PRIME CONTRACT DRAFTING AND NEGOTIATION

Posted on August 3, 2016August 3, 2016 by Edward Garber

Contract drafting and contract negotiation is important. We all know that. No surprises there! But, when it comes to drafting a contract and negotiating terms and conditions, it is important to be fair and reasonable because a contract has to be an equally allocated give and take of risks. A truly one-sided contract is more than often a recipe for disaster because it is unreasonable and written such that the other party is destined to fail.

Ideally, the party best equipped to manage a risk should have responsibility in bearing that risk. Every project is different (different client, price, scope, complexity, project delivery method, etc.) so there are different risk assessment considerations. And, certain risks that you will assume in one contract does not mean you will assume the same risks in another.

For me, when it comes to contract drafting and negotiation, I like to consult with the client to understand the dynamics of the project and risks the client foresees with the project. This helps me appreciate the client’s business objectives relating to the project and the type of risks the client may be willing to fairly and reasonably assume. I also start with a spreadsheet of those key issues prevalent in many construction contracts which may expand based on the client, price, scope, complexity, project delivery method, and other risk assessment issues pertinent to the project. Below is an example of a spreadsheet of owner and contractor considerations with respect to the drafting and negotiation of a prime contract.

[gview file=”https://floridaconstru.wpengine.com/wp-content/uploads/2016/08/Prime-Contract-Considerations.pdf”]

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.

IS AN INITIAL DECISION MAKER, PROJECT NEUTRAL, OR DISPUTE RESOLUTION BOARD RIGHT FOR YOU?

Posted on July 3, 2016November 8, 2024 by Edward Garber

Recently, I participated in a roundtable hosted by JAMS with experienced South Florida construction lawyers and retired circuit court judges to discuss the pros and cons of utilizing an initial decision maker (“IDM” and also referred to as a project neutral) or a dispute resolution board (“DRB”) to resolve disputes on construction projects. The IDM and DRB are designed to resolve disputes, specifically claims (whether for time, money, or both), during construction to keep the project progressing forward without being bogged down by the inevitable claim. There are numerous avenues to resolve disputes without resorting to filing a lawsuit or a demand for arbitration. The thought is that dispute resolution will be facilitated by techniques designed to assist the parties with the resolution of claims during construction. While direct discussions between the parties, meetings with the executives for business decision purposes, mediations, etc., are certainly helpful, sometimes these avenues are simply not enough to truly resolve a complex claim on a construction project that occurs during construction.

This is where the IDM and DRB come into play. Perspectives on the value of having an IDM or DRB and their defined roles are based on experiences. But, what is important is that these experiences can help you determine whether an IDM or DRB is right for your project to resolve claims during construction and, if so, how you want to contractually frame the role of the IDM nor DRB. As you know, the larger and more complex the project the greater likelihood that there will be disputes that occur during the course of construction. Knowing this, how do you want these disputes to be resolved during construction, and who do you want to resolve these disputes, so that (a) the project continues to move forward notwithstanding such dispute, (b) the parties believe the agreed-upon resolution technique will truly assist them to resolve the inevitable claim without having to file a lawsuit or demand for arbitration down the road, and (c) the person (or persons) resolving the dispute is deemed as credible and objective.

For example, the American Institute of Architects (AIA) incorporates the concept of an IDM to its General Conditions (see A201-2007) as the person that renders initial decisions on claims. If no person is selected as the IDM, the fallback is to have the architect serve in this role. The IDM is tasked with reviewing the claim and can approve the claim, reject the claim, request additional data, request a response to the claim, suggest a compromise, or advise the parties he/she is unable to render a decision on the claim. The General Conditions further provides:

15.2.6.1 Either party may, within 30 days from the date of an initial decision, demand in writing that the other party file for mediation within 60 days of the initial decision. If such a demand is made and the party receiving the demand fails to file for mediation within the time required, then both parties waive their rights to mediate or pursue binding dispute resolution proceedings with respect to the initial decision.

See AIA-A201, s. 15.2.6.1.

