Mr. John E. Potter, President & CEO
Mr. William S. McDermott, Chairman, Board of Directors
Metropolitan Washington Airports Authority
Dear Misters Potter and McDermott:
The Alliance for Construction Excellence (ACE*), is in receipt of your letter to the American Subcontractors Association of Metro Washington (ASAMW) dated March 27, 2017 in response to their letter dated four (4) months earlier, November 8, 2016. The lateness of the response, coupled without an explanation as to why it took four (4) months to respond to our mutual serious concerns, is deeply troubling and disrespectful to our business community.
In response one (1) you stated: “The Airports Authority understands your concern regarding potential risk transfer; however, it is the specific business relationship between Turner and its individual subcontractors that governs this issue.”
Based on actual contracts between MWAA and Turner, and between Turner and sub-contractors, there was not a “potential risk transfer” but an actual and egregious transfer of risk to sub-contractors. MWAA, as the purchaser of the OCIP and the formulator of the change order mark-ups, established the terms and conditions, not the general contractor, thus this communication directed to MWAA. We believe MWAA is in the best position to ensure this practice is eliminated from future contracts.
Item two (2): According to generally accepted legal principles, an “Act of God” is an accident or event resulting from natural causes, without human intervention or agency, and one that could not have been prevented by reasonable foresight or care—for example, floods, lightning, earthquake, or storms.
By MWAA’s explanation and reasoning, liability from any “Act of God” that occurs during the course of construction, could be shifted away from MWAA and to sub-contractors, a patently unfair practice for which MWAA is likely insured against as an Authority. Sub-contractors should not have to shoulder liability, in whole or in part, for mishaps resulting from natural causes for which they have no control.
MWAA’s response to item three (3) asserting sub-contractors were well informed of the provisions which transferred risk from the General Contractor to sub-contractors is not necessarily factual. Based on ASAMW’s experience in this area, this particular transfer of risk provision has not been part of contracts ASAMW has reviewed with other like projects and therefore outside of normal contracting practices.
Finally, MWAA’s assertion of being “judicious in the structuring of the mark-ups” with an alleged 6.1 percent minimum and 21 percent maximum from item four (4) is not reality. The industry average overhead for a sub-contractor is between fifteen percent (15%) and twenty percent (20%). MWAA’s rate schedule for sub-contractor overhead on change order work ranges from a mere three percent (3%) to a below industry ten percent (10%) with a three percent (3%) overhead restriction applied to changes due to design errors. Specifically, “Changes or Claims Due to Design Defects identified after Task Order Issued” is ‘3%’ overhead”. This is particularly odious given sub-contractors are not responsible for design decisions, yet MWAA limits their recovery for something they are not responsible for (similar to the Act of God provision discussed above) to a mere 3%. The inclusion of these types of provisions are dismaying and frankly, reprehensible business practices.
Clearly, your letter dated March 27, 2017 does not satisfy ACE’s concerns, especially given the urgency in which ASAMW wrote to you in November when Turner was actively taking bids versus many months later and after the proposal window subsequently closed.
Given the inequitable bargaining position imposed and the lateness of your response, to resolve this situation to our satisfaction and without undue burden to MWAA, we respectfully request MWAA to cover sub-contractors deductibles for the current project and eliminate such malodorous provisions from future contracts in addition to approving change order rates to the aforementioned industry standards. We look forward to your immediate attention to this matter. ACE is also available to meet with you to discuss this matter further.
Andrew A. Porter
Alliance for Construction Excellence