Integration of Works Construction Contract Documents -

Harmonized General Conditions of Contracts

The Works Committee:

(1) submits the following report (January 4, 2000) from the Commissioner of Works and Emergency Services to Council without recommendation; and

(2) reports having requested the Commissioner of Works and Emergency Services to submit a report directly to Council for its meeting on February 1, 2000, on the issues raised in the communication dated January 11, 2000, from the Greater Toronto Sewer and Watermain Contractors Association:

Purpose:

The purpose of this report is to seek Council approval of the proposed, harmonized Works and Emergency Services General Conditions of Contracts document for construction contracts.

Financial Implications and Impact Statement:

There are no direct funding implications arising from this report.

Recommendations:

It is recommended that:

(1) Council approve the use of the General Conditions of Contracts document proposed in this report for inclusion in all future tender documents issued on or after February 1, 2000, for all Works construction contracts; and

(2) the Commissioner of Works and Emergency Services be authorized to make such amendments to the General Conditions of Contracts document as deemed appropriate by the Commissioner from time to time, provided such amendments are in a form satisfactory to the City Solicitors and consistent with the objectives set out in the body of this report.

Background:

As the result of amalgamation in 1997, the Department inherited several different General Conditions of Contracts (GC) documents from the former municipalities. These documents are inconsistent with each other, out of date and have not kept up with changing government legislation and Works and business practices. The Department has been using these versions in various districts until it had developed a consolidated and harmonized document to replace the existing ones. Recognizing the importance of an integrated GC document, the Department in March 1998 chartered an interim staff work group to review and harmonize existing versions of GC documents. This group began with the task of working towards the creation of a draft document using the Ontario Provincial Standard (OPS) GC as the base document. Utilization of the OPS as the base document for Works and Emergency Services contracts had previously been reported to and approved by Council.

Because of departmental restructuring, the function of integration, development and maintenance of design and construction standards has become the activity of the Department's Technical Services Division. In November 1998, a new Works Standards Technical Advisory Group represented by selected managers from Technical, Solid Waste Management, Transportation and Water and Wastewater Services, chartered by the Senior Management Team of the Department, replaced the former interim staff work group. The new group, with the assistance of Works staff from Standards, Policies and Quality Assurance branch, continued with the task of harmonizing the existing General Conditions of Contracts documents.

Between November 1998 and June 1999, extensive consultation took place in meetings, discussions, and written communications with various internal stakeholders. Stakeholders included staff of Insurance and Risk Management and Purchasing and Materials Management of the Finance Department, and Legal, Occupational Health, Safety and Workers' Compensation and Facilities and Real Estate of the Corporate Services Department. Concurrently, staff held meetings and discussions with key representatives of contractors' associations to understand their interests and concerns. Inputs from these stakeholders have helped the staff reshape the work of the earlier group.

On June 17, 1999, staff completed the first draft of the integrated General Conditions of Contracts document that harmonizes practices of the seven former municipalities, and began to solicit external comments. External stakeholders receiving the draft document include nine associations and agencies representing consulting engineers, contractors, utility companies and the TTC. A list is included at Appendix A.

There were approximately 50 issues of concern (Appendix B) raised by these stakeholders, most of which came from the Grater Toronto Sewer and Watermain Contractors Association (GTSWCA), Metropolitan Toronto Road Builders Association (MTRBA), and Ontario Association of Foundation Specialists (OAFS). After further discussions and consultation with internal and external stakeholders, staff completed a revised, second draft of the document on November 9, 1999. Staff were able to resolve approximately 80 percent of these issues in the second draft.

On December 22, 1999, staff again met with representatives of GTSWCA and MTRBA to discuss and resolve any outstanding issues of concerns that these associations might still have. Consequently, staff has revised and finalized the proposed General Conditions of Contracts document (Appendix C) such that it addresses almost all of the issues raised by the participating stakeholders.

Comments:

The Department has based its proposed new General Conditions of Contracts (GC) on the OPS parent document because municipalities and construction industries in Ontario generally accept the OPS document as a reliable source. The Ontario Ministry of Transportation is currently the steward of OPS. Selected representatives from the Municipal Engineers Association and associations of related construction industries across Ontario are joint authors of various parts of OPS. These documents are broad based, generic and generally cater to the needs of smaller municipalities, especially those that have limited staff and financial resources. This Department is managing an extremely large Capital Works Program. To protect these large investments it is important for the Department to ensure that the City is completely satisfied and confident in implementing its new GC document. This includes, where necessary, making amendments to the OPS document to remove any ambiguities or inconsistencies with Works and Emergency Services best practices and relevant corporate policies. To this effect, the proposed new document has incorporated over 120 amendments to the OPS base document.

