WORKING WITH CONSTRUCTION COUNSEL ON YOUR CONSTRUCTION CONTRACT IS VALUE-ADDED

It is always good practice to have construction counsel assist you with your construction contract.  This may mean drafting your contract.  This may mean negotiating your contract.  This may mean advising you as to provisions in your contract that shift risk to you.  This may mean providing red-lined suggestions to the contract.   Or, this may mean all of the above, or a combination.   The point is having construction counsel work with you will allow you to appreciate risk you are assuming and risk you are allocating to the other party.    It will also allow you to consider provisions or language to provisions you should consider.  I cannot emphasize the importance of working with construction counsel when it comes to your construction contracts.  This is a value-added service.

One consideration is the forum selection provision.  This is the provision in the construction contract that may dictate the exclusive venue for disputes.  The forum selection provision is not a provision that should be cast aside because if there is a dispute it will be one of the first provisions your attorney will want to review.   Dismissing this provision could result in you being required to litigate your dispute or portions thereof in a non-preferred destination, as seen in this non-construction case, that may be more costly or disadvantageous to you for a variety of reasons.  A forum selection provision and the provisions in your contract dealing with dispute resolution are important provisions as these provisions advise you how to navigate disputes that may occur during the performance of the construction contract.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

PREFABRICATION CONTRACT CONSIDERATIONS

Prefabrication (also referred to as modular construction in instances), is a form of offsite construction where certain construction activities occur at an offsite manufacturing facility or location.  Construction components or units are preassembled (prefabricated) at this offsite location prior to being delivered to the project site and then integrated into the project.

When preparing a prefabrication contract (including a prefabrication subcontract), there are a number of complex considerations that need to be weighed, and these considerations are bullet-pointed below.  The purpose of these bullet-points is to give you considerations to discuss and vet when preparing, negotiating, and agreeing to a prefabrication contract or subcontract.

