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.

 

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.

 

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.

 

 

WHICH CONSTRUCTION CONTRACT SHOULD I USE?

In the previous article I posted a chart that includes a side-by-side comparison of common risk allocation and risk assumption provisions in industry form construction contracts (the general conditions between the owner and contractor in the AIA, EJCDC, and ConsensusDocs industry form contracts).   This chart was used to illustrate various contractual provisions in industry form contracts in a presentation I recently did on construction contracts. The point of the presentation was to summarize many of the common risk allocation and risk assumption provisions in construction contracts that need to be considered when selecting and finalizing an industry form construction contract.  A portion of that presentation is below.  

 

Download (PPTX, 239KB)

 

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.

INDUSTRY FORM CONTRACTS SERVE AS A TEMPLATE FOR YOUR CONSTRUCTION CONTRACT

Recently, I put on a presentation on construction contracts–considerations when using an industry form contract as the template for your construction contract.  There are good industry form contracts that contemplate many different project delivery methods and objectives.  These industry form contracts are promulgated by widely respectable organizations including the AIA, ConsensusDocs, EJCDC, and DBIA.  Based on your needs, these associations also promulgate industry form exhibits to use with your contract (e.g, payment application, schedule of values, payment bond, performance bond, dispute review board, electronic communications protocol, BIM, certificate of substantial completion, change order, construction change directive, green building, RFI, and many more!).    

 

Below is a chart I put together of a comparison of some of the common risk allocation provisions in the standard general conditions between an owner and contractor in the AIA, ConsensusDocs, and EJCDC as a frame of reference.  All of these standard form agreements serve as valuable templates, but they still require modifications based on the objectives of the parties and the preferred project delivery method.

 

Download (PDF, 196KB)

 

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.

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

Construction ContractsThe 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 finding there 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!

 

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.