All construction projects begin on paper. Tied with drawings, the most important pieces of paper on a construction project are those included in the legal documents. Legal terms are found most defined in the final contract executed between a client and contractor, but even the terms and conditions submitted as part of a construction bid or proposal are critical and carry legal implications, too. This is why it’s essential that contractors understand what to exclude from construction bids, proposals or contracts. In this article, we’ll cover 10 must-know things to exclude on your next construction project.
A Quick Disclaimer About Exclusions, Contracts & Legal Matters
Before we explore this topic, we must clearly communicate that we are not lawyers or any form of legal counsel. We are writing this article based on our experiences in the construction industry only!
That said, this is a list of our suggestions. We as contractors must make sure that we limit our exposure to unnecessary risk and mitigate potential trouble in the future. Should you negotiate performing any work similar to these items as part of your contract, for fair compensations and in a way that doesn’t expose you to risk, go ahead! It’s ultimately up to you.
10 Things To Exclude From Construction Bids, Proposals & Contracts
Let’s just dive right in. Here’s our list of 10 things to exclude from construction bids, proposals & contract. Click on any item to jump to that section.
- Costs & Work Arising From ‘Acts Of God’
- Unexpected Hazardous Material Removal
- Damages & Penalties For Delays
- Unforeseen / Concealed Site Conditions
- Overtime / Off-Hours Work
- Multiple Mobilizations / Demobilizations
- Warranties For Work That’s Not Yours
- Fixing Damage To Finished Work (Not By Your Own Doing)
- Increased Insurance, P&P Bond, Etc.
- Any/All Work Not Indicated On Project Plans
1. Exclude Costs Created By ‘Acts Of God’ From Bids & Contracts
According to Investopedia, an Act of God “…describes an event outside of human control or activity. It’s usually a natural disaster, such as a flood or an earthquake. Insurance policies usually specify which particular acts of God they cover“.
When a flood or earthquake strikes, construction projects will most likely take some damage. In fact, all of the work you’ve performed could be ruined!
In the vast majority of cases, contractors will not be expected to cover these costs, as they should be covered by insurance. When excluding Acts of God from your construction bid, though, you’re clearly stating that any rework arising out of one of these ‘Acts’ will not be done on your dime.
2. Exclude Hazardous Material Removal
Hazardous materials like asbestos and lead paint are tricky beasts.
First off, they may not be visible or identified to contractors at the time of bid. A roofing contractor may only discover asbestos after they begin ripping off the roof!
Secondly, many Dept. of Buildings don’t issue permits to contractors until all hazardous material has been removed/disposed of by a qualified speciality contractor. That’s right – an expert must certify that all hazardous materials are gone before any ‘actual’ work can resume. That’s a lot of time when you consider costs associated with delay.
Speaking of those specialty contractors…they’re extremely expensive! No contractor wants to – or can afford to – eat the cost of unforeseen hazmat removal.
In short – make sure you exclude unforeseen hazmat removal from your construction bid, proposal and contract!
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3. Exclude Damages & Penalties
Many clients require that a construction contract includes damages – that is, financial penalties if/when the project completion is delayed. While this may be a requirement in some scenarios, it’s a good idea to exclude any form of damages from your construction proposal.
Not only is it dangerous to subject yourself to potential financial penalties, but the Client holds many card. First off, if the contract includes damages, they’ll begin paying you less and less as the project gets delayed – even by change order work! This forces the contractor to push through the finish of the project to collect whatever they can – the rest will be left to litigation.
Also, there are plenty of ways that a Client can delay a project! Even if the delays aren’t our fault as contractors, that doesn’t mean damages won’t become an issue.
Of course, contractors that delay their projects due to non-performance have no one to blame but themselves!
4. Exclude Unforeseen / Concealed Site Conditions
This section is particularly important for renovation projects – contractors should also exclude any/all working related to unforeseen conditions on the site.
For example, a contractor may begin excavating for a foundation and discover a 20,000 lb. rock beneath the soil. Obviously, it’s going to take some considerable time and cost to get rid of that boulder, whether it be via demolishing or extracting.
