Surety Bond Quarterly - Summer 2015 - 10

Practical Insights: What
You Need to Know

Hiding in Plain Sight:

Specifications as a Source of Risk
IN 2013, THE Construction
Specifications Institute (CSI)
engaged a company to undertake a study of the current and
future state of specifications and
that distinct sub-category of the
design profession, specifiers. If
the term "specifier" denotes a
breed unknown to most in the
surety industry, this is understandable. Contractors, subconBY UJJVAL VYAS
tractors, owners, insurers, and
others in the construction industry are largely unaware of the role that specifiers play
in the production of the key information that rules the
construction project. Most are also unaware that poorly
prepared or incomplete specifications are a source of risk
that's hiding in plain sight.
The instruments of service are the "drawings and
specs" produced by the licensed design professional
or firm during the construction documents phase of the
underlying contract between the owner and the architect
(generally speaking). The drawings and specs provide the
visual and non-visual information the constructor needs
to estimate, bid, schedule, and deliver the project. In the
event of a default, the surety is responsible for assuring
fulfillment of the performance of the contract through
the information provided in these instruments of service
and is held to a certain standard for completing what is
in these documents.
It is commonly known that drawings are used primarily
for parametrics, space planning, and aesthetic composition and are not warranted to provide exact dimensions
or full descriptions of the products, assemblies, systems,
and other requirements for compliance by the contractor. In fact, no significant estimation (either for general
conditions or for construction services), bid packages,
or scheduling can be done with the drawings alone.
Contractual performance for contractors and subcontractors is determined by adherence to the non-visual
information in the project manual.
Poor instruments of service produced by the design
professional will negatively impact the whole process.
Two CFMA/FMI studies show this to be the case, and there
is no sign that the trend will reverse any time soon.1 The

10

SURETY BOND QUARTERLY | SUMMER 2015

result of improper, ambiguous, contradictory, or unclear
specifications can be felt throughout the process, causing
major problems for the constructor and eventually costing
the owner substantial sums. Constructors have known
this for a long time, but the magnitude of the impact on
owners has come to light as a result of CSI's study.
The common problem of poor specifications raises
several issues for constructors. Estimating, which is often
done in the context of severe time constraints, becomes
an exercise in guesswork. This increases the likelihood of
contractor non-performance and can also put pressure
on the contractor's performance for other projects in
progress, which raises the specter of default.
Poor specifications also create circumstances that
encourage opportunistic behavior by constructors during
bidding, which ends up being detrimental to the owner.
A contractor may understand that the specification is
improper or ambiguous and will submit a bid knowing
that change orders will ensue. This creates an apparent
lower bid masking the true higher cost. Another reaction
to poor specifications, especially in those areas that can
have large disparities in pricing, is for the contractor to
add some increased percentage of contingency in a bid.
This makes it impossible for the owner to acquire robustly
comparable bids for selection. Unfortunately, this type of
gamesmanship has become all too common.
Unbeknown to most owners, insurers, and bond providers, specifiers are directly involved in the Division 01 portions of the specifications, which determine contractual
compliance with the General Conditions of the contract.
What, when, and how submittals are to be prepared,
submitted, and approved is just one area that is outlined
in the specifications; and insurance provisions also can
be altered and amended by specifications. However,
specifiers rarely have access to the underlying contracts
between the owner and the design professional or the
owner and the general contractor.
Furthermore, specifiers are not versed in the legal or
risk issues associated with contract or insurance provisions and even less so with surety issues. The fact that
the specifier - not legal, insurance, or risk management
personnel - creates the requirements for fulfillment of
the underlying contracts makes for a dangerous situation.
Even more troublesome for the surety industry, it is
common, under the well-intentioned theory of protecting