  • UCC or Common Law. Article II of the Uniform Commercial Code applies to the sale of goods where common law applies to the sale of services.   As mentioned here, hybrid contracts involving both the sale of goods and services deal with the predominant test to see if the Uniform Commercial Code or common law applies. Oftentimes, prefabricators are considered subcontractors, particularly if they are installing the prefabricated units, where the common law would apply because of the predominant services component involved in their subcontracts.
  • Responsibility for Integration of Prefabricated Units into Project. There needs to be consideration for how prefabricated units get installed or integrated to work-in-place at the project.  Of importance is how to build or integrate allowable tolerances with the prefabricated units and the substrate or work-in-place.  This would require an understanding of any allowable tolerances associated with the substrate or work-in-place to ensure there is not an issue with integration.
  • Insurance. There needs to be strong consideration as to what insurance applies to the prefabricated units during the offsite fabrication process, transport, storage, integration into the project, and for defects.  (This involves an understanding of builder’s risk property insurance coverage, commercial general liability coverage, professional liability coverage, the master’s policy that covers property and liability at the manufacturing facility/location, inland marine insurance, etc., in order to maximize insurance coverage in the event of a loss.)
  • Risk of Transportation. There needs to be consideration how the prefabricated units get transported from the offsite manufacturing location to the project.  Transportation is significant risk from a cost standpoint, loss standpoint, and logistics standpoint when transporting loads (e.g., will escorts be required with the transportation), particularly if they are being transported from out of the state where the project is located.  Understanding the transportation of the loads including jurisdictional requirements and travel routes–anticipated highways / roads, etc. used to delivery the units–will be important from a cost and timing standpoint. This would also include an understanding of the vendors used to transport or deliver the prefabricated units since you will a quality / reputable company doing the transportation and handling.
  • Risk of Loss Post-Delivery to Project. There should be a protocol or plan for inspection or survey procedures when prefabricated components arrive to the project site and get signed-off, or otherwise accepted in writing (not orally), prior to installation.  This includes consideration for damage that may occur post-delivery at the project site and may depend on whether the prefabricator is also serving as the contractor that installs the prefabricated units at the project.
  • Storage. There needs to be consideration as to storage of prefabricated units if they cannot be stored at the project site or the manufacturing location needs offsite storage to store prefabricated units to achieve a production schedule.
  • Quality Control and Quality Assurance. There needs be a protocol that discusses quality control and assurance, particularly during the offsite fabrication process.  This should include input from the prefabricator and an understanding as to whether any third-party testing will be required.  This includes the consideration of access to the offsite manufacturing location so units can be inspected during the fabrication process.  This also includes the consideration of preservation of certain trade secrets that may be involved in the offsite fabrication process.  And, there should be a system that labels or marks the prefabricated units to allow for efficient storage and installation/integration of these units into the project.  Further, the protocol should establish the quality control and assurance procedure before prefabricated units are provided to a transporter for delivery to the project site (i.e., a pre-transportation sign-off).
  • Warranties. There needs to be consideration for warranties provided by the prefabricator and when those warranties commence.
  • Scope Issues. There needs to be consideration for any scope of work issues and gaps to ensure the full scope of work of the prefabricator is clearly delineated in the contract. This also involves scope issues involving the integration of the prefabricated units into the project to ensure that scope is appropriately detailed.  Further, this would involve any lead time associated with the prefabrication, allowable tolerances that need to be factored in, and any requirements associated with commissioning or third-party testing.
  • Legal Issues. There needs to be consideration if there are any licensing issues, OSHA issues, or state law issues that may come into play (such as a state law issue that impacts any statute of limitations or statute of repose associated with construction defects).  You want to make sure all necessary licenses are current and the safety protocols being used at the prefabrication facility (and you make want the safety protocols to be greater than required).
  • Flow Down Provisions. There needs to be a contractual responsibility that the prefabricated units comport with the contract documents (plans and specifications) so appropriate language, whether flow down provisions in the prime contract or otherwise (such as specific warranty language), needs to be incorporated.
  • Liquidated Damages and Consequential Damages. Exposure to damage needs to be considered in the event there are delays in delivery or production.  Exposure to damage needs to be considered if there are defects or quality control issues with the prefabricated units.  In this manner, consideration should involve whether the contract includes a waiver of consequential damages which may depend on whether the prime contractor is exposed to consequential damages with the owner and the type of insurance available to cover consequential damages (i.e., a party may want to limit recovery of such damages to the extent covered by insurance so as not to deprive itself of otherwise available insurance).
  • Crane OperationRequirements.  There needs to be consideration as to whether the prefabricator will be required to be bonded with a payment and performance bond.  If not, is there subcontractor default insurance the prefabricator will be enrolled in to cover more catastrophic losses.
  • Crane Operations. Oftentimes, prefabricated units are incorporated through the utilization of a crane so there should be consideration for any complex crane operations that may be utilized for purposes of offloading or integration in the project. This would include understanding the companies furnishing the crane (again, you want a quality / reputable company) to ensure there are proper crane inspections, certifications, and safety requirements.  This would also include an understanding of the crane path for ingress to the project site and where the crane will be situated to determine whether any geotechnical or other testing may need to be conducted.
  • Hoisting or Loading Platforms. If a loading platform or a hoisting platform will be used, there needs to be an understanding so that the appropriate engineering can be performed for the platform and there is the appropriate inspections for the platform.
  • Technology. There needs to be consideration for using building information modeling (BIM) and any protocols associated with using BIM. Certain considerations include who is going to take ownership of the model (to ensure there is uniformity in the model and parties are operating under same model) and the level of modeling (details in the modeling).
  • Governing Building Department. Finally, there should be an initial understanding as to any requirement from the governing building department so that any concerns they may have with prefabricated assemblies / units are determined on the front-end.   This way any required inspections or code requirements that are raised can be appropriately addressed and this is known before the prefabrication, not after.

These are some of the main considerations that should be touched upon in any prefabrication contract or subcontract.  There are many positives to prefabrication but those positives also come with risk factors that need to be assessed and considered.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

QUICK NOTE: ARTICLE ON CONSTRUCTION CLAIMS AND MANAGING RISK

Recently, I shared an article with LevelSet about common construction claims and how to manage the risk with construction claims.  Check out the article here.   The article touches upon issues regarding: i) knowing your scope of work; ii) understanding the contract documents; iii) knowing your payment rights; iv) how to mitigate construction claims; v) pursing your construction claim; vi) resolving your construction claim; and vii) common construction claims you may deal with on a construction project.  This is a valuable high level article that gives you important topics to consider as you move forward with your construction project.  If you have questions or concerns regarding construction claims, please make sure to consult with construction counsel.  The objective is to manage and mitigate risk and counsel can best assist you regarding preserving and perfecting rights moving forward.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

