Progress Payments (1) • Periodic payments constituting partial payment of the contract sum • Construction contract should clearly define how and when progress payments are to be made • Detailed Schedule of Values is imperative – Contractor should prepare a detailed Schedule of Values for the Owner and Architect’s approval early on in the project – Should accurately break down the scope of work into component parts and each part should be assigned a value – Applications for Payment should be measured against the approved Schedule of Values a ues • Advanced Payments – Be mindful of statutory schemes and state laws that limit advanced payments – May create issues with surety under performance bonds May create issues with surety under performance bonds 13
Progress Payments (2) • Timing of Progress Payments – Typically made monthly based on the progress made on the project through the date on which the Contractor submits its application for payment – C Can also be made on certain milestones l b d t i il t – When setting the time-frame within which progress payments must be made, parties should consider the following: • Who must review and approve Application for Payment (e g • Who must review and approve Application for Payment (e.g., Architect? Architect? Owner? Lender?) • Specific Lender requirements regarding payment • Statutory requirements that govern the time within which an Owner must pay Statutory requirements that govern the time within which an Owner must pay the Contractor (e.g., Prompt Payment Acts) 14
Progress Payments (3) g y ( ) • Procedure for Progress Payment – Set forth in detail what the Contractor must do in order to get paid during the job – A Application for Payment li ti f P t • Should include (1) the amount of the work in place, (2) the cost of materials stored on (and possibly, off) site, (3) the cost of labor to date, (4) the amount of retainage, (5) previous payments, (6) a summary of change orders (if any), and (7) the amount of payment currently being requested any), and (7) the amount of payment currently being requested • May also include various certifications of Contractor – That the work included in the Application for Payment has been completed in accordance with the contract documents – That Contractor has paid its Subcontractors/Suppliers for Work that the Th t C t t h id it S b t t /S li f W k th t th Owner has previously been paid for – That the payment shown in the application is due and owing • Sample Forms: AIA Document G702, ConsensusDOCS 291 & 292 15
Progress Payments (4) • Submitting Application for Payment – Who should the Application for Payment be submitted to (Architect? Owner? Both?) – Architect’s role with respect to Application for Payment • Is the Application for Payment submitted first to the Architect for review and approval • Will the Architect issue a Certificate for Payment to the Owner – Application for Payment is usually reviewed and certified by the Architect (in the form of a Certificate for Payment) and then submitted to the Owner for payment to t e O e o pay e t • Set specific time-frame (x days from receipt) within which Architect must review and issue Certificate for Payment – The Owner may want to retain control over Application for Payment process – At very least, Owner should require that Owner’s approval of Application for Payment and/or Certificate for Payment is a condition precedent for payment 16
Progress Payments (5) • Conditions Precedent to Progress Payment – Inspection of work – Partial Lien Waivers and Releases from Contractor and Subcontractors/Suppliers Partial Lien Waivers and Releases from Contractor and Subcontractors/Suppliers – Certification from Contractor – Certificate for Payment from Architect – Owner approval of Application for Payment and Architect’s Certificate for Owner approval of Application for Payment and Architect s Certificate for Payment 17
Retainage • Portion of the contract price that is withheld by Owner from each payment • Purpose is to ensure the project is completed and to protect the Owner against Contractor default, liens and claims Contractor default, liens and claims • If there is a payment or performance bond, retainage may not be needed • Amount of retainage withheld and timing of its release are critical and hotly negotiated – – If amount is too low or released too early a Contractor facing a costly punch list If amount is too low or released too early, a Contractor facing a costly punch list may have little incentive to complete job – If amount is too high or withheld too long (e.g., final completion), Contractor may price the cost into its bid depriving Owner of lowest price 18
Amount of Retainage • Typically 5-10% • Retainage should be withheld from both Contractor and Subcontractor Work • Statutory limitations must be considered St t t li it ti t b id d – Some states limit the percentage of retainage – Some states require that retainage be held in an interest bearing account – Some states require retainage to be released or reduced after a certain percentage of the Work is completed – Statutory regulations vary depending on whether public or private project 19