Some highlights of the differences between the proposed General Conditions of Contracts document and the existing City and OPS GC documents are discussed in the following paragraphs.

Alternative Dispute Resolution (ADR):

When disputes arise, litigation helps define legal and factual issues, for appropriate resolutions. However, unnecessary lawsuits can result in higher construction costs to both parties and undermine a constructive continuing relationship between owner and contractor.

The proposed GC document now has an ADR mechanism that includes access to mediation and binding arbitration through mutual agreement or consent of both parties. The mediation procedure is the same as OPS GC 3.14. However, the proposed document is fundamentally different from OPS GC 3.15 in terms of access to arbitration. OPS GC 3.15 stipulated unilateral access to arbitration whereby either party may force the other party into binding arbitration proceedings, whether or not the party being forced to arbitration believes it to be the best route given the legal issues involved and the need to retain appeal rights on those issues. The proposed document allows arbitration through mutual agreement or consent, thereby providing the needed flexibility for the parties, and particularly the City, to choose between arbitration and litigation.

Discussions with staff of the Ministry of Transportation (MTO) responsible for contract dispute resolution indicate that the Ministry in its own experience is not in favour of unilateral access to mediation and arbitration and that MTO construction contracts have a section called Issue Resolution (Appendix D) that replaces OPS GC 3.14 and 3.15. The section describes a three-level, bottom up two-party negotiation protocol, failing which there are provisions for access, through mutual agreement, to a third party referee or advisor and failing resolution, by mutual agreement again, to binding arbitration.

Other generally accepted standard documents (published by Canadian Construction Document Committee) for building contracts involving owner, contractor, architects and consultants are CCDC2(1994) for Stipulated Price Contract (lump sum contract), and CCDC4(1982) for Unit Price Contract. CCDC2 has provisions for mediation by mutual agreement and unilateral access to binding arbitration. CCDC4 has no provision for mediation but mutual agreement to arbitration. CCDC4 for Unit Price Contracts has not changed since 1982.

Typically, there is little need for mediation in case of unit price contracts as the use of unit price items can quantify the items in dispute. The cost of items due to unforeseen factors such as change in subsurface or soil conditions, can be clearly determined as is done in the proposed GC document. A majority of Works construction contracts, particularly sewers, watermains and roads, are of unit price nature and mediation and arbitration have rarely, if ever, been used by any former municipalities.

The Department has recently conducted a random survey of current practices by 16 municipalities in Ontario (Appendix E). The population of these municipalities ranges from 30,000 to 830,000.

The results of the survey lead to the following conclusions:

(a) The mediation process has very little use or has rarely been used in municipal construction contracts. The objective of a mediator is to reach a settlement in middle ground which will likely result in some monetary settlement in favor of the plaintiff. Since a municipality is usually the defendant and not the plaintiff, it is understandable that in most cases a municipality will be reluctant to use mediation.

(b) Unilateral access to mediation does not appear to exist in municipal construction contracts in large and medium size municipalities.

(c) Only a very small number of municipalities have some limited experience in binding arbitration. Despite having provisions for unilateral access to binding arbitration, very few municipalities have actually used it in the past.

(d) Arbitration does not appear to be faster than litigation.

Statistics regarding mediation proceedings in Canada reveal a drop in success rate from 75 percent to 40 percent if the process is mandatory. This translates into a 60 percent failure rate for any unilateral mediation. This drop is perhaps understandable because the other unwilling party is probably less prepared and consequently, more likely to reject the outcome. The result is often a poor use of money, resources and time. Mandatory mediation is soon to become a preliminary procedural requirement in Ontario civil actions, in which event any pre-court mediation such as that provided in GC documents may be seen to be a duplication.

Based on the above discussions, staff is of the opinion that mediation and binding arbitration should be discretionary or mutually agreeable to both parties. While there are merits to both mediation and arbitration, the decision on implementing those mechanisms should allow the City to determine the appropriateness of the relevant mechanism depending on the nature and magnitude of the issues involved in any given situation.

