accomplish
the specified work at the lowest cost. Contractors
interested in the work review the project specification
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documents to decide if they wish to bid on the job.
They then prepare bids (also called proposals),
often in a standard format, in confidence and submit
them in sealed envelopes for the owner to examine
and compare with the bids received from other
contractors. Although the lowest qualified bidder is
normally awarded the contract other factors may
have a bearing on the decision to award. If the
lowest bid price is significantly higher or lower than
the owner’s estimate, the owner must determine if
there was an estimating error or if there were owner-
contractor differences in interpretation of specification
requirements. Well-prepared contracts should have
a relatively small range of bid estimates. To be sure,
contractors hungry for work are more likely to bid
lower than those who are otherwise busy or who find
the project less than desirable.
The competitive bidding process has been the
contracting vehicle of choice for many decades and
will remain a significant force in the future. The
theory in competitive contracting is that, by allowing
contractors to compete in terms of managerial and
technical skills, the most efficient contractor will
submit the lowest bid and be awarded the contract.
Sometimes, however, this is not the case:
• Unqualified contractors submit lower bids, either
because they do not understand the requirements
or do not intend to produce complete and
conforming products.
• Qualified contractors take additional risks to bid
low on work using unverified processes.
Either of these situations requires extraordinary
attention to qualifying the contractor, and if the
qualifying process fails to weed out unqualified bids,
then the administration process must have some
method of:
 Unit 3 Preparing, Awarding, and Managing Coatting Contracts
• Qualifying each succeeding step.
• Identifying both conforming and nonconforming
products.
Thus, competitive bidding and partnering have
evolved into mutually exclusive terms. To create
an environment that is conducive to partnering in
competitively bid contracts, the owners’ actions must
encourage contractors to become more proficient in
executing requirements rather than cutting costs by
“shaving” requirements. The owner must demand,
through both specification and contract administration,
that that the contractor plan and prepare to “do it right
the first time, every time” while making a reasonable
profit. This is typically accomplished through some
form of “best value” contracting or selective negotiation;
however, it can also be achieved in competitively bid
projects through contract administration that demands
conformity to contract requirements.
Direct Selection (Negotiated) Contracts
In the direct selection process, the owner selects
the contractor from a pre-qualified list of bidders,
usually in advance of specification preparation. This
selection is based upon the contractor’s experience,
dependability, financial stability, and skills. The owner
and the prospective contractor discuss the required
work and its cost. If both parties agree on a price for
the specified work, the contract is awarded.
Design-build is a variation of direct selection in which
the owner executes a single contract with one entity
(designer-builder) to provide both architectural/
engineering services and construction services. It is
also known as a design-construct and single source
or single responsibility method of contracting. The
owner or owner’s consultant establishes the physical
requirements, and the contracting team is responsible
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for design and construction. The contracting team is
selected based on such factors as capabilities and
experience, as well as bid price.
Special Contract Clauses
Special clauses may be added to the contract
to accelerate the work or ensure its completion.
Two common examples are incentive and penalty
clauses.
Incentive Clause
Owners may include an incentive clause in a contract
when it is important that the work be completed
as quickly as possible. Reduced project duration
minimizes “downtime” or permits earlier startup of
newly constructed plant facilities. The incentive is
usually in the form of an extra payment made to the
contractor and/or the production workers when a
project is finished early (ahead of a pre-determined
target time).
An incentive clause may also provide for sharing of
savings if the contractor is able to achieve reduction
over anticipated labor or materials costs. This, of
course, would apply to work done on a “time and
material” or fee basis. Increasingly common are
incentive payments made to workers when certain
