A Supplemental Agreement is an agreement between the Department and the Contractor that amends the contract as necessary to satisfactorily complete the proposed construction. The modifications to the contract may affect the work requirements (
104-3), unit prices of an existing contract item (
104-5), addition of new work items (extra work) (
104-7), contract time(s) or other terms of the contract.
The information contained in the Supplemental Agreement becomes a part of the contract documents. It is important that the language and the quantities contained in that document be precise. In order to author a Supplemental Agreement that is precise, the Resident Engineer must completely understand the change and be able to explain the change to the Contractor. Such understanding and explanation permits the Resident Engineer and the Contractor to enter into the negotiation phase of the Supplemental Agreement fully understanding the scope of the work. It is important to begin investigating the need and perceived fair price of Supplemental Agreement work without delay so thoroughness is not sacrificed for urgency. There will be rare occasions where work must proceed immediately, however this is the exception, not the rule. It is important that both parties understand the fact that this will not likely be their last negotiation so preserving the relationship has advantages. The Resident Engineer should request whatever documentation is necessary to justify the cost of performing work by Supplemental Agreement. It is helpful if the Contractor submits his price with the
Supplemental Agreement Standard Pricing Information form.
When the estimated total cost of the affected work is equal to or less than the amount specified in
Subarticle 104-8(A) of the Standard Specifications and the terms for performing the work have been mutually agreed to, the Contractor may begin work before executing the Supplemental Agreement. The terms shall include agreed prices, materials to be used in the work and modification to the contract time. In all other instances, the Supplemental Agreement must be approved by the Engineer and executed by the Contractor and the Department prior to the work being performed.
The Resident Engineer will negotiate all terms of the Supplemental Agreement with the Contractor's representative. During these negotiations, the Resident Engineer will confer with the Department's representative with authority to approve the Supplemental Agreement. Supplemental Agreements will be created in and approved through HiCAMS by appropriate Department representatives. In addition to the terms that appear on the signed Supplemental Agreement, the Resident Engineer will document, in HiCAMS, justifications for performing the work and for the terms contained in the signed Supplemental Agreement. The electronic approval in HiCAMS is the official record of that action. After approval of the Supplemental Agreement by the Department, the Resident Engineer should send the supplemental agreement to the Contractor, via DocuSign, for concurrence by electronic signature. Upon receipt of the Contractor's signed concurrence, the Resident Engineer should enter “Contractor Concurrence" in HiCAMS. This action will execute the Supplemental Agreement in HICAMS for the Department. Prior to payment for the work, approval of the Supplemental Agreement by all parties must be documented in HiCAMS.
Should the Contractor not concur with the agreement as approved and the Department is agreeable to changes requested by the Contractor, the Supplemental Agreement should be marked as “Contractor Non-concurrence” or in HiCAMS. When the status is changed to “Contractor Non-Concurrence” the Supplemental Agreement can be revised as appropriate and resubmitted for approval. After the Contractor signs the agreement, the Resident Engineer will sign and execute the agreement; upload the documents into SharePoint, and distribute copies of the agreement to the Contractor with any attachments. The Resident Engineer should note the Contractor's concurrence of the Supplemental Agreement in HiCAMS, which will then automatically create appropriate pay items and modify the contract times as specified in the agreement in HiCAMS. The Resident Engineer should promptly scan the Supplemental Agreement into the Department’s Financial Management system (BSIP or SAP).
Since hard copies of Supplemental Agreements will not be distributed to most parties, it is important that all requirements be included in the agreement or incorporated by reference. Electronic copies of many standard contract provisions can be obtained from the Design Services web site or from the Contract Officer. When requirements cannot be incorporated into the electronic copy of the agreement, a copy of those requirements should be attached to the original, Resident Engineer’s, and Contractor’s copies. When material requirements are not included in the electronic Supplemental Agreement, a hard copy of the agreement and material requirements should be forwarded to the State Materials Engineer.
Supplemental Agreement approval authority for the Department, both verbal and written, is vested in the following individuals. This authority is extended for both the approval of the negotiated prices for extra work and extension of contract time necessary to accomplish the extra work. In case of a vacancy or unavailability of one of the roles listed below, the approval can be granted by another person with higher level of authority.
- Resident Engineer: - Supplemental Agreements for all Articles of the Specifications up to
$100,000 and associated time up to
30 days on all projects.
- Division Engineer/ Division Construction Engineer: - Supplemental Agreements for all Articles of the Specifications unlimited authority for compensation and time on all projects.
- State Construction Engineer/ Assistant State Construction Engineer/ Area Construction Engineer: - Reviews Supplemental Agreements greater than
$100,000 and time extensions greater than 30 days.
