OWNER FURNISHED EQUIPMENT - SAVINGS OR POTENTIAL CLAIMS?

Owner-furnished equipment is a common practice on large private and Public Works projects where an owner purchases process equipment directly from a supplier and provides them as “Owner-Furnished Equipment (OFE)” to be installed by the contractor. This practice can result in measurable savings since Public Works owners are exempt form paying sales taxes on equipment purchases. Advantages also include allowing owners to negotiate lower prices directly with suppliers, thus avoiding paying additional overhead and profits if the contractor provides the equipment. Despite the perceived advantages of OFE, this practice carries technical and contractual risks and can result in disputes and construction claims. Risks include poor integration of the OFE with the contract, limited coordination by the contractor, inadequate warranty, and performance risks. These risks are often the source of delay claims, extended overhead claims, different site condition (DSC) claims, impact claims, change orders, and litigation. The costs of settling these claims often exceed and offset the derived savings of OFE procurement.