SUBCONTRACT SHOULD FLOW DOWN DELAY CAUSED BY SUBCONTRACTORS

A general contractor’s subcontract with its subcontractor should include a provision that entitles it to flow down liquidated damages assessed by the owner stemming from delays caused by the subcontractor.  Such a provision does not mean the general contractor does not have to prove delays caused by the subcontractor or can arbitrarily allocate the amount or days it claims the subcontractor is liable.  The general contractor still will need to reasonably establish the delays the subcontractor caused the critical path of the schedule, i.e., delayed the job.   In addition to the right to flow down liquidated damages, the subcontract should also entitle the general contractor to recover its actual extended general conditions caused by the subcontractor’s delays (regardless of whether the owner assesses liquidated damages).  The objective is that if the subcontractor delays the job, the subcontractor is liable for liquidated damages the general contractor is liable to the owner for in addition to the general contractor’s own delay damages. This is an important subcontractual provision so that the risk of delay caused by subcontractors is clearly flowed down to them in the subcontract.

In a 1987 case, Hall Construction Co., Inc. v. Beynon, 507 So.2d 1225 (Fla. 5th DCA 1987), the subcontract at-issue contained language that stated, “The parties hereto agree that a supplier who delays performance beyond the time agreed upon in this Purchase Order shall have caused [general contractor] liquidated damages in the amount required of [general contractor] by their contract per day for each day such delay continues which sum the supplier hereby agrees to pay.”

The general contractor was liable to the owner for liquidated damages in the amount of $1,000/day and settled the liquidated damages assessment with the owner for the amount of $20,000 (which was a reduction from a $60,000+ exposure for 60+ days of delay).  The general contractor looked to apportion the liquidated damages to subcontractors it claimed was liable for the delay.  The subcontractor at-issue disputed its apportionment; therefore, the general contractor sought ALL of its delay damages caused by the subcontractor for the full amount of the 60+ day delay period.   The appellate court held that while the subcontract could be clearer, it was still unambiguous that the general contractor could ONLY recover liquidated damages because that is all that contract afforded:

Liquidated damages is a fictitious contractual amount which the parties agree will be paid for breach if damages are not readily ascertainable at the time the contract is drawn.  Although the [general contractor] maintains that it is entitled to liquidated damages as well as actual damages suffered as a result of the delay, we find that the parol evidence rule precludes such a finding.

***

Had the general contractor been aware of the parol evidence rule, a different contract may have been provided.  For example, a contract with one paragraph for indemnification of all liquidated, or other, damages paid by the general to the owner and another paragraph for payment of other actual, consequential damages suffered by the general as a result of the delay caused by the sub.

Hall Construction Co., 507 So.2d at 1226-27.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

DON’T SIGN A CONTRACT THAT DOESN’T ADDRESS COVID-19 (OR PANDEMICS AND EPIDEMICS)

Do yourself a favor: Don’t sign a construction contract that doesn’t address COVID-19 or any pandemic or epidemic from this point forward!

As the number of COVID-19 numbers rise, it would be reasonable to think this could have an impact on ongoing or future construction projects.   For this reason, I want to revisit the subject of addressing COVID-19 (and any pandemic or epidemic) in your construction contract.

The potential impact caused by COVID-19 could result from governmental regulations that impact construction of the project, shutdowns due to affected workers, owners’ decisions to suspend performance or adjust the way the project is being constructed, increased deep cleaning requirements, and increased measures associated with social distancing and re-sequencing of shifts.  This all plays into the timeliness of performance and the productivity of manpower and equipment usage.  When submitting a price, a lot of these considerations may not be factored in because doing so could lead to a price that will never get accepted.

The question then becomes, how do you deal with this?

The answer is easy.

Be prudent when entering into a contract to make sure you address this risk.  Now that we know about COVID-19 and the ramifications, the last thing you want to do is not address it at all and create the argument that you have assumed all of the risk for COVID-19.   The best thing is to specifically address this in the contract, whether in the force majeure provision or another provision along with what specifically requires a contractor to equitable adjustment of the contract sum and contract time due to COVID-19.   I am not suggesting that this contractual provision is used as a tool to avoid proof of the impact caused by COVID-19.   Demonstrating the impact absolutely needs to occur, but pretending that COVID-19 will never result in an impact (or increased direct costs to keep the site sanitized) and, thus, does not need to be addressed in the contract is naïve.