Release of Retainage (1) • Period between substantial completion and final completion is often contentious – Owner uses retainage as leverage to get punch list items completed – Subcontractors that have finished their work may file liens based on retainage Subcontractors that have finished their work may file liens based on retainage that Contractor is withholding from them • Clearly establish when retainage is to be released – Be mindful of statutory requirements y q • Typically released at Substantial Completion • Owner should hold on to some portion of retainage until Final Completion to ensure punch list items are completed – Recommend 150-200% of cost to complete punch list items – Parties must consider who determines cost to complete such punch list items 20
Release of Retainage (2) • Retainage may also be released or percentage may be reduced at certain milestones in the work (e.g., upon 50% or 75% completion of the work) – Parties must consider who determines when milestones are reached – Owner may want to make reduction in its sole discretion – Owner may also may want to make reduction contingent on continued satisfactory performance by the Contractor 21
Withholding Payment (1) • Disputes often occur when the Architect or Owner withholds payment • Construction contract should require payments of amounts not in dispute • Construction contract should define/limit circumstances when payment may be withheld withheld. Circumstances may include: Circumstances may include: – Defective work not remedied – Third party claims filed or reasonable evidence of probable filing of such claims unless security acceptable to the Owner is provided by the Contractor – Failure of Contractor to make payments to Subcontractors/Suppliers – Reasonable evidence that the Work cannot be completed for the unpaid balance of the contract sum – Damage to the Owner or separate contractor Damage to the Owner or separate contractor – Reasonable evidence that the Work will not be completed within the contract time and that the unpaid balance will not be adequate to cover actual or liquidated damages for the anticipated delay – Failure to carry out the Work in accordance with the contract documents • Contractor should carefully review and understand when payment may be withheld because a number of the circumstances involve assumptions and judgment calls 22
Withholding Payment (2) • Be mindful of statutory schemes (particularly Prompt Payment Acts) which dictate when and how payments should be made and how and when payments may be withheld – Some statutory schemes require payment on construction within a certain Some statutory schemes require payment on construction within a certain number of days after request unless there is a “good faith dispute” (e.g., Texas Prompt Payment Act – Ch. 28 of Texas Property Code) – Some statutory schemes have strict notice requirements if the Owner intends to withhold payment (e.g., New Jersey Prompt Payment Act - N.J.S.A. 2A:30A-1, et. seq .) – If such procedures are not followed, the Owner could be held in breach of the contract and waive its rights incur interest on unpaid amounts and be held liable contract and waive its rights, incur interest on unpaid amounts, and be held liable for damages and attorney’s fees – If such procedures are not followed, Contractor and/or Subcontractors may have the statutory right to stop Work without breaching the contract 23
Final Payment • How and when Final Payment is to be made should be clearly defined – Final Payment should typically be made 30-45 days after Contractor completes all punchlist items – Owner should expressly provide that time period for final payment does not start to run until all conditions precedent to Final Payment have been satisfied • Concerns regarding timing and procedure for Final Payment are similar to those for Progress Payments Progress Payments • Contractor should understand whether acceptance of Final Payment means waiver of all claims other than those in writing and identified as unsettled at the time of Final Application for Payment • O Owner should strike any provisions which provide that they are waiving any claims h ld t ik i i hi h id th t th i i l i against Contractor by issuing Final Payment 24
Conditions Precedent to Final Payment • Conditions precedent to Final Payment should be carefully reviewed and negotiated. Conditions may include: – Final inspection by Architect and/or Owner – Final Certificate for Payment Final Certificate for Payment – Owner’s approval of Final Application for Payment and Certificate for Payment – Local jurisdiction approval (e.g., Certificate of Occupancy) – Affidavits – Proof of Payment – Final Lien Waivers and Releases from Contractor and all Subcontractors/ Suppliers (with any lien claim bonded around) – Satisfaction of all Lender and Project Close Out Requirements Satisfaction of all Lender and Project Close-Out Requirements – As-built surveys and drawings – Warranty information – Express warranties regarding Work p g g – Consent of Surety 25