predetermined safety goals are achieved.
Penalty Clauses
Penalty clauses are often included in coating
contracts when late completion of a project would
create problems, such as loss of revenue or delay
other important activities. Typically, penalty clauses
require the contractor to pay a fixed amount of money
per day (or week) for each day (or week) by which
the contract exceeds its scheduled completion date.
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Unit 3 Preparing, Awarding, and Managing Coatting Contracts
Amounts may vary from $250 per day to $10,000
depending on the size and character of the project.
The owner, of course, has no trouble collecting these
fees, because they are merely deducted from the
payment given to the contractor upon completion and
acceptance of the project.
Performance and Payment Bonds
Often, particularly in the public sector, an owner will
require a contactor to post a “bond” as a safeguard to
ensure successful completion of a project. The bond
is a promise, made by a third party (often an insurance
company), to complete a project if a contractor
becomes financially unstable or otherwise fails to
perform under the contract. There is a cost associated
with procuring the bond which, depending on the type
of work, generally amounts to approximately 1% of
the total cost of a project. Since bonding companies
use care to assess a contractor’s capabilities and
available assets before they obligate themselves, by
virtue of being able to provide a bond, a contractor
establishes credibility.
Enforcement Clauses
The partnering relationship described in Unit 1 is
preferred to using contract enforcement clauses to
obtain satisfactory work. However, it is important
that the owner have the ability to employ enforcement
clauses when necessary. While owners must pay
the contractor for quality work meeting specification
requirements, they are not under any obligation
to pay for work that does not conform to contract
provisions. Enforcement actions, however, should
only be invoked after careful determination that these
actions are necessary:
• Removal and replacement of low quality
materials. This clause requires contractors, at
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their own expense, to expose, test, and ultimately
remove and replace work that does not meet
specification requirements. If the controversy
cannot be readily resolved, it may even become
necessary for the owner to hire another contractor
to make these corrections. Since such adversarial
actions may be quite costly to all, they must be
well documented and undertaken only when no
alternative approach works.
• Withholding payment. The withholding payment
clause is an alternative approach that may be
used as an adversarial action. The grounds for
withholding payment, which also must be well
documented, often include failure to provide the
specified quality work.
• Removal of unqualified contractor personnel.
This clause can be used to require the contractor
to remove from the project contractor personnel
who have been shown to be incompetent,
careless, or otherwise detrimental to completion
of work.
• Requiring personal contractor supervision.
This clause directs the contractor to assume
personal supervision of the work. It is used
when the owner finds that existing supervision is
inadequate to meet project requirements.
• Halting work. This clause directs the contractor to
halt any item of the work until existing deficiencies
in the work and/or the QMS are satisfactorily
corrected.
• Terminating (defaulting) the contract. This
clause is the most drastic enforcement action
that can be taken and should be used only as
a last resort. Another contractor is then hired
to complete the work. When specified contract
conditions have either been met or not met,
depending on the contract language, the owner
is said to place the contractor into “default”. If
 Unit 3 Preparing, Awarding, and Managing Coatting Contracts
the contractor has provided a “bond”, then the
bonding company would be asked to take the
contractor’s place and complete the project.
Methods of Contract Payment
There are several methods of contractor payment and
several variations to each. In all cases, arrangements
for payment should be agreed upon before any work
is started.
Lump-Sum (also called Stipulated or Fixed-
Price) Payment
In lump-sum payment, a specific price is quoted
for completing all of the described work (meeting
all specification requirements). This is the most
commonly used method of payment and the best
means to procure competitive pricing. In competitive
bidding, bidders quote lump sums. In direct selection
contracts, the lump sum is negotiated between the
owner and the contractor. This method is used when
the quantity of work is accurately known or can be