Contingency language in the contract could be included with a specified amount to cover certain direct costs (e.g., masks, temperature screening, having a dedicated safety person ensuring masks are being worn, hand washing stations, frequent deep cleaning) and delays or inefficiencies caused by COVID-19.  This way this money is not necessarily built into the price, but can be utilized to cover the “contingency.”

Language in the contract could be included to demonstrate the type of proof a party must submit to demonstrate the COVID-19 impact or the lost productivity  / inefficiency caused by COVID-19.

Language in the contract could also specify what, in particular, about COVID-19 constitutes a force majeure issue (e.g., shutdown) and whether a party is entitled to money if there is a COVID-19 issue, or just time.

Language in the contract could further address how long a job can be suspended before a party may terminate the contract.

Regardless of the specific negotiated language, the key is simply to be PROACTIVE and address the risk in the contract.  As mentioned, with rising numbers, do NOT neglect this consideration.  Indeed, this consideration should be broader than just COVID-19 and cover any pandemic or epidemic as this concern becomes  more prevalent in contract drafting from this point forward.   Prior to COVID-19, addressing pandemics or epidemics in most contracts was an afterthought.  That should not be the case anymore!

If you need assistance drafting or negotiating contractual language regarding COVID-19, work with construction counsel that has experience factoring in this risk.   I have dealt with a variety of language in the last few months that accounts for this risk where the parties understand the language, have accepted any risk allocation, and have made the business decision associated with the risk.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

MISTAKES HAPPEN BUT COURTS NOT HERE TO REWRITE BAD CONTRACTS

Mistakes happen.  Mistakes even happen in the formation of a contract.

The two types of mistakes are mutual mistake and unilateral mistake.  Both can give rise to the reformation or rescission of a contract, although through a clear and convincing standard of evidentiary proof.

With a mutual mistake, reformation of the contract is typically the recourse.

With a unilateral mistake, rescission is typically the recourse; reformation of the contract may be appropriate if there was fraudulent or inequitable conduct by the other party to the contract.

For more information on the legal doctrines known as mutual mistake or unilateral mistake, please check out this article.

If you are in a position where you believe these doctrines may apply, it is imperative that you consult and work with counsel to flesh out the facts to support the clear and convincing standard of evidentiary proof.

It is important to remember, however, that just because you have a bad contract or the other side got the better end of the bargain does NOT mean there was a mistake in the contract formation process.  Courts are not here to rewrite bad contracts that a party recognized was a bad contract after-the-fact. 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

CLEAR CONTRACT LANGUAGE REGARDING PAYMENT IS IMPORTANT

Clear contract language is important.  While clear contract language is important in all cases, it is especially important when it comes to determining how you are to get PAID for your work.  An ambiguity with respect to the manner in which you get paid is counter-productive.  Likewise, not appreciating clear language in your contract regarding the manner in which you get paid is counter-productive.  If you are doing unit cost work where you are getting paid based on a defined measurement, you want to understand how that measurement is calculated.

In a dredging dispute before the United States Court of Federal Claims, North American Landscaping Construction and Dredge Company, Inc. v. U.S., 2020 WL 2090121 (Fed.Cl. 2020), a contractor was hired by the government to dredge a creek.  The contractor was to be paid a unit cost for dredging based on a comparison of before and after survey data.  In particular, the contract stated the contractor would be paid “measured by the cubic yard in place by computing the volume between the bottom surface shown by soundings of the last surveys made before dredging, and the bottom surface shown by the soundings of surveys made as soon as practicable after the work has been completed.”

A dispute arose when the government paid the contractor for 46,065 cubic yards of material removed from the creek. The contractor claimed it was underpaid.  The problem for the contractor, though, was that the contract was clear that payment would be “based on a comparison of before-and-after-dredging survey data.”  North American Landscaping Construction and Dredge Company, Inc., supra at *3.  And, this is how the contractor was paid.  Case closed!

The unit cost payment measurement was included in the contract.  It was clear.  The contractor, apparently, did not appreciate certain aspects of the methodology that applied to contractually required corrective work that was factored into the comparison.  Regardless, appreciating the payment measurement and what it entails (the methodology) is important to avoid a payment dispute.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

ACTIVELY INTERFERING WITH ANOTHER’S PERFORMANCE GIVES RISE TO A BREACH OF CONTRACT

A bedrock principle under contract law is that one party cannot actively hinder, interfere, obstruct, or delay another’s party’s performance.  Doing so can give rise to a breach of contract.