Late Payment/Non-Payment by Owner • Main concern for the Contractor and Subcontractors/Suppliers • Drafting strategies to protect Contractor from late or non-payment – R Require Owner to show evidence of financial arrangement sufficient to cover the i O t h id f fi i l t ffi i t t th costs of construction – Require Owner to furnish information necessary for Contractor to evaluate, give notice, and enforce mechanic’s lien rights – Obligate Owner to pay interest on late payments • Owner should make sure interest rate/penalty is reasonable – Retain Contractor’s right to stop work and/or terminate the construction contract for late and/or non-payment for late and/or non payment 26
Payment/Non-Payment of Subcontractors y y • Be mindful of Prompt Payment Act requirements • Be mindful of statutory limitations on retainage • Be wary of and pay particular attention to Pay when Paid and Pay if Paid clauses Be wary of and pay particular attention to “Pay when Paid” and “Pay if Paid” clauses – Pay when Paid: • Subcontractor agrees not to be paid for his or her work until the Contractor is paid by the Owner • Courts interpret these clauses to restrict only the timing of payment C t i t t th l t t i t l th ti i f t – Pay if Paid: • Payment from Owner to Contractor is a condition precedent to Subcontractor’s right to payment from Contractor • Many jurisdictions will not enforce and have ruled that such clauses are against public policy 27
Enforcement of Pay If Paid Clauses • Difficult to enforce Pay if Paid clauses • Some jurisdictions will enforce where the clauses are extremely clear and have the requisite language – To be enforced, clause must emphasize the following as a minimum: • Payment to Contractor is a condition precedent to payment to a Subcontractor • The Subcontractor bears the risk of Owner’s insolvency • The Subcontractor’s payment is to come from a fund, the sole source of which is the Owner’s payment to the Contractor 28
Risks to Owner Where Subcontractor is Not Paid (1) • Non-payment of Subcontractors can result in liens being filed against the Owner's p y g g property or interest in property • Drafting strategies to protect Owner’s interests: – Require open access to all accounting records – Require evidence of payments to all Subcontractors/Suppliers before issuing any payment (e.g. Partial and Final Lien Waivers and Releases) – Require Application for Payment include Contractor’s certification that Contractor has either paid all its Subcontractors/Suppliers for the Work reflected on has either paid all its Subcontractors/Suppliers for the Work reflected on Application for Payment and/or has utilized the payments from the last payment to pay Subcontractors/Suppliers for Work through the last Application for Payment to the instant one – Require Contractor to prohibit Subcontractors/Suppliers from claiming liens 29
Risks to Owner Where Subcontractor is Not Paid (2) – Require Contractor to satisfy or bond off liens within a specified time period and q y p p to indemnify Owner for same – Retain right to pay Subcontractors/Suppliers directly and deduct from amounts due to Contractor – Retain right to issue joint checks to Contractor and Subcontractors/Suppliers • Joint checks and Owner direct payment options subvert Contractor’s right to withhold payment under subcontract. Contractor should review these provisions carefully and consider deleting these and any clauses which allow p y g y Owner into Contractor’s relationship with Subcontractor/Supplier to give Contractor more flexibility – Require Contractor to furnish a performance and/or payment bond 30
Other Payment Terms y • Assignment of Contract – If contract can be assigned by Owner, Contractor should insist upon language that requires full payment for Work prior to assignment (including retainage) and that requires full payment for Work prior to assignment (including retainage) and before Contractor commences work for assignee – Contractor should also require assignee to prove acceptable financial arrangements • Bonus/Penalty Clauses – Provide a positive/negative incentive for Contractor to comply with schedule – A bonus is paid for timely or early performance – Liquidated damages are assessed for untimely performance 31
Construction Contract Drafting Strategies: Crafting Enforceable Payment, Performance, Termination C fti E f bl P t P f T i ti and Damages Provisions Melissa Dewey Brumback Ragsdale Liggett PLLC R d l Li PLLC Raleigh, North Carolina 919.881.2214 mbrumback@rl-law.com My blog: www. constructionlawNC .com t ti l NC 32
TODAY’S TOPICS TODAY S TOPICS • Scope of Services Scope of Services • Duties of Parties • Modifications to Project M difi ti t P j t • Termination Issues 33
