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Construction Contract Drafting Strategies

Crafting Enforceable Payment, Performance, Termination and Damages Provisions

T d ’ f l f

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific WEDNES DAY, S EPTEMBER 7, 2011

Today’s faculty features: Karen A. Denys, Drinker Biddle & Reath, Princeton, N.J. Melissa Dewey Brumback, Partner, Ragsdale Liggett, Raleigh, N.C. S tephanie L O'Rourke, Principal, Cokinos Bosien & Young, S an Antonio

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Construction Contract Drafting Strategies:

Crafting Enforceable Payment, Performance, Termination and Damages Provisions

K A D E Karen A. Denys, Esq. Drinker Biddle & Reath, LLP 105 College Road East P O B 627 P.O. Box 627 Princeton, New Jersey 08542 (609) 716-6698 Karen.Denys@dbr.com

Payment Terms

• Primary concern of parties to a construction contract
• Commonly disputed during contract negotiations and one of the leading causes of

disputes during construction

• The following payment terms should be carefully reviewed and negotiated:

1) Method of Payment 2) Progress Payments 3) R t i 3) Retainage 4) Withholding Payment 5) Final Payment 6) Late Payment/Non-Payment by Owner 6) Late Payment/Non Payment by Owner 7) Payment/Non-Payment of Subcontractors

6

Method of Payment

• Method of Payment often dictates the types of disputes that will arise during the

project

• Parties must clearly define the Method of Payment

Parties must clearly define the Method of Payment

• In deciding which Method of Payment to utilize, the parties should consider:

– The size and scope of the project – Owner’s budget for the project – The stage of the plans and specifications – Unknowns and contingencies that may arise during project – Risks to be assumed by both Owner and Contractor S hi ti ti f th O – Sophistication of the Owner – Requirements of the Lender

7

Common Methods of Payment

• Lump Sum:

A single fixed price is set for all the work to be performed by the Contractor. Often used where detailed plans and specifications already exist, for smaller ( d tl i d) j t d/ h th O h littl i i (modestly priced) projects, and/or where the Owner has little experience in construction management.

• Cost Plus:

The Owner pays Contractor for the actual cost of labor and materials plus a The Owner pays Contractor for the actual cost of labor and materials plus a specified fee (which can be either fixed or a percentage of cost of work) for

• verhead and profit. Often used in the absence of detailed plans and

specifications. GMP

• GMP:

A Cost-Plus Contract wherein a set price for a specific scope of work is established that cannot be exceeded. Often used on fast-track projects or when the design is incomplete at the time construction starts.

• Unit Price:

The Contractor performs a unit of work for a fixed price with the total quantity of material and labor being uncertain. Often used on public infrastructure projects (e g roads runways)

8

(e.g., roads, runways).

Lump Sum

• Clarity and certainty as to price, rights and obligations
• Requires complete and well-defined plans and specifications and specific scope of

work work

• Contractor assumes most of the risk. If Contractor makes a mistake in the estimate

for labor or materials, the Contractor bears the loss.

• Owner likely to pay a premium because of unknowns and contingencies
• Minimum Owner supervision required
• Contractor may cut corners on quality or quantity to maximize profits
• Owner should specify the materials that Contractor is required to use
• Less transparency as to Contractor’s profit margin
• Owner assumes risk for any changes after the contract is executed
• Scope of work needs to be clearly defined because any omissions or mistakes may

result in expensive Change Orders result in expensive Change Orders

• Works well if there is to be competitive bidding for project

9

Cost Plus

• Provides transparency missing from Lump Sum
• Both Owner and Contractor share in benefits that come from more efficient work and costs that

are closer to original estimates

• Very important for parties to specifically identify what does and does not qualify as the Cost of the

Work and hat is a reimb rsable e pense Work and what is a reimbursable expense

• High maintenance for both Owner and Contractor as the Contractor must keep detailed records of

costs actually incurred for labor, materials and equipment used on project and Owner must scrutinize those records

• Owner does not pay for unknown variables that do not occur as with Lump Sum
• Owner does not pay for unknown variables that do not occur as with Lump Sum
• Contractor has no incentive to cut quality or quantity because it is paid for all labor and materials

that go into project

• Owner assumes risk of unknown variables and contingencies

O h ld b ild i “ b k” i i d th i ht t dit h t th t l t ti

• Owner should build in “open book” provisions and the right to audit what the actual construction

costs are

• Owner should require Contractor to competitively bid subcontracts
• Owner should cap General Conditions to prevent improper use of cost savings and to avoid being

nickel and dimed by Contractor nickel and dimed by Contractor

• Parties should negotiate upfront what size or type of credit change order should include a credit

for the Contractor’s fee

• Owner should prohibit practice of charging rent for tools already owned by Contractor