The Consensus Documents (ConsensusDocs) incorporates the concept of a project neutral (similar to IDM) or DRB in its General Conditions if direct discussions between the parties reach an impasse. The General Conditions provide:

12.3.1 The Project Neutral/Dispute Review Board shall be mutually selected and appointed by the Parties and shall execute a retainer agreement with the Parties establishing the scope of the Project Neutral/Dispute Review Board’s responsibilities. The costs and expenses of the Project Neutral/Dispute Review Board shall be shared equally by the Parties. The Project Neutral/Dispute Review Board shall be available to either Party, upon request, throughout the course of the Project, and shall make regular visits to the Project so as to maintain an up-to-date understanding of the Project progress and issues and to enable the Project Neutral/Dispute Review Board to address matters in dispute between the Parties promptly and knowledgeably. The Project Neutral/Dispute Review Board shall issue nonbinding findings within five (5) business Days of referral of the matter to the Project Neutral, unless good cause is shown.

12.3.2 If the matter remains unresolved following the issuance of the nonbinding finding by the mitigation procedure or if the Project Neutral/Dispute Review Board fails to issue nonbinding findings within five (5) business Days of the referral, the Parties shall submit the matter to the binding dispute resolution procedure designated in Paragraph 12.5.

See ConsensusDocs 200-2007, s. 12.3.1, 12.3.2.

If you like the concept of the IDM (project neutral) or DRB, then you need to consider whether you really want the architect or engineer of record to serve in any role, especially if you are the contractor. As the contractor, your claims may derive from the contract documents and you probably want a more objective party to resolve such claims. So the question becomes who do you trust to serve in this role? A practicing construction attorney? A mediator or arbitrator from a company like JAMS or the American Arbitration Association that has experience with alternate dispute resolution? An industry expert or experts that have no vested interest in the project other than to render initial decisions on claims? Do you want a combination of all to serve on a DRB? Does this person(s) participate in project meetings? This is an important consideration.

Next, what is the process you want the IDM or DRB to undertake to resolve claims? This process is important from a timing standpoint and proof standpoint. Do you want the IDM or DRB to simply resolve claims on paper; in other words, render a decision by virtue of the claim submitted and any response provided? Do you want the IDM or DRB to hear testimony from fact witnesses and, perhaps, experts? Do you want the IDM or DRB to hear legal argument from counsel? Do you want the IDM or DRB to have the authority to simultaneously examine experts to get at the heart of the truly disputed technical issues? And, when do you want the IDM or DRB to step in and render an initial decision? In other words, do you want direct discussions between the parties, mediation, a meeting with project folks, or a meeting with the business executives to take place first? After the initial decision? Or never?

Then, what is the avenue you want to undertake if you want to contest (or appeal for lack of a better term) the IDM or DRB’s initial decision as to a claim occurring during construction? This is very important because let’s assume a party does not like the initial decision. You want a mechanism to continue to discuss the claim and, perhaps, appeal the claim if discussions reach an impasse without that initial claim becoming binding. The next step would naturally be binding dispute resolution, whether arbitration or litigation, to finally resolve the merits of the claim. With this eventuality in mind, do you want the trier of fact (arbitrator, judge, or judge) to know that an IDM or DRB rendered an initial decision on this very issue and that decision was “x”? This is an important consideration because human nature suggests that if the IDM or DRB is an objective party(ies) / industry professional(s), the fact that they rendered the initial decision of “x” will probably carry credibility with the trier of fact. And, that credibility may be greater based on how the IDM or DRB rendered the decision. Think about it. If the decision was based on evidence or the consideration of testimony and experts, which may be analogous to the evidence and expert opinions presented at trial or arbitration, then it makes sense that the trier of fact is going to defer (perhaps unknowingly) to what the objective party / industry professional(s) decided regarding the claim. Conversely, if the evidence and expert opinions are different than those presented to the IDM or DRB, does this alteration impact the credibility of the witnesses or the claim? Although, knowing this may make it less likely to actually pursue binding arbitration or litigation as to the claim considering the merits of the dispute had been decided by a knowledgeable / objective party(ies).

Finally, how is the IDM or DRB going to be funded – how are the costs of the IDM or DRB going to be budgeted and allocated? This is another important consideration because this could be a costly endeavor. But, the costs may be worth it if the IDM or DRB is considered objective by the parties and the parties are truly engaged in the during construction dispute resolution techniques designed to avoid litigation or arbitration which could become more costly. Also, the costs may certainly be worth it–the larger or more complex the project–when you know going into it that there will be claims and it is in the project’s best interest to promptly resolve the claims.

PERSONAL GUARANTOR CANNOT ESCAPE A PERSONAL GUARANTEE BY…

Posted on May 20, 2016November 8, 2024 by Edward Garber

In a prior article, I discussed the point that a personal guarantor cannot escape a contractual requirement of a personal guarantee merely by executing the guarantee as a corporate officer.