Discuss Performance Expectations D During Negotiations i N ti ti -- Good communication -- Good communication -- Clear expectations The Contract is the key! 34
Scope of Services Detailed list of Detailed list of Included Scope & Detailed list of Excluded Scope 35
Scope of Services Scope of Services Additional Services Additional Services • Proposal v. Contract Description • Compensation? C ti ? • Value engineering reflected? 36
Scope of Services Scope of Services Unit Pricing Unit Pricing Define when unit pricing applies Ex: rock unit pricing only applies when rock measures X 37
Scope of Services Scope of Services Extended Construction Extended Construction I A/E Is A/E paid for additional on-site admin id f dditi l it d i where contractor delays project? How will delays be determined? 38
Scope of Services Scope of Services Time considerations Time considerations • “Time is of the Essence” “Ti i f th E ” • Liquidated damages? 39
Scope of Services Scope of Services Contingencies & Assumptions Contingencies & Assumptions • No unforeseen conditions (i.e., bad soil) N f diti (i b d il) • Financing considerations prior to start • Timely delivery of Owner equipment 40
Example of Contingency GMP Contract Example of Contingency GMP Contract • Owner shall use best efforts to monitor and accelerate the Project’s plan approval, permit applications, and financing. Upon completion of said tasks, and in any event no later than July 1, 2011, Owner shall notify Contractor in writing that Owner is ready to execute the Commencement Amendment and commence construction (the “Recalculation Notice”). • Upon receipt of the Recalculation Notice, Contractor shall update the Upon receipt of the Recalculation Notice, Contractor shall update the budget for the Project using then-current pricing for identical Project materials as were previously priced . Within fourteen (14) days of receipt of the Recalculation Notice, Contractor shall provide an updated GMP to Owner reflecting the revised budget (the “Revised GMP”). g g ( ) • Within seven (7) days following Owner’s receipt of the Revised GMP and budget from Contractor, Owner shall notify Contractor of its acceptance or rejection of the Revised GMP . If Owner accepts the Revised GMP, the or rejection of the Revised GMP . If Owner accepts the Revised GMP, the parties shall execute an Amendment to the Contracts reflecting the Revised GMP and incorporating any other additional terms, modifications, or Change Orders agreed upon by the parties in the interim (the “Commencement Amendment”). ) 41
Scope of Services Safe harbor provision Agreement Not to Claim for Cost of Certain Change Orders: “. . .Owner agrees not to sue or to make any claim directly or indirectly against Engineer on the basis of professional negligence breach of against Engineer on the basis of professional negligence, breach of contract, or otherwise with respect to the costs of approved Covered Change Orders unless the costs of such approved Covered Change Orders exceed __% of Construction Cost, and then only for an amount in excess of such percentage amount in excess of such percentage . Any responsibility of Engineer for the costs of Covered Change Orders in excess of such percentage will be determined on the basis of applicable contractual obligations and professional liability standards. For purposes of this paragraph, the cost of Covered Change Orders will not include any costs that Owner would have incurred if the Covered Change Order work had been included originally . . .” (EJCDC, Ex. 1, Alloc of Risks, Form E-500) 42
Scope of Services Scope of Services Safe harbor provision (cont.) [NOTE TO USER: The parties may wish to consider the additional limitation contained in the following sentence.] “Owner further agrees not to sue or to make any claim Owner further agrees not to sue or to make any claim directly or indirectly against Engineer with respect to any Covered Change Order not in excess of such percentage stated above, and Owner agrees to hold Engineer harmless from and against any suit or claim made by the Contractor relating to any such Covered Change Order.” g y g 43
Duties of the Parties Duties of the Parties • Spell out in advance Spell out in advance • Confirm role of A/E team • Conform role of Owner representative C f l f O t ti • Establish schedule & how delays handled • Determine procedures for changes 44
Owner’s Duties Owner s Duties Access Access • occupied buildings; University settings • self-performed work cannot interfere lf f d k t i t f 45
Owner’s Duties Owner s Duties Furnish surveys and data re: site The Owner shall furnish surveys describing physical characteristics, legal limitations and p y , g utility locations for the site of the Project, and a legal description of the site. The Contractor shall be entitled to rely on the accuracy of shall be entitled to rely on the accuracy of information furnished by the Owner but shall exercise proper precautions relating to the safe performance of the Work safe performance of the Work. AIA201 § 2.2.3 § 46