- State Construction Engineer/ Assistant State Construction Engineer: - Reviews Supplemental Agreements greater than
$200,000 and time extensions greater than
90 days.
The Area Construction Engineer or State Construction Engineer review must be made prior to forwarding the Supplemental Agreement to the contractor for signature.
SUPPLEMENTAL AGREEMENT PREPARATION AND NEGOTIATING
SCOPE OF WORK
Definition – The work involved to satisfactorily complete an assigned project in
accordance with the plans, specifications, special provisions, contract, etc. An easy way to understand the scope of work is to ask yourself this question: What is the objective of this construction project?
Each individual entering into a Supplemental Agreement to the contract should first, fully understand the scope of work for the contract and second fully understand the scope of work for the proposed Supplemental Agreement. You should also make sure the Supplemental Agreement is in the scope of work for that contract. To put it simply, is this contract change necessary for the satisfactory completion of the work? Once this is determined, you must begin the process of creating the Supplemental Agreement. Typically, you decide what items are needed and how they will be paid. Will there be many line items or just one? What quantities need to be estimated for the amount of work? Will this Supplemental Agreement impact the controlling operation or create potential delays? Have all the materials, labor, and equipment been thought out completely? There are many questions you need to ask yourself prior to starting a Supplemental Agreement. These questions need to be communicated to the contractor to make sure they are fully aware of the work that they will be asked to perform. Remember the more informed the contractor is the less liability they have to put into their prices. When you are satisfied with the answers to all these questions and you are ready to proceed, again ask yourself; is this Supplemental Agreement necessary for the satisfactory completion of work? If you have any doubts or unresolved questions, discuss your concerns with your Construction Engineer.
Once the contractor has submitted his price and breakdown for the Supplemental Agreement, the prices should be reviewed thoroughly and compared to other information (i.e. statewide bid averages, other contracts with similar items, etc.). The review should be documented and included in the file with the executed supplemental agreement. There will be times when you will not be in agreement with the contractors’ prices. Before you instruct the contractor to proceed with the work as Force Account, thoroughly review the contractors’ price and time requests. If you believe the prices are not reasonable, communicate with the contractor keeping the following items in mind:
MATERIALS
The materials used in the work may be unique to the operation and may not be readily available. There also may need to be additional time, beyond the time needed for construction, for material manufacturing or fabrication. In addition, keep in mind the NCDOT sampling and testing procedures and how this will affect the cost and time.
LABOR
Some work will require skilled laborers. It may also be work that even few skilled laborers are able to perform. This may cost the contractor more to utilize a subcontractor that has skilled labor to perform this work. This may also add to the time required to perform the work.
EQUIPMENT
As with labor, the equipment necessary for the work may be unique. When this is the situation, the availability and cost to buy, lease, or rent this equipment has to be considered.
TIMING
In addition to analyzing the materials, labor, and equipment, you should review the timing of the work. The time of the year, delays to the project and the affected operations are all items you need to consider. Most work will obviously take more time during winter months than performing the same type of work in the summer. However, you might also want to consider the Supplemental Agreement work performed could push the controlling operation into winter months. This will affect the contract time especially if the controlling operation has seasonal limitations.
Creating a supplemental agreement can become very complicated when you take all these items into consideration. The entire process can take some time from beginning to approval, so it is important to stay involved and keep an open line of communication with the contractor to expedite the process. Hopefully, with a good and thorough understanding of the scope of work of the supplemental agreement, this process will go smoothly.
PRICING
The following information is provided as guidelines or tips to be used when negotiating the prices for Supplemental Agreements. All information may not be applicable for your Supplemental Agreement.
- If the Supplemental Agreement is for work covered by the Specifications, reference the specification and use the corresponding method of measurement and basis of payment.
- Estimate quantities for the Supplemental Agreement as closely as possible.
- Unless otherwise stated in the Supplemental Agreement, treat all work as a minor contract item and treat overruns in accordance with
Article 104-5.
- When asking the Contractor to submit prices, ask for a detailed breakdown of costs for each Contractor/subcontractor involved in the work.
- To assist in the review of the submitted prices, the submittals should be in the form of force account records, containing personnel, materials, equipment, markups, etc.
- The Resident Engineer should review the submitted prices for use in his approval or for use in his recommendation to the next level of approval.
- In the review of prices, the Resident Engineer may seek assistance from other units in the Department which normally prepare cost estimates. Examples of the units are:
― Technical Services
― Roadway Design
― Structure Design
― Signing and Delineation
― District Office
- Some contractors have separate equipment divisions and equipment rates will be determined by these internal rental rates.
- Try to match the prices to projects, which most resemble your project. Factors to consider include geographical location, quantities, etc.
- Lump sum prices such as LS grading, evazote joint seals, reinforced bridge approach fills, etc., are nearly impossible to compare.