The recent decision Frieri v. Capital Investment Services, Inc., 41 Fla. L. Weekly D1189a (Fla. 3d DCA 2016) illustrates this point. In this case, a company hired an individual to help grow that company’s business. The contract required the individual to invest $6 Million into a trust in consideration of the company’s president transferring substantial shares of the company into the trust. The objective was that the trust would own the controlling shares of the company. The money was transferred. However, the shares were never placed in the trust and the trust never received controlling interest in the company.

The individual sued the company and the company’s president. A judgment was entered against the company’s president and he appealed arguing there was no evidence to hold him personally liable. The appellate court disagreed because the contract between the company and the individual imposed a personal obligation on the company’s president to actually place controlling shares into the trust and he failed to do so. Although the company’s president signed the contract as a corporate officer of the company, his “official designation does not shield him from personal liability because the contract’s clear language shows that he assumed personal obligations [through the obligation to place the shares in the trust].” Fireri, supra.

Remember, affixing a corporate title to a signature will not shield you as a personal guarantor if the contract clearly indicates language requiring a personal guarantee / personal liability. And, as demonstrated in Frieri, personal liability can be assumed if the contract imposes an obligation on you to do something in a personal capacity, such as the obligation of the company’s president to specifically place shares in the trust.

QUICK NOTE: DON’T NEGLECT CONDITIONS PRECEDENT TO PAYMENT IN YOUR CONTRACT

Posted on February 29, 2016February 29, 2016 by Edward Garber

There is a good chance your contract contains conditions precedent to payment. Such conditions precedent to payment include waivers and releases of lien (and, perhaps, claims) and contractually required warranties. Make sure to comply with conditions precedent to payment!

In a case where a subcontractor sued a payment bond surety, the court held the subcontractor’s lawsuit was premature because the subcontractor did not comply with a condition precedent to payment, that being the submission of a release in satisfactory form. Until such condition precedent was satisfied, payment was not due and owing the subcontractor.

UNDERSTAND PROJECT DELIVERY METHODS SO THAT YOU SELECT A METHOD THAT BEST MEETS YOUR NEEDS

Posted on February 1, 2016February 1, 2016 by Edward Garber

There are numerous project delivery methods or a method to deliver an owner the design and construction of a project. Selecting a project delivery method requires the owner to consider many factors including the 1) project size, complexity, and scope, 2) insurance, 3) emerging technology such as building information modeling, 4) lean construction, 5) sustainability, 6) risk allocation, 7) control, 8) internal resources, 9) budget, 10) schedule, 11) contractor input during preconstruction, 12) risk allocation, 13) dispute resolution, and 14) collaboration amongst ownership, the design team, and the construction team. After carefully considering all of these factors, the objective is for an owner to select the project delivery method that will best bring it value including allocating responsibility of the design and construction to those best equipped to manage and handle that responsibility. Learn more about the following project delivery methods by analyzing considerations and perspectives of each method in the attached primer:

1. Design-bid-build

2. Multi-prime

3. Design-build

4. CM-agency

5. CM-at risk

6. Integrated project delivery

7. Public private partnership

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CONSTRUCTION CONTRACTS AND APPLICATION OF PAROL EVIDENCE RULE TO CLARIFY LATENT AMBIGUITY

Posted on December 12, 2015November 8, 2024 by Edward Garber

The parol evidence rule is a need-to-know rule of law when it comes to cases that involve the rights, liabilities, and remedies of parties under a written agreement. As explained in this article, the parol evidence rule is designed to exclude the admissibility of extrinsic / parol evidence (agreements and discussions) made before or at the time a contract is executed that are used to modify or alter the actual written agreement. This is because what the parties agreed to should be embodied in the written agreement and there should be no need for parol evidence to guide the court in its interpretation of contractual provisions. Now, as explained in this article, there are exceptions to this rule. One such exception is when there is a latent ambiguity in the contract which is an ambiguity that is not clear from the face of the contract, but concerns language reasonably interpreted in more than one way, particularly when the contract fails to specify rights of parties in certain situations.

An example of the application of the ambiguity exception to the parol evidence rule in a construction contract can be found in the decision in Science Applications Intern. Corp. v. Environmental Risk Solutions, LLC, 132 A.D.3d 1161 (N.Y. 2015). While this case did not concern Florida law, the application is still germane.