Owner’s Duties Owner s Duties § 3.7.5 Concealed or Unknown Conditions. If the Contractor encounters conditions at the site that are (1) subsurface or otherwise concealed conditions at the site that are (1) subsurface or otherwise concealed physical conditions that differ materially from those indicated in the Contract Documents or (2) unknown physical conditions of an unusual nature, that differ materially from those ordinarily found to exist and generally recognized as inherent in construction activities of the character generally recognized as inherent in construction activities of the character provided for in the Contract Documents, the Contractor shall promptly provide notice to the Owner and the Architect before conditions are disturbed and in no event later than 21 days after first observance of the conditions. The Architect will promptly investigate such conditions and, if the Architect determines that they differ materially and cause an th A hit t d t i th t th diff t i ll d increase or decrease in the Contractor’s cost of, or time required for, performance of any part of the Work, will recommend an equitable adjustment in the Contract Sum or Contract Time, or both. If the Architect determines that the conditions at the site are not materially different from determines that the conditions at the site are not materially different from those indicated in the Contract Documents and that no change in the terms of the Contract is justified, the Architect shall promptly notify the Owner and Contractor in writing, stating the reasons. If either party disputes the Architect’s determination or recommendation, that party may proceed as provided in Article 15. id d i A ti l 15 47
Owner’s Duties Owner s Duties Unforeseen Conditions– liability ultimately Unforeseen Conditions liability ultimately rests with Owner -- if Owner relied on Geotech report, they may be liable too 48
Owner’s Duties Owner s Duties Payment Terms • Payment terms as specified in contract; core Owner duty • Non-payment: need to document reasons; pay undisputed portion p y p p • Figure lead time needed 49
Designer’s Duties Designer s Duties Plans & Specs (Spearin doctrine) [I]f the contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for the t t ill t b ibl f th consequences of defects in the plans and specifications . This responsibility of the owner is not overcome by the usual clauses requiring builders to visit overcome by the usual clauses requiring builders to visit the site, to check the plans, and to inform themselves of the requirements of the work, ...” United States v. Spearin, 248 U.S. 132 (1918) Designer bears Designer bears ultimate liability! ltimate liabilit ! 50
Designer’s Duties Designer s Duties Owner’s representative Acts as Owner’s representative during construction t ti Authority to act only as provided in Contract documents § 4.2.1 51
Designer’s Duties Designer s Duties On-site Observation § 4.2.2 The Architect will visit the site at intervals appropriate to the stage of construction or as otherwise appropriate to the stage of construction, or as otherwise agreed with the Owner , to become generally familiar with the progress and quality of the portion of the Work completed, and to determine in general if the Work is completed and to determine in general if the Work is being performed in a manner indicating that the Work, when fully completed, will be in accordance with the Contract Documents However the Architect will not be Contract Documents. However, the Architect will not be required to make exhaustive or continuous on-site inspections to check the quality or quantity of the Work Work . 52
Designer’s Duties Designer s Duties • Designer should spell out in detail what Designer should spell out in detail what observation services are/are not part of contract • i.e.: “ Designer will make X number of visits during the Y Phase of Construction. These visits g will only be to ensure general compliance with the plans. Not every portion of the job will be observed; only random samplings will be b d l d li ill b observed at any such field visit .” 53
Designer’s Duties Designer s Duties • Review and certify Applications for P Payment t • Reject work that does not conform to Contract • Review, approve, take appropriate action , pp , pp p on shop drawings, samples, etc. • Initial arbitrator of disputes Initial arbitrator of disputes 54
Designer’s Duties Designer s Duties Construction Administration Construction Administration § 4.2.10 If the Owner and Architect agree, the Architect will provide one or more project p p j representatives to assist in carrying out the Architect’s responsibilities at the site. The duties, responsibilities and limitations of authority of such project representatives shall be as set forth in an exhibit to be incorporated in the forth in an exhibit to be incorporated in the Contract Documents. 55