- It is important to remember that the bid averages represent prices for work performed under the most economical conditions while the work for Supplemental Agreements may not be performed under the most economical or efficient conditions.
- When comparing costs, many factors need to be considered. These include:
― Are the resources available on the job to perform the work?
― Will resources be pulled from other work on the job, or do they have to be brought in to supplement those already on the job?
― How will the Supplemental Agreement work affect other work on the job?
― How much risk does the work involve?
― Do the prices of materials differ significantly from those prices being compared to? This can be important to consider when escalation for materials such as steel is occurring.
― Is the equipment available on the job the most efficient available to perform the work? Is it more economical to perform the work with a readily available piece of equipment which is less efficient or bring in a more efficient piece of equipment?
― What timeframe is available to perform the work? Can it be scheduled for the most optimum time or is there an immediate need?
RISK
When negotiating Supplemental Agreements all parties must consider the risks. A certain level of risk is inherent in contracting and neither contractors nor the Department should assume all the risk. For instance, assume a Supplemental Agreement includes adding a driveway after the project is almost complete. The driveway will probably take two weeks to complete. It is the near the end of the construction season and the contractor fears he may be caught by the weather. It would be reasonable to allow the contractor some consideration for extra time if the weather looks like it may be a problem, but not to grant the contractor an entire winter shutdown.
Three questions to consider when evaluating risk are:
Consider a contractor pricing a Supplemental Agreement for laying a pipe at a location not shown on the plans where he has no geotechnical information. What can go wrong? He could hit rock. He could dig into an area of soil contaminated by hazardous waste. He could dig up an historical artifact and be suspended for months while authorities investigate. The list of possibilities goes on, but how likely is each of these to happen?
If all other areas of the job have been excavated and you have only encountered sand, rock probably won’t be a problem, but if you are at the end of a presplit cut you would think differently. If you are working beside a forest of virgin timber, waste probably won’t be a concern. If a 60-year-old chemical plant once stood on the property there may be trouble.
Each situation is different, and the more information you can use to make a decision, the more accurately you can assess the risk. The Engineer must be familiar with all aspects of the work in order to come to a fair decision when evaluating the contractors’ price and time extensions. Bid averages should only be used as a guide. If you are not familiar with the specifics of the individual project you can not fairly evaluate the submitted prices.
Some factors that could affect risk are:
- Effect of added work on existing work
- Weather
- Material supply uncertainties
- Time needed for work
- Subsurface composition
- Subcontractors
- Utilities
Consider alternatives to reduce risk. For instance, if you agree with the contractor on all aspects of the work except the time involved, you could separate this issue out. Pay for all other items of the work except the labor, and add a separate item for the crew on an hourly basis.
MARKUP
After a contractor figures the direct costs associated with the work he then will add the markup. Generally markup consists of labor burden, office burden and profit.
Labor burden is money paid by the employer in addition to salaries. This would be for items such as holidays, sick leave, vacation leave, insurance, workers compensation and other benefits. This overhead is applied to the labor costs before the total overhead is calculated. On force account work we generally allow
35%.
Office burden is basically the cost of doing business. A contractor must have an office, office staff, office equipment, utilities, supplies and other indirect costs associated with doing business, and these are expenses that must be paid from some source. This may be in the
5% to 25% range, depending on the size of the business.
Profit is what keeps contractors in business and is not a dirty word. A rule of thumb the Department has sometimes followed in the past is
10% is a good percentage for profit. This may vary widely across the State and the Engineer must use good judgement when trying to determine if the contractor has supplied a good number for profit.
If a subcontractor is performing the work he will include markup in his price. The prime contractor can also include markup for his administration duties and any support work that may be required for that item of work.
WORDING OF DESCRIPTION, LOCATION AND JUSTIFICATION AND CONTRACT TIME
When completing the Supplemental Agreement there are two sections that detail the terms of the supplemental work. They are the Description and the Justification. The Description should thoroughly describe the work to be performed. The Justification should include a detailed reason for the supplemental agreement.. The Contract Time should reflect the terms of extending contract time(s) due to the work to be performed. Refer to the following information when completing these sections.
DESCRIPTION:
The first sentence in the HICAMS description should summarize the change. (This will permit rapid retrieval of a particular Supplemental Agreement without having to review several.)
- A detailed description of the exact change
- A location of where the work is to be performed, if applicable.
- This should be written so someone with no knowledge of the project fully understands the reason for the Supplemental Agreement
- The Standard Specification that allows the modification of the work
- This supplemental agreement is written in accordance with Article 104-3 of the 2018 Standard Specifications.
- This supplemental agreement is written in accordance with Article 104-5 of the 2018 Standard Specifications.
- This supplemental agreement is written in accordance with Article 104-7 of the 2018 Standard Specifications.