In this case, a subcontractor sued a contractor and the owner of gas station sites concerning remediation of a spill / contamination it performed at the sites. The subcontractor had an existing relationship with the contractor where they previously entered into a Professional Services Master Agreement governing general rights and obligations. The subcontractor and contractor then entered into three Project Specific Scopes of Work that formed three separate subcontracts relating to the sites and contained the same remediation work for each site for a lump sum. Noteworthy here, the Scopes of Work lump sum were fixed regardless of the actual cleanup costs required for each site to achieve the designated remediation standard. At some point, the contractor terminated the subcontractor for convenience pursuant to the Professional Services Master Agreement. The subcontractor submitted its final invoicing for remediation work but was not paid leading to this action.

On appeal, the court noted various ambiguities with the Professional Services Master Agreement and Scopes of Work relative to the subcontractor’s scope of work relating to the cleanup of the spill / contamination:

Here, we agree with Supreme Court that most of the disputed terms regarding SAIC’s [subcontractor] remediation obligations under the PSSWs [Scopes of Work] are ‘a compromised hodgepodge of conflicting proposals’ susceptible to several reasonable interpretations. As an example, Lehigh’s [owner] argument that section 5(a)(1) of the PSSWs [Scopes of Work] unambiguously required SAIC to, among other things, meet a stringent, contractually defined ‘Cleanup Standard’ is belied by section 5(a)(3) of the PSSWs, which—also unambiguously—permits SAIC to remediate the sites by, among other things, achieving regulatory closure of the spill numbers from DEC [Department of Environmental Conservation], as indicated by receipt of ‘no further action’ (hereinafter NFA) letters from DEC.

As an additional example, SAIC [subcontractor] argues that Lehigh’s [owner] consent to seek spill number closures pursuant to section 5(a)(3) of the PSSWs [Scopes of Work] could be obtained passively via the review and comment procedure set forth in section 5(p) of the PSSWs. Nowhere in the PSSWs, however, does it indicate that SAIC could rely on this subsection to obtain Lehigh’s consent—passively or otherwise—to proceed with regulatory closure pursuant to section 5(a)(3). Likewise, the PSSWs fail to provide any alternative mechanism or procedure for Lehigh to review and comment on SAIC’s submissions to DEC. This failure on the part of Lehigh and SAIC to articulate an adequately defined procedure for how SAIC was to obtain Lehigh’s consent to proceed with an alternate cleanup standard left the ultimate formation of such a procedure susceptible to the varied and subjective constructions of the parties, thus creating additional [latent] ambiguity.

Further ambiguity arose with regard to section 5(g) of the PSSWs [Scopes of Work], an inherently contradictory provision governing when SAIC’s remediation work at a given site could be considered complete. In its first clause, section 5(g) references SAIC’s [subcontractor] obligations pursuant to section 5(a)(1) of the PSSWs, stating that ‘SAIC’s remediation and monitoring obligations under this PSSW shall cease upon attainment of the Cleanup Standard and receipt of NFA Status from DEC for each site as defined in section 5(a)’ . However, the very next clause contradicts the prior one, stating that, ‘upon receipt of NFA Status confirmation from DEC, SAIC’s remediation and monitoring obligations shall cease, except for re-openers to the extent found to be due to SAIC’s negligence.’ In light of these ambiguities, we find that Supreme Court [of New York] appropriately considered parol evidence to determine both the intent of the parties and whether SAIC breached the PSSWs.

Science Applications Intern, supra, at 756-757.

The last sentence quoted above—that the trial court appropriately considered parol evidence to determine the parties’ intent and whether the subcontractor breached the Scopes of Work—is telling. This was based on the court’s finding that the scope of work was susceptible to more than one reasonable interpretation by, in part, omitting adequately defined procedures applicable to the remediation work. The point of a written contract is to prevent parol evidence from being considered to determine the parties’ intent. This is why it is important for the contract and the scope of work, in particular, to be clear and unambiguous!

IMPLIED COVENANT OF GOOD FAITH & FAIR DEALING ATTACHES TO EVERY CONTRACT

Posted on December 5, 2015November 8, 2024 by Edward Garber

There is an implied covenant of good faith and fair dealing in every contract. Meruelo v. Mark Andrews of Palm Beach, Ltd., 12 So.3d 247, 251 (Fla. 4^th DCA 2009). “Its purpose is to protect the reasonable expectations of the contract parties.” Snow v. Ruden, McClosky, Smith, Schuster & Russell, P.A., 896 So.2d 787, 791 (Fla. 2d DCA 2005).

