“Or Equal” Clause
John R. Morey, M.ASCE
(This article originally appeared in the Fall 2010 issue of the Construction Zone.)
"Or Equal” clauses are commonplace in projects constructed in the public sector. Many states require its use in an attempt to maximize bid competition for manufactured products on projects, trying to save taxpayer funds. However, if used incorrectly the clause can actually increase project costs instead of reducing them. The importance of the correct usage is portrayed in the fictional story of Jack and Jill Water Transportation Services.
Jack requested bids for providing pails in the service of transporting water. He was under a budget constraint and wanted multiple bids, if at all possible, so he added an “or equal” clause. He specified the size, bucket materials and pail construction. The specification read “Furnish 5 gallon capacity cylindrical pails. Pails shall be manufactured from plastic, impervious, and strong enough to contain and transport 5 gallons of water. Pails shall be “Homer” model, as manufactured by Home Depot, or equal.” The difference in the bids was substantial. He accepted the low bidder at a 30% savings.
The pails were put into service, but water transportation production had to be stopped almost immediately. The materials and the size of the pails met his exact specification. However, the pails were furnished without handles, which rendered them unusable. While the specification did not discuss the need for a handle on the pail, the specified product came with one as a standard accessory. Jack tried to address the situation with the manufacturer, but the manufacturer refused to modify the pails without an additional purchase order. Since the manufacturer had built the pails to specified requirements, Jack had no other choice than to issue an additional purchase order.
It is very important that the “Or Equal” clause be well defined within the contract documents. If “Owner-Furnished Documents” are used, it can be accomplished within the “Supplemental Conditions of the Contract.” The following are a few suggested items that should be considered to be included when an “Or Equal” clause is used:
• Exact material makeup which includes all up to date industry standards;
• The design performance requirements, along with life cycle data;
• Pre-testing and testing after installation and start–up;
• Compatibility with other items of work specified and interfaced with;
• Buy American material requirements, if applicable;
• Manufacturer follow-up before and after installation requirements; and
• Certifications and guarantees that the “Or Equal” being provided meets all of the requirements specified.
There are alternative approaches to using the “Or Equal” clause, such as specifying product names, model numbers, or general descriptions with a minimum of three manufacturers for each item, and stating that anything else will be treated as a substitution to the contract. Providing three manufacturers offers the ability to review those products ahead of time for inclusion while still accomplishing the “competition” which is at the heart of the “Or Equal” clause. Also, substitutions typically require more extensive documentation substantiating that they are “equivalent” in quality and purpose to the specified item, as well as a reimbursement of owner and designer costs required to review the substitution.
More diligence up front in preparing a specification that includes an “Or Equal” product will save headaches further down the road. In the case of Jack and Jill, their failure to properly address these concerns resulted in an on-site incident which shut their operation down, causing them a significant loss in revenue and, more importantly, the reduced satisfaction and confidence of their customers.
John R. Morey is a former member of CI's Specifications Committee.