Section R7-6-601. Allocation and Use of Contingency Monies

A.      A sum equal to a percentage of the construction bid shall be set aside as a contingency fund to cover the cost of unknown con- ditions that could arise during construction. The School Facili- ties Board shall set aside an amount equal to five percent of the base cost for new construction and ten percent of the base cost for renovation of a structure or system replacement to cover these potential costs. Contingency funds are not part of the construction budget and are to be used only if needed. For deficiency corrections projects, any contingency funds which are not used shall be returned to the deficiency corrections fund. For projects funded by the new school facilities fund, any contingency funds which are not used may be used by the school district in accordance with A.R.S. § 15-2041.

B.       The mechanism that is used to spend contingency funds during construction is a “change order.” There are three types of situ- ations that generally require a change order:

1.        An unknown condition that was not determined until after construction was started and that requires a change, dele- tion or addition to the construction contract.

2.        The school district has determined to change the scope of work and add to or delete from the contract.

3.        A change is required to correct a discrepancy between what the contractor bid and what the architect and owner intended. This type of change order could be determined an “error or omission” on the part of the architect. If so, the owner should pursue the architect’s error and omis- sions insurance to recover the cots of the required change.

C.      Change orders can be additive or subtractive to the construc- tion contract and both should be used. All changes in the scope of the contract and the contract documents should be consid- ered potential change orders. Change order should not be used to correct conditions known prior to or discovered during the bid process. These should be addendum items and made part of the bid.

D.      The following conditions apply to the use of all contingency monies allocated to a specific project approved by the School Facilities Board. If the district wishes to issue change orders that do not comply with these rules, the associated costs shall be accounted for separately and not considered part of the approved project. In other words, they would need to be paid out of separate monies and would not be considered part of the approved project, even though they might be included in the same basic contract. These costs would be paid for using local funds.

1.        The school district may use contingency monies only to cover change orders that are to correct unknown condi- tions.

2.        Contingency funds may not be used to cover change orders for the other two types of situations discussed in subsection (B) above: the district has determined to change the scope of work during construction by adding components, or a change is required to correct a discrep- ancy created by the architect that could be considered an error or omission by the architect.

3.        For deficiency correction projects performed pursuant to

A.R.S. § 15-2021 only, the Executive Director shall have the discretion to authorize the use of contingency funds for expansion of scope, to accommodate low budget esti- mates, and for all other project related costs.

4.        Contingency monies shall not be used to pay for “bid add alternates.” These items are not part of the final approved project.

E.       A school district whose deficiency correction projects are combined with the deficiency correction projects of one or more additional school districts pursuant to R7-6-401 shall have the contingency amount included as a percentage of the overall set of projects that have been grouped together for such purposes. The Executive Director shall have the discretion to use, transfer, and/or combine the contingency amounts for any projects within such a group to any other project within the group of projects. The Executive Director’s adjustment author- ity pursuant to R7-6-401 shall be considered as a percentage or sum of the overall group of projects.

F.       The Board may modify or waive the requirements of this Sec- tion for good cause.

Historical Note

Adopted by exempt rulemaking at 6 A.A.R. 917, effective April 30, 1999, filed in the Office of the Secretary of State January 13, 2000 (Supp. 00-1). Section repealed; new Section made by exempt rulemaking at 8

A.A.R. 287, effective June 7, 2001 (Supp. 01-4).