accurately measured. Subsequent change orders to
add additional work can be very costly.
Unit Price
The unit price method of payment is used when the
quantity of work cannot be accurately estimated.
Instead, a price quotation is made for each unit (e.g.,
100 ft2) of work. This is often the case in maintenance
painting. The contractor may be required to remove
all loose, peeling paint and make spot repairs where
the total area to be repaired cannot be accurately
calculated until the work has been completed. After
completing a significant stage of the work, or after a
set period of time (e.g., one month), the contractor
records the amount of actual work done and is paid
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according to the agreed unit price. This method is
appropriate for both competitive bidding and direct
selection contracts.
In a variation of the unit price, the contractor may
quote a fixed rate for labor and rental of equipment,
and may provide the materials at “no cost” or “cost
plus” rates. These “time and materials contracts” are
discussed in Unit 6.
Cost Plus Fixed-Fee or Percentage
In cost plus fixed fee or cost plus percentage fee
contract formats, the contractor is paid for the actual
costs of materials and labor, plus an “add-on cost,”
which may be a pre-determined amount but is more
likely to be a percent of the actual costs (e.g., actual
costs + 10%). This method of payment is almost
exclusively used for direct selection contracts. Tight
management is necessary because there is no
incentive to complete the work rapidly to reduce
costs. To control costs, the bidder may be required
to state a guaranteed maximum price that will not be
exceeded.
Because some owners are reluctant to accept the
risk inherent in “cost plus” arrangements, they may
require that the contractor provide a guaranteed
“not to exceed” price to accomplish the work. Under
this scheme, once the “cost plus” billings reach the
guaranteed maximum, additional costs incurred to
complete the work would be borne by the contractor.
This arrangement is not entirely fair to the contractor
since the risk is then shifted back but compensation
remains at a low rate of return. Most contractors, if they
understand the process, would insist that an incentive
arrangement be associated with the “guaranteed
maximum.” The incentive usually takes the form of
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Unit 3 Preparing, Awarding, and Managing Coatting Contracts
a percent “sharing” of any savings achieved between
the final cost and agreed maximum. Amounts of 40-
60% are common.
Staged Payments
Typically for large contracts, partial payments are made
to the contractor after specified portions of the job have
been completed. These include mobilization, erection
of scaffolding, surface preparation, application of first
coat, application of second coat, disposal of waste,
and final inspection. The owner’s representative
assesses progress, generally within the period of
assessment (e.g., one month), and provides staged
money to the contractor for the work to date.
Retained Money
A small percent of the cost (e.g., 5 to 10%), called
“retainage,” may be withheld until the warranty
period has expired or at least until it is certain that
the contractor has fulfilled all obligations (payment to
material and equipment suppliers, etc.). Payment is
link to conformity. This was discussed in Unit 2.
Table 3-1
Time Allocated for Contracting Activities Before Start of Work
Activity
Pre-qualifying contractors *
Preparing specification
Advertising for bids
Pre-bid conference
Receiving bids
Reviewing bids
Awarding contract
Pre-construction conference
Coordination meeting
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Owner Contracting Actions
Several sequential actions in the contracting process
must be completed before the work can begin. Each
of these actions has a time element associated with
it. Developing a contract and bringing it to completion
involves a careful assessment of each step and an
adequate time for it to be completed satisfactorily
before starting the next step. Times allocated for a
medium-sized contract may require several months:
Pre-Qualifying Contractors
Even the best-written coating specification will not
ensure quality work, if the contractor is not capable.
There are five general qualifications that should
be considered essential for determining whether a
contractor is suitable:
• Formal (written) management policies and
procedures to monitor the effectiveness of
operations.
• Relevant expertise and experience on projects
of similar character (may not be industrial
projects)
Time Allocated
8 weeks
6 weeks
4 weeks
2 weeks
2 weeks
1 week
1 week
2 weeks
2 weeks
 Unit 3 Preparing, Awarding, and Managing Coatting Contracts

