At some point in the life of a feed processing facility, the time comes when a decision on expanding a facility or building a new facility becomes necessary. This decision is made based on several reasons, which may include:
- The current facility is outdated and/or can’t produce the product(s) needed to meet sales requirements.
- The facility isn’t equipped to produce new products.
- The company needs to have a facility in another location to serve its customers.
- The company may want to build a new facility to replace several outdated facilities.
- No matter the reason, the expanded or newly built mill needs to be well designed and constructed.
Unless the company has its own engineering and/or construction crews, the hiring of these services is needed. This can be done in two ways. First, engineering services only can be hired to design the new facility. This package would include sufficient drawings, specifications and estimated cost for the facility. The company can use these documents to advertise for bids from several companies to build the facility.
In these cases, the engineering firm that prepared the documents often is retained as the project manager for the actual construction of the facility.
Another option is to use a construction company that offers both engineering design and construction services. In this case, the owner may interview several design/builders and choose one with which to work. In many cases, the owner has a preferred designer and/or builder and will use them exclusively for the project.
There are different types of contracts to do the work. The most common contract is a fixed price contract that is all inclusive unless a change is agreed upon and is approved by both the owner and the contractor. A second contract type is a guaranteed not to exceed cost where no changes can be made. Both of these contracts include all direct costs such as materials, labor and overhead items such as tool and/or rented equipment to do the job. The third type of contract is a cost-plus contract where the contractor submits its every invoice to the owner and the owner pays the contractor amount plus an agreed upon markup.
Regardless of the method chosen, the owner should use both a qualified designer and a qualified contractor. Now let’s address the needs and responsibilities of both the owner and the contractor to build the expansion or new facility.
Owners Needs/Responsibilities
Facility Design
Whether using either a separate design firm or a design/build firm, the owner needs to be sure the design will be done by a company with demonstrated experience in feed mill design and construction. In many locations in the United States, the designing company must have licensed professional engineers on staff or retained by the company. One or more professional engineers must have direct responsibility for the project design and documents and seal all drawings and specifications. These engineers must be licensed to practice engineering in the state in which the facility is to be built. During my years in design and construction, I was licensed in seven states. The professional engineer’s seal on the project documents indicates the engineer is knowledgeable in the fields of design needed and takes personal responsibility for the documents.
Contract
The contract is a legal document and should define all work to be done. A fixed price or cost not to exceed a specific price contract should clearly define all specific work to be done in the contract. If using a separate company to design the facility and a separate company to build the facility, two separate contracts should be written defining each company’s responsibility. If using a design build/contractor, a single contract including both services is created.
The information included in a contract is known as the “contract language.” This language should be specific and detailed. It must include definitions of working periods such as day, week and month, and a work schedule. It should clearly identify the start and finish dates for the contract and include any penalties for late delivery unless the owner and the contractor agree to an extension. Some contracts may include a bonus clause if the project is finished earlier than the completion date shown in the contract.
The contract must clearly define responsibilities of the owner, designer and the construction company. It must clearly designate who will be the official contact and representative for each party. Each party should have the contract reviewed by its own lawyer or legal counsel to make sure each party’s responsibilities are clearly understood, and no discrepancies or any parts of the contract are misunderstood before the contract is signed and work under the contract begins.
Insurance
Before signing the contract, the owner must make sure all necessary insurances are in place as specified in the contract documents. The owner must request and receive a certificate of insurance from the contractor covering the types and amounts specified in the contract.
In addition to the normal types of insurance required, the owner also may secure builder’s risk insurance. This insurance covers any losses during the construction period. It needs to name both the owner and the contractor as insured by the contract. An example of the coverage of this type would be if a storm destroyed all or part of the project during construction. This insurance would cover the cost to rebuild the project to the point it was before the storm.
The owner may want to insure the contract in case the contractor should default and not finish the contract. This can be done by the contractor furnishing a bond equal to the contract price. The reliability of a contractor is often seen by the amount of the premium for the bond. I once worked for a contractor whose bonding premium was ¾% of the contract price. This was an excellent rating, but contracts may be signed without bond because of the reputability of the contractor. The cost for the bond is paid for by the owner.
Safety
Safety is of utmost importance during construction. The owner needs to review the contractor’s safety record before signing a contract. This can be done by asking the contractor to provide the following documents: the contractor’s safety records; their OSHA 300 logs; their safety modifier from their insurance company; and safety logs from previous work done. The safety modifier is a modifier applied to the contractor’s workman compensation insurance premium. It is determined by the frequency and severity of claims made for injuries happening to the company’s employees.
The contractor and their employees must verify by signing that they have read and agree to abide by the owner’s safety requirements. A good way to make sure all safety requirements are available for the construction is to develop a site-specific safety plan.
References
The owner should ask for references from all contractor(s) that will be working on the site. A minimum of three to five references should be obtained for each contractor. Also, check with suppliers and visit previous projects. The owner should also ask the contractor for the name of their bank and ask for financial references, including an income statement. Then follow-up and review the information you requested.
Contractor Needs/Responsibilities
The contractor must agree to abide by all information and requirements found in the contract to perform and complete the project. Therefore, the contract must clearly identify all things required to do the construction. Any questions should be directed to the owner’s representative appointed by the owner as its official representative for the project.
The contractor should ask the owner for financial information to determine if the owner is financially able to pay for the project. The contractor has a right to make a profit. A schedule of values is developed for the project with separate lines for major equipment arrival and/or installation. Using this schedule, the contractor can ask for payment based on the percentage of work completed at the payment intervals defined in the contract.
The contractor is responsible for being able to perform the project work, including providing qualified personnel and supervision for the project. The contractor must be able to secure all materials and equipment needed for the project and all other services required to complete the project. Some of the services might include permits and/or licenses needed for the project. These may include utility easements, storm water runoff, air quality and building permits or help the owner in securing these permits. Finally, the contractor must assure that all work performed is of quality workmanship and done in a safe manner.
The above are some of the things required or recommended to execute a good contract. Each contract has its own peculiarities that must be fully understood by both the owner and the contractor.