P ti h ld ti t d t bli h hi h W k b lf f d b C t t 10

• Parties should negotiate and establish which Work may be self-performed by Contractor

Guaranteed Maximum Price (GMP)

• Used to temper risks to Owner by acting as cap on the total amount the Owner will be

required to pay Contractor

• No increase in price except for approved Owner changes
• All risk is on the Contractor
• Need a clearly defined scope of work
• Owner should consider sharing any savings (difference between the GMP and final

t f th k) ith C t t t id th C t t ith i ti t k cost of the work) with Contractor to provide the Contractor with an incentive to keep costs to a minimum

• Contingency provision must be carefully negotiated and address issues, including but

not limited to, what the contingency may be used for and how it is to be managed

• Owner should build in “open book” provisions and the right to audit what the actual

construction costs are

11

Unit Price

• Requires adequate breakdown and definition of work units
• Requires sufficient (not complete) design definition to estimate quantities
• Contractor assumes risk of rising costs availability of labor weather etc

Contractor assumes risk of rising costs, availability of labor, weather, etc.

• Contractor’s risk is less than in a Lump Sum Contract because an error in estimating

the job does not stick the Contractor with overages

• Owner assumes risk for total quantities and of higher total cost of construction

q g

• Tends to draw unbalanced bidding
• Additional staff needed to measure, control and report on units completed
• May be used in conjunction with lump sum or cost plus methods

May be used in conjunction with lump sum or cost plus methods

12

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 l b d t i il t – Can also be made on certain milestones – 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

Architect?

• Who must review and approve Application for Payment (e.g., 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)

• Procedure for Progress Payment

– Set forth in detail what the Contractor must do in order to get paid during the job A li ti f P t

g y ( )

– Application for Payment

• 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

• f 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 Th t C t t h id it S b t t /S li f W k th t th – That Contractor has paid its Subcontractors/Suppliers for Work that the 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

• 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

St t t li it ti t b id d

• Statutory limitations must be considered

– 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 Circumstances may include:

• withheld. 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

• f 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 h ld t ik i i hi h id th t th i i l i

• Owner should strike any provisions which provide that they are waiving any claims

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 i O t h id f fi i l t ffi i t t th – Require Owner to show evidence of financial arrangement sufficient to cover the 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 C t i t t th l t t i t l th ti i f t

• Courts interpret these clauses to restrict only the timing of payment

– 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

• Non-payment of Subcontractors can result in liens being filed against the Owner's

Subcontractor is Not Paid (1)

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

– Require Contractor to satisfy or bond off liens within a specified time period and

Subcontractor is Not Paid (2)

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:

C fti E f bl P t P f T i ti Crafting Enforceable Payment, Performance, Termination and Damages Provisions Melissa Dewey Brumback R d l Li PLLC Ragsdale Liggett PLLC Raleigh, North Carolina 919.881.2214 mbrumback@rl-law.com

t ti l NC

My blog: www.constructionlawNC.com

32

TODAY’S TOPICS TODAY S TOPICS

• Scope of Services

Scope of Services

• Duties of Parties

M difi ti t P j t

• Modifications to Project
• Termination Issues

33

Discuss Performance Expectations D i N ti ti During Negotiations

• - 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

C ti ?

• Compensation?
• 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 id f dditi l it d i Is A/E paid for additional on-site admin where contractor delays project? How will delays be determined?

38

Scope of Services Scope of Services

Time considerations Time considerations “Ti i f th E ”

• “Time is of the Essence”
• Liquidated damages?

39

Scope of Services Scope of Services

Contingencies & Assumptions Contingencies & Assumptions N f diti (i b d il)

• No unforeseen conditions (i.e., bad soil)
• 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

• f 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

• r rejection of the Revised GMP. If Owner accepts the Revised GMP, the
• r 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. . .”

42 (EJCDC, Ex. 1, Alloc of Risks, Form E-500)

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

C f l f O t ti

• Conform role of Owner representative
• Establish schedule & how delays handled
• Determine procedures for changes

44

Owner’s Duties Owner s Duties

Access Access

• occupied buildings; University settings

lf f d k t i t f

• self-performed work cannot interfere

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

th A hit t d t i th t th diff t i ll d the Architect determines that they differ materially and cause an 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

• f 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 id d i A ti l 15

47

provided in Article 15.

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 t t ill t b ibl f th contractor will not be responsible for the consequences of defects in the plans and

• specifications. This responsibility of the owner is not
• vercome by the usual clauses requiring builders to visit
• vercome 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 ltimate liabilit !

50

Designer bears ultimate liability!

Designer’s Duties Designer s Duties

Owner’s representative Acts as Owner’s representative during t ti construction 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

52

Work.

Designer’s Duties Designer s Duties

• Designer should spell out in detail what

Designer should spell out in detail what

• bservation 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 b d l d li ill b

• bserved; only random samplings will be
• bserved at any such field visit.”