Designer’s Duties Designer s Duties If additional services/duties are desired If additional services/duties are desired, spell out in detail in Exhibit to contract • What is “construction observation”? • What is construction observation ? • What is entailed in “periodic observation”? • What is encompassed in on-site construction supervision? 56
Contractor’s Duties Contractor s Duties Means & Methods Techniques Sequences Means & Methods, Techniques, Sequences or Procedures • for self performed work • for self-performed work • for subcontractors 57
Contractor’s Duties Contractor s Duties • Merchantability Merchantability • Fitness for a particular purpose • Good workmanship G d k hi 58
Contractor’s Duties Contractor s Duties Warranty: Warranty: • materials & equipment of good quality and materials will be new materials will be new • the Work will conform to the requirements of the Contract Documents f th C t t D t • the Work will be free from defects 59
Contractor’s Duties Contractor s Duties Site Supervision Site Supervision C Contractor responsible for subcontractors t t ibl f b t t • should have similar duties/responsibilities in subcontract 60
Contractor’s Duties Contractor s Duties Scheduling & work-force • Duty to create & keep schedule D t to create & keep sched le • Duty to properly staff job 61
Contractor’s Duties •Expediting work if Expediting work if behind schedule •Trade stacking issues •If acceleration due to others, timely notice to owner 62
Timeliness of Notice of Delay/Change 14 days 21 days 30 days 30 days 63
Mutual Duties of the Parties Mutual Duties of the Parties 64
Implied Duty Not to Hinder •Not delay/hinder any other party •Not delay/hinder any other party •Nondisclaimable Nondisclaimable •Includes Owner’s separate Includes Owner s separate contractors; Design Team 65
Standard of Care In acceptance with standard of others employed in same profession--"reasonableness” 66
Standard of Care Standard of Care • The accepted definition of ‘Standard of The accepted definition of Standard of Care’ does NOT contain the word perfection perfection. • Use of words or phrases such as ‘highest,’ U f d h h ‘hi h t ’ ‘best,’ or ‘most qualified’ increases the standard of performance expected. t d d f f t d 67
68 Duty to Disclose
Modification to the Construction Plans & Specifications 69
the Contract "Change" Clause • Mechanism for change • Mechanism for change • Allows • Allows Flexibility Flexibility • In standard contracts In standard contracts 70
71 Contracts Compared
72 Change Directive EJCDC? No No No Changed Terms Agreed to? Yes Change Order Yes
When terms cannot be agreed upon AIA A201 at 7.3.3: Construction Change Directive (CCD) C t ti Ch Di ti (CCD) • mutual acceptance of lump sum • unit prices stated in contract it i t t d i t t • cost in "a manner agreed upon" 73
When terms cannot be agreed upon (Partial Payment): pon (Partial Pa ment) AIA A201 at 7 3 9: AIA A201 at 7.3.9: • Architect-interim determination c ec e de e a o • Claims can be asserted later 74
When terms cannot be agreed upon: Consensus Docs 200 at 8.2.1 & 8.2.2: Interim Directed Change g Consensus Docs 200 at 8.3.3: Owner pays 50% of estimate 75
When terms cannot be agreed upon: EJCDC C-700 at 12.01.C.2: Directives dealt with in CO process • Payroll and labor: 15% • Payment to subs: 5% 76
What if there is no signed CO or CCD? What if there is no signed CO or CCD? Federal project: out of luck Other project: project: may qualify for for equitable relief relief 77
What documentation required for Compensable Change? Compensable Change? 1. description of change 1. description of change 2. number of days needed 3. amount 4. signature and date 5. back-up documents 78
Back Up Documentation – Proposals Proposals – Invoices – Logs g – Time Sheets – Emails – Faxes Should consider what will be required when contract is when contract is negotiated 79
80 Delays & Scheduling Delays & Scheduling
Excusable Delay -- Not foreseeable N t f bl -- Unusual weather -- Act of God Act of God What docs will be What docs will be required? NOAA? Time extension only only 81
Compensable Delay •Caused by Fault: who decides ? C d b F lt h d id ? •Time extension •Time extension & money (actual damages) 82
Concurrent Delay •Caused by Fault of more than one party Caused by Fault of more than one party •Time extension & money only if per Time extension & money only if per contract •Actual damages must be proven must be proven 83
84 Termination & Suspension Termination & Suspension
Termination: the Ultimate Threat Termination: the Ultimate Threat • Non-breaching party can terminate without penalty • For Contractor, includes not being paid F C t t i l d t b i id • For Owner, includes Contractor’s failure to pay subs; failure to staff job; workmanship issues b f il t t ff j b k hi i T Termination: losing proposition i ti l i iti for both parties! 85
