Archive for the ‘Construction Contracts’ Category
Click to read our Newsletter 4-1-15 Legal Punchlist Newsletter (Mar. 2015)
Many of you may have attended 4th of July parties with fireworks as we celebrated our country’s birthday. While we want fireworks at a 4th of July party, you do not want them on your jobsite. But your friends in organized labor may have other ideas. At the dawn of the Obama administration in January 2009, we expected a significant push by organized labor to leverage its success in the 2008 elections to try to regain lost ground in terms of private sector union membership. Instead, the focus turned to healthcare and a number of issues that prevented the passage of laws like the Employee Free Choice Act that would have dramatically simplified union organizing. President Obama also made a mess through his recess appointments to the National Labor Relations Board which, as of the writing, are before the Supreme Court with three lower courts having held them to be unconstitutional.
Now, however, contractors need to be aware of the fact that the stars are aligned in such a way that you should expect to see some type of union activity on your jobsites over the next several months. The NLRB is fully staffed with the most pro-union majority in its history. It is aggressively moving forward to give unions additional weapons to use on jobsites such as bannering, street theater and the ever popular large inflatable rat. The NLRB has also given unions almost complete control over the scope of the bargaining unit they can try to organize. It is expected that the Department of Labor will soon try to restrict the access of employers to effective legal representation in dealing with these types of issues. Since all of these administrative actions could be reversed with the election of a pro-business candidate in 2016, organized labor is ready to try to put the remaining days of the Obama administration to good use.
NOW is the time for you to learn about the variety of tactics unions might employ, where and how they might be utilized and what you can do to prepare for them. On Tuesday July 15, 2014 from 7:00am – 8:30am I will be presenting an interactive seminar on this topic. This session is designed for field superintendents, project managers and company executives. Don’t be caught unprepared!
The Pennsylvania Field Guide for Construction Contract Review
by HDlawblog Posted: Friday, 7/12/2013There is no substitute for having a lawyer review your contract. In fact, I encourage all contractors to have lawyers review their construction contracts. However, I’ve practiced construction law long enough to know that doesn’t always happen. Understanding this reality, I’ve prepared a general field guide of sorts to assist contractors with reviewing construction contracts when they “go it alone” against my recommendation. I also note that this guide does not touch upon every contractual issue. For example, I don’t elaborate upon insurance requirements or indemnification provisions, both of which require close review.
Here’s what contractors should look for:
Scope of Work-Get the Wrinkles Ironed Out: Examine whether the scope of work in your proposal and the scope of work as defined in the contract match-up. Typically, the scope of work in the contract will be broader. For example, the scope of work in the contract may require the contractor to perform the work set forth in the proposal and any necessary work “implied” by the drawings. If there is a conflict between what is set forth in your proposal and the scope of work in the contract, seek to eliminate the conflict. Otherwise, the discrepancy could come back to haunt you.
Flow Down or Pass Through Clauses-Don’t Ignore This: Contractors/subcontractors need to understand what flow down/pass through clauses are. Such clauses incorporate the terms of Owner/General Contractor agreement and bind the subcontractor to the general contractor to the same terms that the general contractor is bound to the owner. Sometimes a prime contract requires general contractors to insert such a clause into all subcontracts. Wherever such a clause appears, it is important for subcontractors to review the prime contract in addition to the subcontract to fully understand the terms that the subcontractor is agreeing to. If there are conflicts between the prime contract and the subcontract, contractors need to seek clarity regarding which provisions control. By failing to review the general contract, a subcontractor risks agreeing to terms that it knows nothing about, including termination clauses, claims processing clauses, indemnification clauses, and dispute resolution clauses. I routinely advise my clients to insist on receiving a copy of the general contract and reviewing it before signing any subcontract that contains a flow down/pass through clause.
Pay-if Paid Clauses-We’re Talking Money Out of Your Pocket: Subcontractors should learn to spot pay-if-paid clauses under which a subcontractor bears the risk of nonpayment and to know the difference between this clause and a pay-when-paid clause, which is merely a timing mechanism. Pay-when-paid clauses do not condition payments to a subcontractor on the contractor’s receipt of payments from the owner while pay-if-paid clauses make the contractor’s receipt of payment from the owner a strict condition precedent to the subcontractor receiving payment. In other words, pay-if-paid clauses shift the risk of nonpayment from the contractor to the subcontractor. If words such as “condition,” “if and only if,” or “unless and until” are used to describe when payment to a subcontractor is due then chances are it’s a pay-if-paid clause. If you are concerned that the subcontract could be interpreted as a pay-if-paid clause, I strongly recommend consulting with a lawyer, because the analysis is a bit more complex than I’ve described. However, if you are seeing the words described above, that should serve as a warning that the contract may contain a pay-if-paid clause.
While I typically advise clients against agreeing to payment terms that use the words “condition,” “if and only if,” or “unless and until,” the reality is that many of my clients frequently agree to these terms because they don’t have the bargaining power to insist on their removal and they want or need the work. In such circumstances, subcontractors can lessen the potential impact of a pay-if-paid clause by adding a pay-if-paid clause into their subcontracts. It’s a pass-the-buck tactic, and I’ve actually had clients object to doing this out of a sense of fairness, but this is the age we live in.
No Damages for Delay Clauses-Typically Enforceable: Typically such clauses state that time shall be the only compensation for delay. Although such clauses are typically enforced, Pennsylvania law refuses to enforce such clauses where: (1) there is an affirmative or positive interference by the owner with the contractor’s work; or (2) there is a failure on the part of the owner to act on some essential manner necessary to the prosecution of the work.