As a foundation contractor, a client may not be on board with paying you extra money (and allowing extra time) to finish the job in this scenario. They may state that you should’ve known about it, checked beforehand, clarified, etc.
When contractors exclude unforeseen conditions, they provide themselves some security from being expected to eat a ‘surprise’ cost.
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5. Exclude Overtime / Off-Hours Labor Costs
As much as clients may want their contractors to accelerate the project’s schedule, it needs to be done in a reasonable manner for all involved.
Many clients will request that their contractor work additional hours or on the weekends to finish a job. This is particularly common on projects that have experienced weather delays.
As you already know, labor costs increase dramatically when overtime hours are worked. It’s not unlikely that the per-hour cost of overtime is 50% higher than the regular hourly rate.
Contractors must qualify their specific working hours in their construction bids and contracts. It’s a good idea to spell out what the premium cost of overtime will be, in the event that a Client wants to pay it.
6. Exclude Multiple Mobilizations / Demobilizations On The Job
When contractors bid on projects, they typically assume that they’ll show up, do the work and leave.
Mobilizing a construction project can be costly – labor must be spent gathering tools/materials, organizing the site, renting or transporting equipment, hiring labor to perform the work, etc.
When a project is put on hold for any number of reasons, a contractor may be asked to step away from the job for days, weeks or even months. With this comes considerable costs.
When contractors exclude multiple mobilizations, they give themselves the opportunity to collect these unexpected costs before agreeing to come back to work.
7. Exclude Warranties For Work That’s Not Yours
In construction, many finished materials that are on top of, beneath or adjacent to one another are installed by more than one contractor. Not only is this a challenge to coordinate when work is underway, but it’s equally confusing when an issue arises in the future – who gets the phone call to repair it?
For example, a General Contractor may hire a subcontractor to waterproof their new building. They’ll then hire a different contractor to install the finished brick facade. The facade contractor will need to penetrate through the waterproofing in order to install the brick.
Should the building leak, a building owner’s first instinct will be to look for the cause. When it’s traced back to the brick anchors, they’ll call the mason, not the waterproofer. It’s wise to exclude a warranty on the waterproofing if you’re a mason. In an ideal scenario for the brick installer, the waterproofer will have a worker apply a sealant to the brick anchors alongside the mason, and take 100% ownership of the waterproofing warranty.
It’s essential that contractors exclude any warranty of adjacent materials whenever possible.
8. Exclude Fixing Damage To Finished Work (Not By Your Own Doing)…At Least For Free
Let’s say your company just installed a brand-new glass storefront. Somehow, another contractor working onsite manages to break a huge glass pane that’ll cost thousands to replace.
Contractors are expected to protect their own finished work. Should a contractor put protections in place and still get their work damaged, it’s essential that the contractor recovers 100% of their cost for doing the rework and not have to eat it.
Although it’s an unwritten rule that the contractor would get paid to redo the work (at the expense of whoever did the damage), it’s best to clearly state this as an exclusion in your bid or contract.
9. Exclude Increased Insurance, P&P Bond, Etc.
A construction proposal should ideally spell out the insurance limits that’ll be provided for the project. That said, it’s wise to exclude any insurance policies / policy limits beyond what you’re already providing. The same can be said for things like a price & performance (P&P) bond, too.
It’s best to exclude any additional policies, bonds or other forms of coverage from the get-go.
10. Exclude Any/All Work Not Indicated On Project Plans
This one’s fairly broad but it’s a must – all contractors should explicitly exclude performing any work that’s not indicated in the project documents.
This allows the Client and Contractor to draw a clear ‘line in the sand’ as to where the scope of work begins – and ends!
This helps keep the flow between bidding, a final proposal, contracts and performance of work as streamlined as possible.
What To Exclude From Construction Bids: In Summary
Construction is a volatile industry – there’s a lot of money to be made, but there’s also a lot of money to lose. It’s essential that contractors know what to exclude from construction bids so the proper expectations are establish with their client from moment one. I hope this has been helpful and that you’ve enjoyed this article! Thanks a lot for reading.
