USA – LOUISIANA Law and Practice Contributed by: Jeffrey P. Good, Susan M. Tyler and B. Trevor Wilson, Jones Walker LLP
7. Construction 7.1 Common Structures Used to Price Construction Projects The most common compensation mechanisms for construction projects are fixed price (some - times referred to as “lump sum” or “stipulated sum” ) and “cost plus” , although other variations exist. Fixed Price Under fixed-price contracts, the contractor agrees to perform the work for the stipulated sum within the contract time, and bears essen - tially all the cost and schedule risks, such as the actual costs of labour and materials being higher than estimated. Fixed-price contracts are appropriate where the scope of the work and the schedule for performance are sufficiently definite to allow the contractor to reasonably estimate the cost of the work and contingency amounts for cost and schedule risks. Cost Plus Cost-plus contracts are used where the scope of work is too indefinite to allow for pricing on a lump-sum basis – ie, where an owner must begin the work before the design is complete, creating uncertainty as to the labour, material and equip - ment that will ultimately be required to perform the work. Under a cost-plus contract, the owner and contractor agree to the contractor costs that will be reimbursed. Additionally, the contractor is entitled to a fee (the “plus” ), which is negotiated between the parties. 7.2 Assigning Responsibility for the Design and Construction of a Project The allocation of responsibility for design and construction on a project is a function of the project delivery method selected by the owner.
Design-Bid-Build Under the traditional design-bid-build model, a project is divided into three phases, which pro - ceed sequentially. The design and construction responsibilities are strictly segregated, and the commonly used industry form contracts specifi - cally provide that the design professional is not responsible for construction means and meth - ods, and that the contractor is not responsible for providing design services. Design-Build In the design-build delivery method, the lead principal is typically a contractor, who is then responsible for engaging the design profession - al, giving the owner a single point of responsi - bility for all services. In industrial projects, engi - neering, procurement and construction (EPC) contracts are common, whereby the general contractor assumes full responsibility for deliv - ering “turnkey” facility. Spearin Doctrine Louisiana has adopted the Spearin Doctrine, under which the owner warrants the adequacy of the plans and specifications to the contractor, as defined in contract documents. If the project calls for the use of specific materials or equip - ment and they are installed in accordance with the plans and specifications, the contractor can - not be held responsible for the insufficiency of the specified item. This warranty, however, has been eroded through the adoption of perfor - mance specifications, under which the contrac - tor is obligated to achieve a result and where the means of achieving that result are left to the contractor. 7.3 Management of Construction Risk Appropriate contract terms and conditions rep - resent a significant tool for the management of construction risk. Ideally, contract terms should
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