- The Standard Specification applicable to the affected work
- If a Standard Specification cannot be referenced, then a specification must be included which details the description, materials, construction methods, method of measurement and basis of payment.
- Include any standard or special provision that will be amended as a part of this Supplemental Agreement, such as 104-5, Overruns and Underruns of Contract Quantities
- Will AC or fuel price adjustment be a part of this SA?
JUSTIFICATION:
- A detailed justification for why the extra work, additional work, or affected work is necessary.
- This should be written so someone with no knowledge of the project fully understands the reason for the supplemental agreement.
- Include information regarding conversations with other units, if applicable.
- Reference any additional documentation
EXAMPLES
Supplemental Agreement 1
Description
Force Main Sewer Line - The Utility Design Section issued a plan revision that changed the size and type of material to be used for the force main sewer line. These changes constitute an alteration of plans as defined by Article 104-3 of the 2018 Standard Specifications. The Contractor shall provide and install the materials indicated on the revised plans. Materials, construction methods, method of measurement and basis of payment shall be in accordance with the Project Special Provisions and Sections 1510 and 1520 of the 2018 Standard Specifications. Any 12-inch DI force main sewer pipe, sewer lined, not used on the project will be treated as leftover materials in accordance with Article 109-5 of the 2018 Standard Specifications.
Justification
A field investigation by the Department, contractor and the City of Light revealed the existing force main sewer line is 12 inches in diameter rather than the 16 inches as indicated on the plans and the existing water line is 16 inches in diameter rather than the 18 inches as indicated on the plans. These discrepancies necessitate the two steel encasement pipes provided for these lines be reduced in diameter from 36 inches to 24 inches for the force main sewer line and from 42 inches to 30 inches for the water line. The actual pipe size for both the existing force main sewer line and the water line are smaller than indicated on the plans, which required a plan revision.
Supplemental Agreement 2
Description
36-inch CSP Y-9 Detour – Compensate Contractor for installation of approximately 100 feet of temporary 36-inch corrugated steel pipe (CSP) at station 25+66 –Y9- Detour as shown on Plan Sheet 2-S. The work shall be performed in accordance with Articles 300 and 310 of the 2018 Standard Specifications for Roads and Structures. Payment for installation and removal of the pipe shall be in accordance with the Project Special Provision for Temporary Detours (page 36 of the Contract)
Justification
The pipe is shown as 36-inch CSP on the roadway plan sheet 2-S, but as a 36-inch Reinforced Concrete Pipe (RCP) on the Pipe Summary sheet 3-X. There is no Line Item in the Contract for 36-inch CSP, only 36-inch RCP. However, due to the temporary nature of the pipe; the Engineer has elected to use CSP.
Supplemental Agreement 3
Description
CSXT Slope Protection – This supplemental agreement is written to establish pricing for items necessary to complete the slope protection work required by CSX Transportation as described in the attached memorandum dated 03-02-2020 from CSX Transportation. The above-described work is located at bridges 1B and 2B, End Bent 1, Station 123+38.105 –L-. This work shall be completed in accordance with Sections 412 and 876 of the 2006 NCDOT Standard Specifications.
Justification
This work is required by CSX Transportation to provide slope protection adjacent to their railroad tracks. There were no provisions in the original plans or contract that described how this work needed to be constructed.
CONTRACT TIME
Contract Time is the section of the Supplemental Agreement that details the terms of the agreement regarding time extensions. When determining whether a time extension should be granted, it should be decided if the work clearly affects the controlling operation or has become the controlling operation. Consideration should also be given to how a time extension will affect the completion date and seasonal limitations. It is a good practice to try to resolve time while preparing the Supplemental Agreement.
The Supplemental Agreement generally affects the contract time by delaying the controlling operation or as a result of the dollar value of the work. If it is determined that a time extension is warranted, the Contract Time Tab should be used to indicate how the time extension will be granted.
However, there are circumstances when the work described in the supplemental agreement does not affect the controlling operation nor does it warrant a pro rata time extension in accordance with
subarticle 108-10(B)1 of the Standard Specifications. If the Supplemental Agreement work does not extend the completion date and should not be used in calculation of Pro Rata, then no Contract Time Extension or Pro Rata Time Granted should be selected.
FORCE ACCOUNT WORK
When terms for modification of the contract are not documented by a Supplemental Agreement and it is necessary to perform extra or altered work, the Resident Engineer will issue a force account notice prior to the Contractor beginning work. Force Account construction approval authority for the Department is the same as that specified above for Supplemental Agreements. Extension of the contract time for work compensated on a force account basis shall be as provided in
Subarticle 108-10(B)1 or
Subarticle 108-10(B)4 of the Standard Specifications.
