Problematic Construction Contract Clauses: Inspection

This is the sixth blog post in a series that discusses clauses in construction contracts with the goal of providing awareness of contract terms that often cause difficulties and give rise to claims.

Previous blog posts have addressed problematic contract clauses involving differing site conditions, no damages for delay, changes, coordination, suspension of work, warranty and defects liability, and variation in quantity. This post discusses inspection clauses, and other posts will discuss the following clauses:

• Force majeure
• Flow down
• Compensation and payment
• Weather
• Escalation
• Oral modifications

Inspection
The owner often reserves in the contract its right to inspect the work for completeness and quality assurance during procurement of equipment and materials in the vendor’s shop, during construction, and before contract completion. The owner should be aware that there are certain responsibilities not to over inspect and interfere with the contractor’s performance, to inspect at reasonable times, and generally to inspect at the owner’s expense. Inspection may also require testing of materials and the submittal of test reports to ensure specifications are met. Contracts commonly provide provisions for determining substantial completion and final completion, and inspection requirements for each.

An example private contract identifies the following inspection requirements:

Scope of Work
1.4.3    The Contractor shall provide Construction Management Services that shall include, but not be limited to, the activities listed below. Refer to the Construction/Construction Management Scope and Responsibility Matrix for further details.

• Provide a team of professional and qualified construction management personnel to coordinate and manage the site construction activities.
• Construction management personnel shall have full knowledge of and ensure compliance with all applicable laws, regulations, conditions of labor, local conditions, site conditions, and site procedures including environmental aspects.
• Inspection of all construction work for completeness and quality assurance and to assure compliance with all drawings, specifications and applicable codes.
• Inspection of purchased materials and equipment upon delivery to ensure that they meet specification.

Procurement Instructions
3.11    Expediting and Inspection
3.11.1    All Items purchased by either the Contractor or Owner will be expedited as required to ensure prompt and complete delivery. Expediting as outlined in supply plan implementation process groupings will be the responsibility of the Contractor.

3.11.2    The Supply Plan indicates what orders are targeted for shop inspection and shop expediting. An inspection plan should be prepared by the Contractor and approved by the Owner project team prior to RFQ/P.O. The inspection plan will clearly identify scope and timing, and once approved will be attached/included with RFQs/P.O.s.

3.11.3    Shop-inspection and expediting to be executed by (to be determined).

3.11.4    Document and material tracking reports as per the Contractor standard reporting will be generated which clearly outline the critical dates in the supply process.

3.11.5    Copies of all inspection reports will be maintained in the purchase order file as well as routed to the respective Project Engineers.

3.11.6    It is expected that manufacturers be firmly notified that required delivery dates must be met. Any situation discovered when expediting or inspecting materials that could affect delivery or quality of the shipment should be immediately brought to the attention of the PPL.

3.11.7    Required vendor documentation shall be expedited and the status reported. Orders are not considered to be complete for final payment until all required documentation is received. The Contractor is to manage the documentation process and inform Owner when all related and required documentation has been received in good order. Owner will not pay invoices until confirmation of all documentation has been obtained by the Contractor. The Contractor shall inform the PPL when all items required are closed out.

3.11.8    Any and all problems associated with equipment/material delivery, document delivery or other expediting shall be immediately identified and communicated in writing to the PPL and project engineers.

3.11.9    Inspection process will be managed by the Contractor in that the Contractor will co-ordinate inspection services supplied by (to be determined).

3.11.10    Complete inspection and expediting plans will be required for all equipment needing inspection. It is the responsibility of Owner Engineering and the Contractor to generate and approve the plans.

3.11.11    Cost for Inspection services will be billed direct to Owner, approved by Owner Project Engineering.

3.11.12    Inspection and expediting reports generated by (to be determined) shall be sent to the Owner Project Engineer and PPL along with the Contractor Engineering with copies kept in the procurement records.

3.11.13    The Contractor shall review and approve inspection hours/scope and inform Owner prior to invoice payment for partial completion of work by the Equipment Suppliers (progress payments). This process is described below:

• (To be determined) inspects and approves % complete in inspection report.
• The Contractor to forward inspection report to Project Engineering and PPL.
• PPL will forward copy of inspection report to accounts payable for comparison with invoicing.
• Accounts payable pay as per inspection report only.
• Any deviations brought to the attention of the PPL for resolution.

Construction/Construction Management Instructions
4.3    Quality Assurance and Quality Control
4.3.1    Within ___ days after Contract Award, Contractor shall provide to the Owner for approval a Quality Assurance Plan specific to Construction Work.

4.3.2    Not less than ___ days before the commencement of any craft discipline of Work on the Site, the Contractor shall provide to the Owner for approval a Quality Control (QC) document package specific to such discipline of Work. Contractor and Owner shall agree on the “Approved for Construction” issue of such QC package, before such Work on Site may commence. The QC document package shall include the documentation requirements for any inspection or test performed and shall show which of those documents are required to be included in the system turnover documentation.

4.10    Materials Management
4.10.1    In accordance with the relevant references in the Scope and Responsibility Matrix, Construction/Construction Management, Attachment 1C to Section 1, Book 1, Volume 1 of Scope of Work for the Contractor, the Contractor shall be responsible for the proper receipt, identification, general physical inspection, storage, preservation, issue and handling of all goods, including equipment and materials, received at the Site.

4.11.4.1    The schedule of Turnover Procedures shall include all inspection procedures, equipment and material tests and other relevant Quality Control reports, confirmation of compliance with approved-for-construction design and installation instructions, and such other documentation as required to qualify each Plant Operating System as being Mechanically Complete.

4.11.4.2    The Owner will mark up the inspection, equipment and material test plans to show which tests shall be witnessed, signed off, results reviewed for, and/or will provide random surveillance. The Contractor shall provide ALL test results for the plant records.

FIDIC contracts also have an Inspection clause.¹ This provision provides that the employer’s personnel shall at all reasonable times have full access to all parts of the site and be entitled to examine, inspect, measure, and test the materials and workmanship and to check the progress of manufacture of the work.

In addition to the above provisions, inspection can also include the following:

• Recordkeeping compliance
• First aid (first aid kits, eyewash stations, etc.)
• Fire protection systems
• Personal protective equipment
• Safe operation of tools and equipment
• Transportation of employees
• Compliance with environmental requirements

The contractor’s failure to comply with contractual inspection requirements can result in rework, increased costs, and delay to the completion of a construction project. Owners need to have personnel available to perform the inspections they intend to perform and be fully aware of the contractual specifications so that the inspectors do not interfere with or delay the contractor’s timely performance of its work or direct the contractor to perform work or provide equipment or materials that are outside the contractual requirements.

¹    See FIDIC Conditions of Contract for Construction MDB Harmonised Edition for Building and Engineering Works Designed by the Employer, Clause 7.3, May 2005.

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