• Quality monitoring programs • QS 1 Standard Procedure for Evaluating a

• Safety, health, and environmental compliance Contractor’s Advanced Quality Management
programs System
• Financial stability
In addition, SSPC has developed SSPC-QS 1
To verify financial stability, the contractor should be Standard Procedure for Evaluating a Contractor’s
required to: Advanced Quality Management System. This requires

• Submit copies of annual reports and/or a list participating contractors to implement and document

of past projects with the total billable for each more stringent (ISO 9001 Compliant) quality control

project. and record-keeping procedures than those included

• Provide information on procedures for record- SSPC-QP 1, SSPC-QP 3, etc. However, unlike

keeping, contract estimation, and scheduling of ISO 9001 certification, QS-1 provides the facility

work. owner with the dual benefit of a coatings-industry

• Provide evidence of bonding capability. specific Quality Management System (QMS) model

• State whether the firm has any current or for contractors who have the operational capability

impending legal actions. required by QP 1 plus the ISO 9001 compliant QMS
detailed in QS 1.

The owner can ensure that contractors have adequate

capabilities by requiring SSPC-PCCP (Painting Owners and specifiers who require a higher level

Contractor Certification Program) certification. SSPC of quality control for their projects may request that

has established qualification programs for coating contractors already qualified to standards such

contractors that certify them capable of conducting a as SSPC-QP 1, QP 3, QP 6, QP 8 or others also

particular type of coating work: present evidence that their quality systems meet the
requirements of QS 1.
• QP 1 Standard Procedure for Evaluating
Qualifications of Painting Contractors (Field
The PCCP certification process requires about 4 to
Application to Complex Structures)
6 weeks, when all steps proceed smoothly. These
• QP 2 Field Removal of Hazardous Coatings
steps are:
• QP 3 Standard Procedure for Evaluating
• Contractor submits application and required
Qualifications of Shop Painting Applicators
documentation.
• QP 6 Standard Procedure for Evaluating
• SSPC reviews and accepts application and
Contractors who Apply Thermal Spray (Metallizing)
submittals.
for Corrosion Protection to Steel and Concrete
• Auditor evaluates contractor headquarters, field,
Surfaces
and/or shop operations.
• QP 8 Standard Method of Evaluating Contracting
• Auditor conducts exit interview.
Firms that Install Polymer Coatings and Surfacings
• SSPC reviews audit findings to determine
on Concrete and other Cementitious Substrates
conformance with standard.

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Unit 3 Preparing, Awarding, and Managing Coatting Contracts
Preparing the Specification
Preparing coating project specifications was discussed
in detail in Unit 2.
Advertising for Bids
Advertising for small projects may be restricted to
local contractors, but larger projects receive much
greater advertising in prominent trade journals (e.g.,
the Commerce Business Daily), particularly for public
utility and government projects, and in notices sent
to pre-qualified bidders. The advertisement should
include the following information:
• Company name and address
• Brief description of the project
• Name and telephone number of contact for
additional information
• Deadline for receipt of bids
This notice informs contractors of the upcoming
project and the availability of bid packages. It is not
intended to provide details of the project but simply
let prospective bidders know of the availability of the
bidding package. Contractors interested in bidding
on the project may obtain copies of the specification,
other contract documents, and other information in
the bidding package.
Private owners may not “advertise” for bids but
may, and usually do, invite selected bidders to offer
proposals. These owners may have previously
pursued the qualification process and have a current
list of qualified bidders. This applies particularly to
large industrial owners.
Pre-Bid Conference
A pre-bid conference is held for large contracts. Here,
the owner presents the specification and describes
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the work details. The bidders may ask for additional
information about the project and the specification
requirements.
Bidders are usually given the opportunity to tour
the work site (if available) with the owner to
become familiar with it. They are allowed to take
measurements and photographs and ask questions
concerning the work. The tour may reveal important
information that the owner overlooked and may lead
to the specification being modified.
Scheduling and holding a pre-bid conference may
result in more realistic bidding and ensure that:
• All bidders receive the same information.
• All bidders are able to observe the conditions at
the work site.
• All bidders have a complete understanding of the
owner’s expectations.
Receiving Bids
Enough time has to be provided for the preparation
and receipt of bids. If the bid period is too short, it
could have a negative impact on pricing.
Awarding Contract
In the competitive bidding process, the lowest
qualified (responsible) bidder is normally awarded
the contract. However, the owner usually checks the
bid to see if all costs have been included or to ensure
that the contractor has the capabilities necessary for
satisfactorily completing the project.
Pre-Construction Conference
The purposes of the pre-construction conference were
discussed in Unit 2. It is held as soon as possible
after the award of the contract The owner, contractor
 Unit 3 Preparing, Awarding, and Managing Coatting Contracts

personnel, and other interested parties meet to review

the contract clauses and specification requirements
to ensure that they all have the same understanding
of requirements and administrative procedures to be
followed. Scheduling and site safety requirements
can be discussed at this meeting.

Careful coordination will result in a good working

relationship between the parties. Meeting minutes
should be taken and become part of the project
files. The minutes should also be distributed to the
interested parties for future reference. Contractor
quality control can be discussed at this meeting or at
a separate coordination meeting where additional time
is available for discussing details of the contractor’s
previously prepared QMS plan. The QMS is modified,
if necessary, and then endorsed by the owner. Further
modifications may also be required as the work
progresses and new concerns are found.

Managing the Contract

A good partnering relationship between the owner and

the contractor, as described in Unit 4, usually results
in good contract management. The contractor’s plan
for quality control and the owner’s quality assurance
plan combine to produce smooth operations.

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References

1. U.S. Army Corps of Engineers, Control #784, Construction Quality Management for Contractors, August
2004.
2. UFGS-01450N, Construction Quality Control, August 2004.
3. Drisko, Richard W. and Jenkins, James F., “Preparing a Specification for a Coating Project,” Chapter 10.4.
SSPC Painting Manual, Volume 1, Good Painting Practices, pp 521-529, Pittsburgh, PA, 2002.