Nevertheless, staff also recognise the need for a team-building, issue resolution protocol or process that creates mutual trust and respect for both parties respective roles in the construction process and recognizes the risks inherent with those roles. The proposed ADR mechanism in the GC document will be much more effective if it is complemented by a team-building process that develops/nurtures harmonious relationships at jobsites. The Department will be developing a dispute resolution protocol in the near future.

Changed Subsurface Conditions and Changed Soil Conditions:

These two common areas lead to frequent claims, because relevant sections of current City GC documents were too onerous and unreasonable, therefore resulting in contractual disputes, escalated construction costs and in some instances unnecessarily high bids. The new GC document sets out a clear and equitable way of sharing the contractual responsibility between the contractor and the City.

Construction Lien Act and Occupational Health and Safety Act:

Current City GC documents did not keep up with changes in the Construction Lien Act and the Occupational Health and Safety Act. Legal and Occupational Health and Safety staff have reviewed and made major amendments to the proposed GC document with respect to these statues.

Insurance, Protection and Damage:

Risk and Insurance and Legal staff have amended and rewritten the Insurance Liability, and Indemnification clauses in the proposed GC document to reflect current corporate policies and ensure quality and consistency.

Owner's Responsibilities and Rights:

Major revisions to OPS GC documents have been made to further clarify Owner's Responsibilities and Rights. They include sections under Management and Disposition of Materials, Default by the Contractor, Owner's Right to Correct Default or Terminate the Contract, Final Payment to Contractor and Continuation of Contractor's Obligations.

Warranty:

The standard warranty period has been increased from 12 months to 24 months from the date of substantial performance of the work.

Contractor's Responsibility for Drainage:

This clause has been added to ensure contractors exercise due diligence and are responsible for damages caused to properties as a result of the contractor's construction activities, such as flooding or other rainwater related problems.

Interest:

All references to interest due to the contractor have been removed. Staff believe it is not necessary to set rates and rules as the City has no real history of delay in making payments to contractors and does not foresee any change in the future. Deleting these clauses from the GC document will provide flexibility for both parties to negotiate and settle a claim or a dispute equitably and based on the real cost of doing business.

Conclusions:

Staff has completed the harmonization of General Conditions of Contracts for Works construction projects. The new set of General Conditions of Contracts document, using OPS as a base, is ready for implementation in new Works Construction Contracts in the year 2000. The new document sets out a clear understanding between the City and contractors with respect to their general administrative and legal obligations.

The foundation of successful construction projects depends on healthy and true partnership where each member has a clear understanding of their roles and responsibilities and work as part of an effective team. The recommended document fosters quality and cost effective construction through commitment, equity, trust, and timely responsiveness of both the City and contractors. The Department is also committed to develop a team-building, issue resolution protocol that fosters harmonious relationships at jobsites, to complement the new GC document. Accordingly, it is the Department's belief that implementation of the recommended General Conditions of Contracts document will promote the spirit of partnership and will have a long term cost saving effect on the Department's construction projects.

The proposed General Conditions of Contracts is a live document and will be subject to periodic review and improvement.

Contact:

Samson Yao, P.Eng., Manger

Standards, Policies and Quality Assurance, Works Facilities and Structures

Tel. No. (416) 392-8389; Fax No. (416) 392-4594

E-mail: SYao@toronto.ca

List of Attachments:

Appendix A - List of External Stakeholders

Appendix B - List of Issues Raised by External Stakeholders

Appendix C - City of Toronto, WES, General Conditions of Contract

Appendix D- Extract from Ontario Ministry of Transportation Amendments to OPS General Conditions of Contract, August, 1990

_________

The Works Committee reports, for the information of Council, having also had before it during consideration of the foregoing matter a communication (January 11, 2000) from Mr. Salvatore Morra, P.Eng., Executive Director, Greater Toronto Sewer and Watermain Contractors Association, regarding the harmonization of the General Conditions of Contracts, and advising that the most important item to the Association, Unilateral Access to Mediation and Arbitration, remains unresolved.

(A copy of Attachments A, B, C and D, referred to in the foregoing report has been forwarded to all Members of Council, and a copy thereof is on file in the office of the City Clerk.)