By: Craig Martin, Construction attorney with Lamson Dugan & Murray
The “punch list” is to help contractors remember to double check some of the major construction clauses. Contract language can make or break a project. It’s important to review the entire contract, but the “punch list” identifies some key provisions that merit extra attention. Includes the following:
Contracting Parties The contract should identify all parties and name them correctly. A failure to list a cor- porate designation, such as Inc. or LLC, can be the dif- ference between a personal liability and a corporate li- ability. Equally important, are you doing business with a long-term contractor or an entity created only for this project? Naming the proper parties seems simple, but it’s a problem we deal with on a regular basis.
Contract Documents Construction contracts often define the contract document as the subcontract you are signing and the agreement between the owner and the general contractor. This means that the obligations between the general contractor and the owner flow down to you. It is imperative to request a copy of the prime contract and review its terms. You will not likely be able to negotiate terms of the prime contract, but you may be able to tailor the subcontract to avoid some of the prime terms.
Scope of Work The scope of work will obviously vary project to project. But, this is another defined term in the contract and often includes “all work reasonably in- ferable from the plans, specifications and drawings.” It is important to address this one head on to either under- stand what the general contractor is seeking or limit the definition to your anticipated scope.
Pay-if-Paid/Pay-When-Paid These are not the same! A pay-when-paid clause relates to timing in that a contractor should pay you when it is paid or within a reasonable time after you completed the work. A pay-if-paid is entirely different. Under a pay-if-paid clause, the risk of non-payment is shifted to the sub- contractor and the contractor is only required to pay after it is paid by the owner or other upstream contrac- tor. Telling the difference between these two clauses may be difficult, but look for phrases like “condition precedent”, “unless and until” or even “subcontrac- tor assumes risk of payment.” If you see these phrases, you might have a pay-if-paid clause that may severely limit your ability to get paid.
Change Orders What is the change order process for your contract? Chances are that there is a very specific procedure for change orders. Construction contracts often identify the number of days by which you must submit your claim, what your claim must contain, and to whom the claim must be submitted. It will also likely explain that if you do not follow the change order rules exactly, your claim will be rejected. It is imperative that your project manager knows these terms for each project.
Delay Damages The primary question is whether you can demand damages for delays, particularly those de- lays that were not caused by you. Be on the look out for language like: Contractor shall not be liable to Subcontractor for costs or damages of any type for delay. These clauses are generally enforceable, but there may be specific state laws that limit their application.
Indemnification Indemnity provisions can be extremely broad, and they can lead to significant liability. It’s important to determine whether the indemnification provisions are mutual, in that each party is indemnify- ing the other for its negligence, or whether you are be- ing asked to indemnify the upstream contractor for any claims remotely related to your work.
Termination Clauses Your contract likely contains a termination clause. The important question is whether your recovery is limited to payment for work performed and materials installed, or can you also demand lost profit. This is especially important when the contract can be terminated for convenience.
Dispute Resolution If problems arise on your project, do you have to go to court or arbitration? If you go to arbitration, can it be handled locally, or do you have to hire a panel of 3 arbitrators from out of state. Are the parties required to go to mediation to at least attempt to resolve their differences? These are all questions that your contact should answer.
Contract language can make or break a project. It’s impor- tant to review the entire contract, but the “punch list” above identifies some key provisions that merit extra attention. We hope you find it helpful.
Craig Martin is a construction attorney with Lamson Dugan & Murray, LLP law firm and is a member of the collaborative Johnson Team. The Johnson Team consists of a collaborating group of spe- cialists serving LICA members on matters of significance – planning, protection, and preservation of their businesses and families. If you have any questions, Craig’s e-mail is cmartin@ldmlaw.com
The “punch list” is to help contractors remember to double check some of the major construction clauses. Contract language can make or break a project. It’s important to review the entire contract, but the “punch list” identifies some key provisions that merit extra attention. Includes the following:
- Contracting Parties
- Contract- Documents
- Scope of Work
- Pay-if-Paid/Pay-When Paid
- Change Orders
- Delay Damages
- Indemnification
- Termination Clauses
- Dispute Resolution
Contracting Parties The contract should identify all parties and name them correctly. A failure to list a cor- porate designation, such as Inc. or LLC, can be the dif- ference between a personal liability and a corporate li- ability. Equally important, are you doing business with a long-term contractor or an entity created only for this project? Naming the proper parties seems simple, but it’s a problem we deal with on a regular basis.
Contract Documents Construction contracts often define the contract document as the subcontract you are signing and the agreement between the owner and the general contractor. This means that the obligations between the general contractor and the owner flow down to you. It is imperative to request a copy of the prime contract and review its terms. You will not likely be able to negotiate terms of the prime contract, but you may be able to tailor the subcontract to avoid some of the prime terms.
Scope of Work The scope of work will obviously vary project to project. But, this is another defined term in the contract and often includes “all work reasonably in- ferable from the plans, specifications and drawings.” It is important to address this one head on to either under- stand what the general contractor is seeking or limit the definition to your anticipated scope.
Pay-if-Paid/Pay-When-Paid These are not the same! A pay-when-paid clause relates to timing in that a contractor should pay you when it is paid or within a reasonable time after you completed the work. A pay-if-paid is entirely different. Under a pay-if-paid clause, the risk of non-payment is shifted to the sub- contractor and the contractor is only required to pay after it is paid by the owner or other upstream contrac- tor. Telling the difference between these two clauses may be difficult, but look for phrases like “condition precedent”, “unless and until” or even “subcontrac- tor assumes risk of payment.” If you see these phrases, you might have a pay-if-paid clause that may severely limit your ability to get paid.
Change Orders What is the change order process for your contract? Chances are that there is a very specific procedure for change orders. Construction contracts often identify the number of days by which you must submit your claim, what your claim must contain, and to whom the claim must be submitted. It will also likely explain that if you do not follow the change order rules exactly, your claim will be rejected. It is imperative that your project manager knows these terms for each project.
Delay Damages The primary question is whether you can demand damages for delays, particularly those de- lays that were not caused by you. Be on the look out for language like: Contractor shall not be liable to Subcontractor for costs or damages of any type for delay. These clauses are generally enforceable, but there may be specific state laws that limit their application.
Indemnification Indemnity provisions can be extremely broad, and they can lead to significant liability. It’s important to determine whether the indemnification provisions are mutual, in that each party is indemnify- ing the other for its negligence, or whether you are be- ing asked to indemnify the upstream contractor for any claims remotely related to your work.
Termination Clauses Your contract likely contains a termination clause. The important question is whether your recovery is limited to payment for work performed and materials installed, or can you also demand lost profit. This is especially important when the contract can be terminated for convenience.
Dispute Resolution If problems arise on your project, do you have to go to court or arbitration? If you go to arbitration, can it be handled locally, or do you have to hire a panel of 3 arbitrators from out of state. Are the parties required to go to mediation to at least attempt to resolve their differences? These are all questions that your contact should answer.
Contract language can make or break a project. It’s impor- tant to review the entire contract, but the “punch list” above identifies some key provisions that merit extra attention. We hope you find it helpful.
Craig Martin is a construction attorney with Lamson Dugan & Murray, LLP law firm and is a member of the collaborative Johnson Team. The Johnson Team consists of a collaborating group of spe- cialists serving LICA members on matters of significance – planning, protection, and preservation of their businesses and families. If you have any questions, Craig’s e-mail is cmartin@ldmlaw.com