Change Order Clauses-The Stumbling Block of Many Contractors: If a contractor does not follow the process to perfect and preserve its claim in accordance with the contract, the contractor may have a difficult time receiving compensation. Therefore it is vital that the contractor carefully examine and understand the contractual change order process.
One common issue that arises with respect to change orders is that the contract specifies that only a certain person or persons can approve change orders. During the project, contractors frequently receive approval for a change order from a field person, but not the person specified in the contract. Having received such approval many contractors/subcontractors complete the change order work only to have the owner/contractor refuse to pay for the change order work because the change order work was technically not approved by the individual specified in the contract. While we highly encourage our subcontractors to strictly follow the contractual change order process, our clients tell us that sometimes it is not feasible to engage in such a process because doing so will delay or disrupt the work. In such cases, we encourage our clients to document change order approvals as much as possible, especially via emails. If you get in a jam like this, you might want to consult with your attorney about what the email should say because I would word emails differently depending on the circumstances.
If a dispute arises, having a string of emails showing how the change orders arose, is better than relying solely upon your word that someone working for the owner/contractor orally approved the change order. Again, if that happened, send an email confirming it, e.g., “per the [insert person’s name]’s direction, Company XYZ was directed to do [insert extra work], which work is outside the scope of work of Company XYZ’s contract. Accordingly, such work constitutes change order work for which a Change Order will be submitted.”
Furthermore, don’t jeopardize your chances of being compensated for change order work by failing to give the required written notification for claims for compensation within the certain time period specified in the contract. Failure to provide such notice can result in a waiver of your claim. Finally, know how claims must be submitted and include all required information in your claims submissions.
Differing Site Conditions/Changed Conditions Clause-Exploring the Great Unknown: This clause comes into play when a contractor discovers site conditions that were neither known, anticipated, nor disclosed to the contractor. Typically, there are two types of changed conditions: (1) Type I conditions are conditions that materially differ from conditions that were disclosed to the contractor in the contract documents at the time of bidding; and (2) Type 2 are the conditions that are “unusual, unknown, and unanticipated.”
Keep in mind that if the contract also contains a site investigation clause, in order for the contractor to benefit from the differing site conditions clause to the maximum extent possible, the contractor should conduct a reasonable investigation of the site and review all relevant data.
Watch out for contracts that attempt to shift the risk of bearing the cost of differing conditions to the contractor by requiring the contractor to disclaim any claim for extras related to a differing site condition and watch out for contracts that don’t address differing site conditions.
Dispute Resolution Clauses-Who Is the Referee: Know what is required. For example, do you have to seek mediation before arbitration or litigation? Know where you are allowed to litigate or arbitrate. Also, pay attention to whether the owner/contractor has the sole discretion to elect to pursue the matter through arbitration or litigation.
This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice. Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.
Dissecting Your Construction Contract: The Differing Site Conditions Clause
by HDlawblog Posted: Friday, 11/30/2012In general, where a construction contract contains a differing site conditions clause, a contractor can rely on the representations in the contract documents and is not required to perform expensive pre-bid investigations and testing. Such clauses typically allow a contractor to receive an equitable adjustment in time or cost of performance if the actual site conditions differ materially from the contract or reasonable expectations.
A typical differing site conditions clause requires a contractor that encounters differing site conditions to provide the owner with notice of the alleged differing site conditions before disrupting the affected area. This notice requirement is meant to give the owner an opportunity to investigate whether the conditions are indeed differing, and if so, the best course of action going forward. Keep in mind that an owner’s unreasonably slow response to the contractor’s notice of differing site conditions claim may be deemed a compensable delay. Although most differing site conditions clauses require that notice be given in writing, regardless of what the contract calls for, it is a good practice to always put such notices in writing. Drill this concept home with your project managers. While a detailed notice is best, we know things get hectic at a worksite, so even a brief email (use the subject line “Notice of Differing Site Conditions”) is better than nothing.
Some contracts break differing site conditions into two types: Type I for site conditions that differ from what was indicated on the contract documents; and Type II for unknown conditions that differ from what was inherent or normal in the type of work. Regardless of the type of differing site condition, to recover on a differing site condition claim, the claimant must prove that the condition encountered was materially different from reasonable expectations, and you can bet that the owner is going to argue that it wasn’t. There is no bright-line rule to determine what constitutes a material difference. Thus, contractors have to come up with evidence to prove that the conditions they encountered are either materially different from the conditions they could have reasonably expected based upon the contract documents or are materially different from what the contractor would typically expect to encounter when performing such work in a given geographic location. Proving materiality may prove challenging.
Moreover even though a differing site conditions clause affords a contractor some additional protection in the event that an unknown condition is encounter, it’s not a free pass. In order to succeed on a differing site conditions claim, contractors usually still need to show that: (1) the site inspection was adequate; (2) they made proper use of available data; (3) disclaimers were taken seriously; (4) they gave proper notice of the differing site conditions; and (5) the differing site conditions were not weather-induced.
Lessons for Contractors: Contractors who have the bargaining power to negotiate the insertion of a differing site conditions clause into a contract should try to do so. For those contractors fortunate enough to receive a contract with a differing site conditions provision, avoid doing anything that could decrease your chances of succeeding on a differing site conditions claim by adequately inspecting the site, making proper use of data, taking disclaimers seriously, and giving proper notice should you encounter differing site conditions. Also, be particularly careful not to commingle claims involving inclement weather with differing site conditions claims as doing so may weaken your differing site conditions claim.
This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice. Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.