Termination/Suspension Termination/Suspension for Convenience (by Owner) • Only the owner can terminate/suspend for convenience convenience • Requires written notice • Completely discretionary Completely discretionary • Contract sum & time are adjusted a e adjusted If expect issues up front, can require more notice or conditions before suspension 86
Termination/Suspension for Convenience (cont.) C i ( t ) • Upon receipt of written notice, contractor U i t f itt ti t t shall (1) cease operations as directed; (1) cease operations as directed; (2) take action to preserve the work; (3) terminate all subcontracts & P O s (3) terminate all subcontracts & P.O.s. 87
Termination/Suspension for C Convenience (cont.) i ( t ) • If terminated/suspended for convenience If terminated/suspended for convenience, Contractor entitled to: (1) payment work executed (1) payment work executed (2) costs due to termination (3) profit on work not (3) profit on work not performed 88
Contractor’s Termination for O Owner’s Default ’ D f lt If work stopped for 30+days, for: pp y , stop-work order, national emergency, failure of prompt payment, failure to show p p p y , financial capability If worked stopped for 60+days, for: pp y , fault of Owner If worked stopped for 100+% of total If worked stopped for 100 % of total number of days scheduled, or 120 days in any 365 day period y y p 89
Contractor’s Proper Termination for Owner’s Default • If termination necessary, MUST provide a 7 day If termination necessary, MUST provide a 7 day written notice to the owner. (Time can be adjusted up front) – -- opportunity to cure • Contractor’s damages: payment for work executed & for proven losses 90
Owner’s Termination for Contractor’s Default Owner can terminate for cause for material Owner can terminate for cause for material breach by contractor: –fails to supply enough properly skilled fails to supply enough properly skilled workers and/or proper materials; –fails to pay subcontractors; f il t b t t –disregards laws; –fails to comply with plans & specs – Otherwise is guilty of substantial breach of Otherwise is guilty of substantial breach of a provision of the Contract Documents 91
Wrongful Termination of Contract by Contractor If a contractor wrongfully terminates a contract & leaves job, liable for the j , difference between the owner’s cost to complete and the remaining contract p g balance [Cost to Complete] – [Remaining Contract Balance] = Amt Contractor owes in Balance] = Amt Contractor owes in damages 92
Owner’s Proper Termination of Contractor for Cause C t t f C Prior to termination, MUST give a 7 day written notice to the contractor. ( Time can be adjusted upfront.) After termination, the owner is permitted to Aft t i ti th i itt d t choose any reasonable method for completing the work completing the work 93
Owner’s Damage Remedies Owner s Damage Remedies Owner’s Damage Remedy for proper Owner s Damage Remedy for proper termination of contractor: (1)the cost of repair/completion, or (1)the cost of repair/completion, or (2)the difference in value from what was contracted. contracted. Exception to the cost of repair method of calculating damage: a substantial portion calculating damage: a substantial portion of the completed work would be destroyed to undertake the repair y p 94
M li Melissa Dewey Brumback D B b k Ragsdale Liggett PLLC Raleigh, North Carolina 919.881.2214 mbrumback@rl-law.com My blog: www. constructionlawNC .com 95
Construction Contract Drafting Strategies Strategies Crafting Enforceable Paym ent, Perform ance, Crafting Enforceable Paym ent, Perform ance, g g y y Term ination and Dam ages Provisions Term ination and Dam ages Provisions Septem ber 7 , 2 0 1 1 Septem ber 7 , 2 0 1 1 COKINOS BOSIEN & YOUNG
Stephanie L O’Rourke Stephanie L O’Rourke Principal Stephanie L. O Rourke, Stephanie L. O Rourke, Principal Principal Principal COKINOS COKINOS BOSIEN BOSIEN & YOUNG & YOUNG San Antonio San Antonio Houston Houston Dallas/ Fort Worth Dallas/ Fort Worth http: / / www.cbylaw.com/ attorney/ 50/ o http: / / www.cbylaw.com/ attorney/ 50/ o- -rourke rourke- -stephanie stephanie- -l l sorourke@cbylaw.com sorourke@cbylaw.com COKINOS BOSIEN & YOUNG
DAMAGES Drafting Enforceable Damages Provisions in Construction Contracts Construction Contracts 98 COKINOS BOSIEN & YOUNG
Consequential Damages • Direct v. Indirect Damages • May include calculated consequential damages damages 99 COKINOS BOSIEN & YOUNG
Waiver of Consequential Damages • • Clause does not limit “direct damages ” but those Clause does not limit “direct damages,” but those that flow as a consequence of a breach of contract • AIA A401 example AIA A401 example • “The Contractor and Subcontractor waive claims against each other for consequential damages arising out of or relating to this Subcontract…” f l h b ” 100 COKINOS BOSIEN & YOUNG
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