A breach of this implied covenant of good faith and fair dealing is not really an independent cause of action. This is because the implied covenant of good faith and fair dealing attaches to the performance of a contractual provision. Snow, 896 So.2d at 791. Thus, if a contractual provision has not been breached, there has not been a breach of the implied covenant of good faith and fair dealing. Id. The implied covenant of good faith and fair dealing cannot override the express terms the parties agreed to in a contract. Id.

For example, in Avatar Development Corp. v. De Pani Const., Inc., 834 So.2d 873 (Fla. 4^th DCA 2002), a developer terminated a stucco subcontractor. The subcontractor sued the developer. The trial court held that the developer violated the implied covenant of good faith and fair dealing by terminating the subcontractor. The Fourth District reversed because the implied covenant is not a tool to override the agreement of the parties:

The trial judge found that Avatar[developer] violated the implied covenant of good faith and fair dealing in terminating the contract pursuant to Article 67. However, the covenant of good faith cannot be used to create a breach of contract on Avatar’s part, where there was no breach of any express term of the contract. As this Court explained in Indian Harbor Citrus, Inc. v. Poppell, 658 So.2d 605 (Fla. 4th DCA 1995), an implied covenant of good faith cannot be used to vary the unambiguous terms of a written contract and when parties negotiate “a fully specified, unambiguous contract, this court is not at liberty to change their bargain.” Id. at 607. The “duty of good faith must relate to the performance of an express term of the contract and is not an abstract and independent term of a contract which may be asserted as a source of breach when all other terms have been performed pursuant to the contract requirements.” Hosp. Corp. of Am. v. Fla. Med. Ctr., Inc., 710 So.2d 573, 574 (Fla. 4th DCA 1998). The language of Article 67 was plain and unambiguous: Avatar could terminate the contract at any time for any reason. It was a valid contract with an enforceable termination clause.

Avatar, 834 So.2d at 875.

Typically, the implied covenant of good faith and fair dealing comes into play “when a question is not resolved by the terms of the contract or when one party has the power to make a discretionary decision without defined standards.” Speedway SuperAmerica, LLC v. Tropic Enterprises, Inc., 966 So.2d 1, 3 (Fla. 2d DCA 2007) quoting Publix Super Markets, Inc. v. Wilder Corp. of Del., 876 So.2d 652, 654 (Fla. 2d DCA 2004).

For example, in Speedway SuperAmerica, a landlord refused to give its tenant consent to assign a commercial lease. The lease provided that the tenant could not assign the lease without the prior written consent of the landlord and that any assignment without the landlord’s consent would be void allowing the landlord, at its discretion, to terminate the lease. Here, the tenant assigned the lease even after the landlord refused to provide its written consent to the assignment. The trial court ruled that the landlord had the unfettered right to refuse to provide its written consent and the tenant’s assignment constituted a material breach of the lease entitling the landlord to retake possession of the leased space. The Second District reversed because the discretion the landlord had in providing its written consent (without any defined standards as to when the landlord would or would not provide such consent) was subject to the implied covenant of good faith and fair dealing to protect the contracting parties reasonable commercial expectations.

The bottom line is that a claim that a party violated the implied covenant of good faith and fair dealing will fail without proving that the party actually violated an express contractual provision. This claim, however, is not a vehicle to rewrite contractual performance obligations and will not be used to supersede what the parties agreed to. It can be used when the contract gives a party a discretionary obligation (such as to act reasonably, or gives the party the power to do something at its option) that has no defined standards. In such circumstance, a party can argue the other party breached the contract by breaching the implied covenant of good faith and fair dealing by not exercising or exercising such discretionary obligation in good faith, thereby impacting the reasonable expectations of the contracting parties.

REFERRAL SOURCES CAN CONSTITUTE LEGITIMATE BUSINESS INTEREST TO SUPPORT NON-COMPETE AGREEMENT

Posted on August 21, 2015November 8, 2024 by Edward Garber

I previously discussed the validity of non-compete agreements as well as tips for drafting such agreements.

Recently, in Infinity Home Care, L.L.C. v. Amedisys Holding, LLC, 40 Fla.L.Weekly D1929a (Fla. 4^th DCA 2015), the Fourth District Court of Appeal discussed the requirement of a “legitimate business interest” pursuant to Florida Statute s. 542.335, which governs the enforcement of non-compete agreements. Specifically, the court was looking at whether referral sources constitute a legitimate business interest. The reason being is that there needs to be a legitimate business interest to enforce a restrictive covenant such as a non-compete agreement. The statute gives examples of legitimate business interests (e.g., trade secrets, confidential business information that does not qualify as trade secrets, substantial relationships with specific prospective or existing customers, patients or clients, etc.) but is NOT limited to the criteria or examples set forth in the statute. See Fla.Stat. 542.335(1)(b) (“the term ‘legitimate business interest’ includes, but is not limited to:…”).