It is one of the most basic premises of contract law that where a party contracts for another to do a certain thing, he thereby impliedly promises that he will himself do nothing which will hinder or obstruct that other in doing the agreed thing. Indeed, if the situation is such that the co-operation of one party is a prerequisite to performance by the other, there is not only a condition implied in fact qualifying the promise of the latter, but also an implied promise by the former to give the necessary co-operation.

Harry Pepper & Associates, Inc. v. Hardrives Co., Inc., 528 So.2d 72, 74 (Fla. 4th DCA 1988) (citation omitted).

The ruling in Harry Pepper & Associates demonstrates what can happen if a contracting party actively hinders, interferes, obstructs, or delays the other party’s performance.  Here, a paving subcontractor walked off the project prior to performance.   At the time it walked off the job its work could not commence due to prior delays with predecessor activities, revised drawings had not been approved by the governing building department, change orders had not been issued to deal with different site conditions, and the subcontractor was not offered an increase in its original contract price.  For these reasons, it called it quits.  The general contractor claimed the subcontractor did not have the contractual right to walk off the project.  There was a no-damage-for-delay provision in the subcontract and the subcontractor’s only remedy for delays was extensions of time for delayed performance. The general contractor, therefore, sued the subcontractor for the additional costs incurred in hiring a replacement paving subcontractor.  Conversely, the subcontractor was not seeking additional costs due to the delays but simply the right to cancel the contract.

The appellate court, affirming the trial court, held that regardless of the no-damage-for-delay provision, it was rendered unenforceable by the active interference of the general contractor: “There is competent and substantial evidence in the record that the general contractor did not cooperate with the subcontractor and engaged in conduct which hindered or obstructed the performance of the contract.”  Harry Pepper & Associates, 528 So.2d at 74.

Remember, regardless of whether your contract addresses delays or production, a party that actively interferes, hinders, obstructs, or delays another’s performance can give rise to a breach of contract.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

NOW IS THE TIME TO REVISIT CONTRACT LANGUAGE IN LIGHT OF COVID-19 TO ADDRESS FUTURE CONTRACTS


Now is the time!  Today!  If you are currently in the process of negotiating or executing contracts, now is the time to ensure the contract protects your interest in light of this new world we enter into.   The impacts associated with COVID-19 may have been realized by some parties, but not others.  Regardless, the full extent of the COVID-19 impacts has likely been realized by no one — we are dealing with an unknown, prospective impact.

Will projects get suspended?  Will they stop and start back up due to disinfecting?  Will they slow down due to health concerns and preventative measures?  Will there be unanticipated material lead times?  Will current material lead times or material orders  be delayed?  Will material prices increase?  Will there be a labor shortage and/or inefficiencies with the labor force?  Will labor costs increase in order to address the preventative measures and anticipated inefficiencies?

These are some questions you may be asking, plus more.   You are asking these questions because of the unknown factor associated with COVID-19 and any future health crisis.  This is the reason now is the time — the time to ensure your contract best captures the risk of the unknown.

Here are considerations:

1.  Force majeure wording. –   This needs to be beefed up and tweaked to address COVID-19 and, potentially, other pandemics / health crisis.   You need to have an understanding who is bearing the cost risk for a project being shut down (by the government or otherwise), suspended, or slowed-down due to this issue.    Leaving it alone is a mistake.  All contracts until this pandemic hit left it alone meaning no contract truly addressed the global pandemic we are all facing.

2.  Additional safety and preventative health measures. – This needs to be factored in as the additional measures will add a cost to the project.  The measures may also add a cost in that they will add certain inefficiencies into the project that need to be factored into the schedule and general conditions.

3.  Material price escalations.- Could the cost of materials increase due to supply chain issues?  It is certainly a possibility and should be considered.  Further, it is likely that to avoid this issue, a party wants to accelerate the ordering of materials at today’s price, and there may be additional storage costs associated with doing this.   Conversely, what if the price of materials skyrocket post-contract?  This issue could break a party’s performance, profitability, and financial wherewithal to perform.  A party may want to address protection from any uncertainty with material price escalations.

4.  Material lead times and material delays.- If there are delays tied to COVID-19, how this being allocated?  There could be a realistic delay in material deliveries that impacts the project’s schedule.  The delay is not the ordering party’s fault but the result of impacts associated with the pandemic.  Based on this concern, this may result in the discussion of material accelerations and the additional storage costs associated with doing this (also discussed above).