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Terms Used in Unit 3

Bond
A promise of performance made by a responsible third-party guaranteeing completion of a contract. Usually offered
by an insurance company but can be in the form of a cash deposit or the pledge of other forms of security.

Competitive Bid Contract

Type of contract in which the contractor that quotes the lowest price for the work is awarded the contract.

Contract
Written agreement between parties, usually between an owner and a contractor, to produce a specified end
product for a certain amount of value received. This is the fundamental principle of contracting.

Cost Plus Fixed Fee

Method of contract payment in which the contractor is paid for expenses plus an agreed-upon amount of
money.

Cost Plus Percentage

Method of Contract payment in which the contractor is paid for expenses plus a percent of the total costs.

Direct Selection Contract

Type of contract in which the owner selects the contractor without competition and then negotiates for the
price.

Enforcement Clause
Portion of contract compelling specific action.

Incentive Clause
Portion of contract rewarding contractor for special action.

Lump-Sum Payment
Method of contract payment in which a single, total payment is made to the contractor upon completion of the
work.

PCCP
SSPC’s Painting Contractor Certification Program. (QP1, QP2, QP3, QP6, QP8)

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Penalty Clause
Portion of contract specifying negative consequences to a contractor for failure to meet specification
requirements.

Performance and Payment Bonds

See Bonds. Although the principals are the same for both types of bonds, the “performance” bond assures
completion of the work and the “payment” bond assures that suppliers and subcontractors are paid if the contractor
is unable to do so.

Retainage
Or “Retained Money.” Portion of payments withheld from contractor until a time when all specified contract
requirements have been met.

Staged Money
Portion of total payment made to contractor upon completion of a given step on time during a project.

Unit Price Method

Method of payment made according to the number of defined units of work completed rather than in a single
payment. See Lump Sum Payment.

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Unit 3 Workshops

The contractor’s production forces keep applying less than the specified thickness of lining on the interior of a
fuel tank and show no indication of taking any corrective actions. Discuss various approaches available under
the contract to the owner to obtain the specified thickness.

You, as the owner’s representative for a water company, are responsible for preparing and securing a contract
for lining the interiors of four potable water storage tanks. The work is to be done in the winter when water
requirements are lowest, and it is important to complete the work as quickly as possible to obtain the minimum
down time for each tank. Discuss what type of a contract and what type of clauses, and method of payment
would you use to accomplish your goals.

The owner has required the contractor to clean and paint some areas not included in the specification. How
shall the contractor proceed to receive payment for this extra work?

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Unit 3 Quiz Key

Select the best answer for each of the questions below.

1. What is an owner’s responsibility on a coating project?

a. Prepare a clear, concise, and complete specification.

b. Perform complete project planning.
c. Inspect, verify, and document work throughout the project.
d. Verify project procedures prior to starting work.

2. What is a contractor’s responsibility on a coating project?

a. Identify the desired work product and estimate its costs.

b. Approve the inspection plan for the job.
c. Provide a warranty for the work
d. Prepare a clear, concise, and complete specification.

3. Select an advantage of a competitive-bid contract.

a. Incentive clauses are not required.

b. The lowest cost is obtained.
c. Experienced contractors are pre-qualified.
d. A single-source for engineering and construction is identified.

4. Select an advantage of a direct-selection contract.

a. The lowest cost is obtained.

b. A small range of bids is generated.
c. Experienced contractors are pre-qualified.
d. The contractor agrees to a cost plus fixed-fee payment.

5. What is the unit price method of payment?

a. Contractor is paid for the actual cost of materials and labor.

b. Contractor is paid for the amount of actual work done in a given period.
c. Contractor is paid after the warranty expires.

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d. Contractor is paid an incentive for completing work ahead of schedule.

6. What is the typical manner of determining the cost of a direct-selection contract?

a. Negotiation between owner and contractor.

b. Written agreement for actual costs plus a percent.
c. Written agreement for actual costs plus a fixed fee.
d. Mediation between owner and contractor.

7. What is the chief reason to place an incentive clause in a contract?

a. To ensure the quality of the work.

b. To ensure completion of the work as soon as possible.
c. To ensure there are no change orders for the work.
d. To ensure that the contractor does not exceed the budget.