As it pertains to what constitutes a legitimate business interest, the Fourth District held:

Section 542.335, however, clearly states that the legitimate business interests listed in the statute are not exclusive. This allows the court to examine the particular business plans, strategies, and relationships of a company in determining whether they qualify as a business interest worthy of protection.

***

In sum, we hold that referral sources are a protectable legitimate business interest under section 542.335, Florida Statutes.

Infinity Home Care, supra.

If you are drafting or enforcing a non-compete agreement, it is important to consult with counsel. This way your legitimate business interests can appropriately be protected as you move to enforce the non-compete agreement—the restrictive covenant—by moving for injunctive relief. This case, however, supports the argument that the legitimate business is broader than the criteria and examples in the statute and based on the business’s “plans, strategies, and relationships.”

GENERAL UNDERSTANDING OF CONSTRUCTION PROJECT DELIVERY METHODS

Posted on August 15, 2015November 8, 2024 by Edward Garber

Ever hear the expression, “there are many ways to skin a cat?” Of course you have! Well, this expression can apply to construction as there are many ways to build a project to accomplish the same objective–to deliver a completed project.

The various ways projects are delivered are oftentimes referred to as construction project delivery methods. Such delivery methods can be the traditional method of design-bid-build to the much more sophisticated and collaborative delivery mthod of integrated project delivery (“IPD”) to the method aimed at delivering needed public projects (such as infrastructure) known as the public private partnership (“P3”).

Below is a basic presentation illustrating the following construction project delivery methods:

1) design-bid-build

2) design-bid

3) construction manager at-risk

4) integrated project delivery (“IPD”) and

5) public private partnership (“P3”).

Check out the presentation to get a general understanding of the highlights of each of these project delivery methods.

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EXAMPLES OF (RISK SHIFTING & ACCEPTING) PROVISIONS IN A SUBCONTRACT

Posted on August 1, 2015November 8, 2024 by Edward Garber

In reading articles posted in this blog, I hope it is impressed upon you to understand the risks you are accepting in your contract and what to do if you encounter a risk, as well as those risks you are flowing down or allocating to your subcontractors. Construction is inherently risky so you want to know what to do when you encounter certain situations or occurrences, and in certain circumstances, you want to factor the costs associated with certain accepted risks in your contract amount.

When it comes to subcontracts, there are provisions that contractors want to include in their subcontracts that subcontractors need to note:

The schedule – the contractor will want to include provisions that any baseline schedule is not written in stone and that it has the discretion to resequence the progress of the work. This is an understood event since the contractor is responsible for managing the work so subcontractors should account for this contingency.
No damage for delay – the contractor will want to include a no-damage-for-delay provision that provides it is not responsible for any delay-related damages and that the subcontractor’s only recourse for a delay will be an extension of time. The provision may also state that the contractor’s liability for any delay will be limited by the amount it receives by the owner associated with the delay.
Change orders – There will be a change order issue at some point. The subcontractor needs to understand the change order procedure so proper notice is given regarding the change order work before proceeding with that work. And, if the subcontractor is directed to proceed with work (through a change order directive) or there is a dispute as to the amount or time associated with the change, the subcontractor needs to understand that it needs to track and itemize its costs associated with the change.
Claims – If a subcontractor is delayed / impacted or there is an event triggering change order work, as mentioned above, the subcontractor needs to submit timely notice of the event or occurrence. Otherwise, there may be an argument that this event or occurrence is waived. The contractor will argue that the notice provision is important so that it can ensure it timely submits notice to the owner pursuant to the prime contract and a subcontractor’s failure to comply with the notice provision prejudiced the contractor.

Provided below is an example of contractual provisions that fit within the above four categories. These provisions may be analogous to provisions in the subcontract you are working under or, if you are a general contractor, may be provisions you want to consider including in your subcontract. Remember, the objective is to know those risks you are accepting, those risks to flow down or allocate to the subcontractor, and, importantly, what to do if you encounter a risk!!

Also, please share any examples of contractual provisions that you have come across that fit within these categories. The more examples the merrier when it comes to understanding the types of risks that are frequently dealt with and allocated between a contractor and subcontractor.

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