5.  No-damage-for-delay.-  A no-damage-for-delay provision is common.  However, a party may want to deliberately carve-out from this issue delays associated with or tied to COVID-19 or any pandemic / health crisis.  The carve-out language should be broad and include language “arising out of or relating to” COVID-19 or any pandemic / health crisis based on the uncertainty as to how impacts may be realized.

6.  Contingencies.- Certain contracts, such as GMP contracts, contain a contingency.  Parties may want to add a contingency in the contract for COVID-19 and pandemics / health crisis.  A certain sum is built into the contract sum to address the unknown costs that could be incurred.

7.  Dispute resolution.- Knowing that the onslaught of COVID-19 cases will start affecting the judicial system, parties may want to revisit their dispute resolution provisions to see how disputes can be more efficiently resolved.  Parties may consider turning towards more specific arbitration provisions that modify standard contractual language.  Since arbitration is a creature of contract, parties can essentially start negotiating the rules of arbitration within the parameters of the contract.  Parties may demand pre-suit mediation provisions, executive settlement meetings, or partnering agreements as vehicles to efficiently resolve disputes and avoid delays or inefficiencies with the judicial system.

These are some talking points.  There will be others based on the scope.  I remain available to assist any party that wants to revisit their standard form contracts or needs help in drafting or negotiating contracts.   A party should not rely on their same-ole contract forms.  Also, a party should not rely on the same-ole negotiation as COVID-19 brought new issues to the table and highlighted the significance of other issues and contractual provisions.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

GENERAL TIPS WHEN IT COMES TO CONSTRUCTION CONTRACT DRAFTING AND NEGOTIATION

When it comes to construction contracts, there are many good industry form templates that can be used.   All are templates and all are designed to be modified to conform to the jurisdiction’s law and, of course, the parameters of the project.  There are industry form templates from the American Institute of Architects, ConsensusDocs, Engineers Joint Contract Documents Committee, and Design-Build Institute of America.  All include good provisions.  Regardless of the industry form template utilized, or whether your own template is utilized, contract drafting and negotiation is all about assessing risk and allocating risk to the party best equipped to manage that risk.  Oftentimes, management of the risk is considered in conjunction with insurance coverage to cover that associated risk.  Construction contract drafting and negotiation should not be taken lightly because “you want to know what you are getting into” so that you can best manage and address issues that arise, and you know issues always arise in construction.

Here are some general tips when it comes to construction contract drafting and negotiation:

  • Work with a construction attorney. Yes, I had to go there, because too frequently parties want to draft the contract without legal assistance, or negotiate without legal assistance, and this is not always fruitful.  Working with a construction attorney can at least help you assess the risk and ensure that a contract is sufficiently drafted or negotiated based on your understanding and appreciation of risk. I am routinely involved in some capacity when it comes to construction contract drafting and negotiation.

 

  • Obtain documents that are incorporated or flowed-down into the contract. Most contracts will either incorporate other documents or, in the case of a subcontract, contain flow-down provisions that flow-down obligations from the prime contract into the subcontract.  To best understand and appreciate the risk you are accepting, including risk associated with your scope of work, obtain these documents incorporated or flowed-down into the contract.   Not doing so is a mistake when these documents will impose obligations or requirements on you.

 

  • Review the insurance coverage language and consult with your insurance broker to make sure you have the required insurance. Insurance coverage is key.  Many times, contracts require heightened insurance coverage requirements that, realistically, are not available to a certain contractor.  Consider the insurance coverage requirements and consult with your insurance broker (and your construction attorney, if possible) regarding the insurance coverage, additional premium associated with the coverage, whether the coverage is available to you, and whether there is additional insurance coverage you should consider based on your scope of work.

 

  • Have an appreciation of the following driving provisions that will be important no matter the project:
    • Indemnification
    • Insurance coverage
    • Dispute resolution including forum selection, prevailing party attorney’s fees, joinder, and abatement or staying of certain disputes or claims
    • Termination for default and for convenience
    • Default and notification of default and any cure period
    • Suspension of work
    • Payment timing and requirements including any pay-if-paid language and conditions precedent to payment
    • Claims procedures including timing requirements when to submit claims and the waiver of claims
    • Change orders and directives
    • Scope of work to make sure you understand the scope of work in the contract as it will likely include work and risk not included in your proposal
    • No-damage-for-delay and all schedule-based language (since time is money)

The construction contract serves as the backbone governing your relationship with the project.  Do not neglect the importance of the construction contract or deprioritize its importance.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.