8. What is the chief reason to place a penalty clause in a contract?

a. To avoid exceeding the stated budget.

b. To avoid delays in qualifying contractors.
c. To avoid delays in completing the work.
d. To enforce withholding a percentage of the payment until the warranty has expired.

9. Select an example of a contract enforcement clause.

a. Removal of unqualified contractor personnel.

b. Posting of a performance and payment bond.
c. Retaining a small percent of the cost until the warranty period has expired.
d. Providing an incentive that the work be completed quickly.

10. What is the most common method of contract payment?

a. Lump sum.
b. Unit price.
c. Cost plus fixed fee.
d. Cost plus percent.

11. What method of contract payment is best for competitive pricing?

a. Lump sum.
b. Unit price.
c. Cost plus fixed fee.

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d. Cost plus percent.

12. When is the unit price method of payment most commonly used?

a. When the job is very small.

b. When the amount of work cannot be accurately estimated.
c. When there is a great deal of hazardous work.
d. When the contractor has several options available for conducting work.

13. What is a concern for cost-plus contracts?

a. There is no incentive to work rapidly and control costs.

b. There is no process to accurately estimate the work.
c. There is no method of retaining partial payment until the warranty expires.
d. There is no method to employ enforcement clauses.

14. What is typically required in qualifying a contractor for project work?

a. Formal written management policies and procedures.

b. Presence of certified quality assurance inspectors on staff.
c. Assurance that unqualified personnel can be removed from the job.
d. Formal written penalty clauses for poor performance.

15. What is the chief reason for a pre-bid meeting of contractors?

a. All bidders can gain a complete understanding of the owner’s expectations at the same
time.
b. All bidders can negotiate their bids at the same time.
c. All bidders can select the same method of bid preparation.
d. All bidders can present their proposed project work plans at the same time.

C2 Planning and Specifying Industrial Coatings Projects

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 Unit 3 Preparing, Awarding, and Managing Coating Contracts
Unit 3 Preparing, Awarding, and Managing Coatting Contracts

Topics
PLANNING AND SPECIFYING
INDUSTRIAL COATINGS PROJECTS
•  Basics of contracting
(For Owners and Contractors)
•  Types of contracts
•  Special contract clauses
Unit 3 •  Methods of contract payment
Preparing, Awarding, and •  Owner contracting actions
Managing Coating Contracts •  Preparing the specification

Scope Learning Outcomes

•  This unit describes the various aspects •  After completing this unit, students will
of preparing, awarding, and managing be able to:
coating contracts. It also discusses how −  Describe the different types of contracts
owner and contractor personnel work and contract payments.
together in this process. −  Recognize the basic steps in the
contracting process.

Contract
•  A written agreement, usually between
an owner and a contractor, to produce a
specified end product.
Owner Responsibility
in Contracting
•  Fully identify desired product and estimate
its cost.
•  Procure the necessary funding.
•  Prepare specification precisely describing
the scope of work, technical requirements,
and level of quality expected.
•  Take actions to select contractor, evaluate
proposals, and award a contract.

C2 Planning and Specifying Industrial Coatings Projects

C2 Planning and Specifying Industrial Coatings Projects

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Unit 3 Preparing, Awarding, and Managing Coatting
Unit 3 Preparing, Awarding, and Managing Coating Contracts
Contracts

Owner Responsibilities in
Contractor Contract Responsibilities
Contracting (cont’d.)
•  Manage the contract to support the •  Provide complete and conforming work.
contractor in completing it. •  Complete the project by the agreed-
•  Take appropriate actions to ensure upon date.
contract completion. •  Provide a warranty for the work, as
•  Accept satisfactorily completed work and specified.
make payment for it.

Minimum Requirements to
Contractor QMS Requirements
Fulfill These Tasks
•  Contractor must: •  When QMS is required, contractors must:
−  Review contract for discrepancies, omissions, −  Plan and prepare to produce complete and
etc. conforming product.
−  Perform complete project planning. −  Identify contract discrepancies for resolution
−  Develop procedures to ensure project is early in planning process.
complete and conforming. −  Develop procedures that will result in complete
−  Verify those procedures before starting work, or and conforming product.
in the beginning stages of work. −  Verify procedures and modify plan as required.
−  Inspect verify, and document work throughout −  Execute to the plan.
the project.