Table of Contents for the Digital Edition of Surety Bond Quarterly - Summer 2015

NASBP Upcoming Meetings & Events
2015-2016 NASBP Executive Committee
From the CEO - There is Poetry in Surety Claims, Surely
Practical Insights: What You Need to Know - Hiding in Plain Sight: Specifications as a Source of Risk
Profile: President Susan Hecker
Developing Your Leadership Vision
Liability Issues - Can Public Owners be Held Liable to Subcontractors and Suppliers for Failure to Require General Contractors to Obtain Required Payment Bond?
An Introduction to Probate Bonds
Class Act - Surety Team’s Cooperative Efforts Enable School to Open on Time
NASBP’s Attorney Advisory Council - Participants Opine on Current Risk Management Challenges and Business Opportunities
The AIA Describes Updated and Expanded Design-Build Documents Family
Contractor Practices That may Result in Construction Claims to Recover for Delays and increased Costs
NASBP Annual Meeting Speakers - Veterans can benefit private sector, but need help finding jobs
Index to Advertisers
Surety Bond Quarterly - Summer 2015 - cover1
Surety Bond Quarterly - Summer 2015 - cover2
Surety Bond Quarterly - Summer 2015 - 3
Surety Bond Quarterly - Summer 2015 - 4
Surety Bond Quarterly - Summer 2015 - 5
Surety Bond Quarterly - Summer 2015 - 6
Surety Bond Quarterly - Summer 2015 - 2015-2016 NASBP Executive Committee
Surety Bond Quarterly - Summer 2015 - From the CEO - There is Poetry in Surety Claims, Surely
Surety Bond Quarterly - Summer 2015 - 9
Surety Bond Quarterly - Summer 2015 - Practical Insights: What You Need to Know - Hiding in Plain Sight: Specifications as a Source of Risk
Surety Bond Quarterly - Summer 2015 - 11
Surety Bond Quarterly - Summer 2015 - Profile: President Susan Hecker
Surety Bond Quarterly - Summer 2015 - 13
Surety Bond Quarterly - Summer 2015 - Developing Your Leadership Vision
Surety Bond Quarterly - Summer 2015 - 15
Surety Bond Quarterly - Summer 2015 - Liability Issues - Can Public Owners be Held Liable to Subcontractors and Suppliers for Failure to Require General Contractors to Obtain Required Payment Bond?
Surety Bond Quarterly - Summer 2015 - 17
Surety Bond Quarterly - Summer 2015 - 18
Surety Bond Quarterly - Summer 2015 - 19
Surety Bond Quarterly - Summer 2015 - 20
Surety Bond Quarterly - Summer 2015 - 21
Surety Bond Quarterly - Summer 2015 - An Introduction to Probate Bonds
Surety Bond Quarterly - Summer 2015 - 23
Surety Bond Quarterly - Summer 2015 - 24
Surety Bond Quarterly - Summer 2015 - 25
Surety Bond Quarterly - Summer 2015 - 26
Surety Bond Quarterly - Summer 2015 - Class Act - Surety Team’s Cooperative Efforts Enable School to Open on Time
Surety Bond Quarterly - Summer 2015 - 28
Surety Bond Quarterly - Summer 2015 - 29
Surety Bond Quarterly - Summer 2015 - NASBP’s Attorney Advisory Council - Participants Opine on Current Risk Management Challenges and Business Opportunities
Surety Bond Quarterly - Summer 2015 - 31
Surety Bond Quarterly - Summer 2015 - The AIA Describes Updated and Expanded Design-Build Documents Family
Surety Bond Quarterly - Summer 2015 - 33
Surety Bond Quarterly - Summer 2015 - Contractor Practices That may Result in Construction Claims to Recover for Delays and increased Costs
Surety Bond Quarterly - Summer 2015 - 35
Surety Bond Quarterly - Summer 2015 - NASBP Annual Meeting Speakers - Veterans can benefit private sector, but need help finding jobs
Surety Bond Quarterly - Summer 2015 - 37
Surety Bond Quarterly - Summer 2015 - Index to Advertisers
Surety Bond Quarterly - Summer 2015 - cover3
Surety Bond Quarterly - Summer 2015 - cover4
Surety Bond Quarterly - Summer 2015 - outsert1
Surety Bond Quarterly - Summer 2015 - outsert2
Surety Bond Quarterly - Summer 2015 - 43
Surety Bond Quarterly - Summer 2015 - 44
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