Contractor QMS
Basic Contracts
Requirements (Cont’d.)
•  When QMS is required, contractors also •  Competitive bid
must: •  Direct selection (negotiated)
−  Identify and correct nonconformities.
−  Document complete and conforming
product.
−  Submit invoice and project closeout
certifications verifying correction of all
nonconformities and documentation of
complete and conforming product.

C2 Planning and Specifying Industrial Coatings Projects

C2 Planning and Specifying Industrial Coatings Projects

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 Unit 3 Preparing, Awarding, and Managing Coating Contracts

Unit 3 Preparing, Awarding, and Managing Coatting Contracts

Performance and Payment

Penalty Clauses
•  Contractor may pay a fixed amount for
each day or week that work is late.
•  Amount is tied to loss of revenue or
downtime.
•  Owner deducts from payment upon
completion and acceptance of project.
Bonds
•  Safeguard to ensure successful completion
of a project.
•  Issued by third-party (insurance company).
•  Cost average 1% of total cost of project.
•  Establishes contractor credibility.

Enforcement Clauses:
Enforcement Clauses
Removal or Replacement
•  A tool only invoked after careful •  Contractors, at their own expense, are
determination: required to expose, test, and ultimately
−  Removal or replacement of materials remove or replace work that does not
−  Withholding payment meet specification requirements
−  Removal of unqualified personnel •  Owner may have to hire another
−  Requiring personal contractor supervision contractor to accomplish this but only
−  Halting work when no other alternative works.
−  Terminating work

Enforcement Clauses: Enforcement Clauses:

Withholding Payment Removal of Unqualified Personnel

•  Must be well-documented. •  Requires contractor to remove anyone

•  Used when contractor fails to provide whose actions are detrimental to project
specified quality work. completion.

C2 Planning and Specifying Industrial Coatings Projects
C2 Planning and Specifying Industrial Coatings Projects

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Unit 3 Preparing, Awarding, and Managing Coatting Contracts
Unit 3 Preparing, Awarding, and Managing Coating Contracts

Enforcement Clauses: Enforcement Clauses:

Personal Contractor Supervision
•  Directs contractor to assume personal
supervision of the work, when existing
supervision is inadequate to meet
project requirements.
Halting Work
•  Directs contractor to halt any item of the
work until existing deficiencies in the
work and/or the QMS are satisfactorily
corrected.

Enforcement Clauses:
Methods of Contract Payment
Terminating (Defaulting) Contract

•  Most drastic enforcement. •  Lump sum (also called stipulated or

•  Done only as last resort. fixed price)
•  Requires another contractor to complete •  Unit price
work. •  Cost plus fixed fee or percentage
•  Bonding company would be asked to •  Staged payments
take contractor’s place and complete •  Retained money
job if contractor had provided bond.

Lump Sum Method Unit Price Method

of Payment of Payment
•  Most common method of payment. •  Used when quantity of work cannot be
•  Best means to procure competitive pricing. accurately estimated (e.g, maintenance).
•  A specific price is quoted for meeting all •  Contractor paid for amount of work done.
specification requirements.
•  Used in both competitive and direct-
•  In competitive bidding, bidders quote lump sums.
selection contracts.
•  In direct-selection contracts, the sum is
negotiated between owner and contractor.
•  Method is used when amount of work can be
accurately determined.

C2 Planning and Specifying Industrial Coatings Projects

C2 Planning and Specifying Industrial Coatings Projects

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 Unit3 3Preparing,
Unit Preparing,Awarding,
Awarding, and
and Managing
Managing Coatting
Coating Contracts
Contracts

Cost Plus Fixed-Fee

Time and Materials Payments
•  A variation of unit price method.
•  Contractor quotes fixed rates for labor
and rental of equipment and may
provide the materials at “no cost” or
“cost plus” rates.
Method of Payment
•  Contractor paid actual costs of materials
and labor plus an “add-on” cost (percent of
actual cost).
•  Method almost exclusively used in direct-
selection contracts.
•  Contractor may require a “guaranteed
maximum” incentive arrangement
(40-60%) to avoid being saddled with a
high-risk, low-rate-of-return agreement.

Typical Time Allocations for

Staged Payments
Contracting Activities
•  Partial payments as specified portions of Activity Weeks
work are completed (mobilization, surface •  Pre-qualifying Contractors 8
prep., application of first coat, etc.). •  Preparing Specification 6
•  Owner’s rep. assesses progress and •  Advertising for Bids 4
authorizes payment.
•  Pre-bid Conference 2
•  Small percent (5-10%) of cost may be
withheld until warranty period has expired. •  Receiving Bids 2

Typical Time Allocations for Contracting Activities:

Contracting Activities (cont.) Pre-Qualifying Contractors
Activity Weeks •  Formal (written) management policies
•  Reviewing Bids 1 •  Relevant expertise and industrial
•  Awarding Contract 1 experience
•  Advertising for Bids 4 •  SSPC PCCP certification
•  Pre-construction Conference 2 •  Quality monitoring programs
•  Coordination Meeting 2 •  Safety, health, and environmental
•  programs
•  Financial stability

C2 Planning and Specifying Industrial Coatings Projects

C2 Planning and Specifying Industrial Coatings Projects

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Unit 3 Preparing, Awarding, and
Managing Coatting Unit 3 Preparing, Awarding, and Managing Coating Contracts
Contracts
Means of Verifying
Financial Stability
•  Copies of annual reports and/or list of
past projects and their billings.
•  Procedures for record-keeping, cost
estimation, and scheduling of work.
•  Evidence of bonding capability.
•  Information on any current or impending
legal actions.
Major Steps in SSPC’s
Certification Process
•  Contractor submits application and
required documentation.
•  SSPC reviews application and submittals.
•  Auditor evaluates contractor headquarters,
field, and/or shop operations.
•  Auditor conducts exit interview.
•  SSPC reviews audit findings to determine
conformance with standard.
Preparing the Specification:
Pre-Bid Conference
•  Purpose of conference:
−  Present information and work details.
−  Ensure that bidders receive same data.
−  Permit bidders to ask questions.
−  Permit bidders to inspect work site.
−  Determine if bidders are serious.
−  Let bidders know that owner is serious.
C2 Planning and Specifying Industrial Coatings Projects
C2 Planning and Specifying Industrial Coatings Projects
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SSPC PCCP Certifications
•  QP 1 Painting Contractors (Field Application
to Complex Structures)
•  QP 2 Standard Procedure for Evaluating the
Qualifications of Painting Contractors to
Remove Hazardous Paint
•  QP 3 Shop Painting Applicators
•  QP 6 Contractors Metallizing Steel and
Concrete Surfaces
•  QP 8 Contractors Installing Polymer
Surfacings to Cementitious Surfaces
Preparing the Specification:
Advertising for Bids
•  Advertisement should include:
−  Company name and address.
−  Brief description of project.
−  Name and telephone number of contact
for additional information.
−  Deadline for receipt for bids.
Preparing the Specification:
Receiving the Bids and Awarding the Contract
•  Provide enough time for the bidding
process to encourage proper pricing.
•  Competitive bidding awards contract to
the lowest qualified bidder.
•  Owner checks bid to ensure all costs
are covered and contractor is truly
capable of completing the work.
 Unit33Preparing,
Unit
Pre-Construction Conference
•  Held as soon as possible after award of
contract.
•  Details of specification and contract
clauses reviewed for clarification.
•  Contractor QMS plan may be reviewed.
•  Meeting minutes should be taken and
become part of project files for
everyone’s access.
Summary
•  A contract is a written agreement, usually
between an owner and a contractor, to
produce a specified end product.
•  Competitive bid and direct-selection are the
two basic types of contracts.
•  Contracts may include incentive, penalty, and
enforcement clauses.
•  Lump sum, unit price, cost plus fixed fee or
percentage, staged payments, and retained
money are all contract payment methods.
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Preparing, Awarding,
Awarding, and
and Managing
ManagingCoatting
CoatingContracts
Contracts
Coordination Meeting
•  Establishes mutual understanding of
each other’s roles for controlling project
quality.
•  Owner reviews contractor’s work plan,
QMS plan, and safety plan and
requests modifications when necessary.
Summary (cont.)
•  The pre-bid conference ensures all bidders
receive the same information.
•  The pre-construction conference and
coordination meeting clarify the specification
and contract clauses for the bid winner. This
also allows the owner to review the
contractor’s work plan, QMS plan, and safety
plan and request modifications when
necessary.
C2 Planning and Specifying Industrial Coatings Projects
C2 Planning and Specifying Industrial Coatings Projects