53

Designer’s Duties Designer s Duties

• Review and certify Applications for

P t Payment

• Reject work that does not conform to

Contract

• Review, approve, take appropriate action

, pp , pp p

• n 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

• r 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

G d k hi

• Good workmanship

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

f th C t t D t

• f the Contract Documents
• the Work will be free from defects

59

Contractor’s Duties Contractor s Duties

Site Supervision Site Supervision C t t ibl f b t t Contractor responsible for subcontractors

• should have similar duties/responsibilities

in subcontract

60

Contractor’s Duties Contractor s Duties

Scheduling & work-force D t to create & keep sched le

• Duty to create & keep schedule
• 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

• f 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. U f d h h ‘hi h t ’

• Use of words or phrases such as ‘highest,’

‘best,’ or ‘most qualified’ increases the t d d f f t d standard of performance expected.

67

Duty to Disclose

68

Modification to the Construction Plans & Specifications

69

the Contract "Change" Clause

• Mechanism for change
• Mechanism for change
• Allows

Flexibility

• Allows
• In standard contracts

Flexibility

In standard contracts

70

Contracts Compared

71

Changed Terms Agreed to?

No Yes EJCDC? No No Yes Change Order

72

Change Directive

When terms cannot be agreed upon

AIA A201 at 7.3.3: C t ti Ch Di ti (CCD) Construction Change Directive (CCD)

• mutual acceptance of lump sum

it i t t d i t t

• unit prices stated in contract
• cost in "a manner agreed upon"

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When terms cannot be agreed pon (Partial Pa ment) upon (Partial Payment):

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

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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

77

relief

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

79

when contract is negotiated

Delays & Scheduling Delays & Scheduling

80

Excusable Delay

N t f bl

• - Not foreseeable
• - Unusual weather

Act of God

• - Act of God

What docs will be What docs will be required? NOAA? Time extension

• nly

81

• nly

Compensable Delay

C d b F lt h d id ?

• Caused by Fault: who decides?
• 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

Termination & Suspension Termination & Suspension

84

Termination: the Ultimate Threat Termination: the Ultimate Threat

• Non-breaching party can terminate without

penalty F C t t i l d t b i id

• For Contractor, includes not being paid
• For Owner, includes Contractor’s failure to pay

b f il t t ff j b k hi i subs; failure to staff job; workmanship issues T i ti l i iti Termination: losing proposition 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 C i ( t ) Convenience (cont.)

U i t f itt ti t t

• Upon receipt of written notice, contractor

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 i ( t ) Convenience (cont.)

• 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 ’ D f lt Owner’s Default

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

89

y y p

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; f il t b t t –fails to pay subcontractors; –disregards laws; –fails to comply with plans & specs –Otherwise is guilty of substantial breach of

91

Otherwise is guilty of substantial breach of a provision of the Contract Documents

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

92

Balance] = Amt Contractor owes in damages

Owner’s Proper Termination of C t t f C Contractor for Cause Prior to termination, MUST give a 7 day written notice to the contractor. (Time can be

adjusted upfront.)

Aft t i ti th i itt d t After termination, the owner is permitted to 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

• f the completed work would be

destroyed to undertake the repair

94

y p

M li D B b k Melissa Dewey Brumback 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 y g 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 Principal Stephanie L. O Rourke, Stephanie L. O Rourke, 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 f l h b ”

• ut of or relating to this Subcontract…”

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COKINOS BOSIEN & YOUNG

• Damages specified in a contract to be paid in the event of an unexcused

Liquidated Damages

• Damages specified in a contract to be paid in the event of an unexcused

delay

• Typical Clause:
• Typical Clause:

“If subcontractor should default in performance of the work or otherwise commit any act which causes delay to the prime contract work, Subcontractor shall be liable for all losses, costs, expenses, liabilities and damages, including p g g consequential damages and liquidated damages, sustained by Contractor, or for which Contractor may be liable to Owner or any other party because of Subcontractor’s default.”

• Make sure you comply with notification requirements of delays and
• therwise document any work that falls outside the schedule you are

required to adhere to

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COKINOS BOSIEN & YOUNG

required to adhere to

Liquidated Damages

• Liquidated damages clauses may or may not be
• Liquidated damages clauses may or may not be

enforceable

• Depends on the state

p

• Check with legal counsel
• Damages must be reasonable and be a fair

assessment of what damages truly would have been Li id t d d t b d lt

• Liquidated damages cannot be used as penalty

102

COKINOS BOSIEN & YOUNG

“No Damage for Delays” Clause

• Clause that provides that in the event of delay the delayed party will
• Clause that provides that in the event of delay the delayed party will

be compensated only with an extension of time, but no monetary compensation

• Extent of risk taken in a contract with a "no damage for delay"
• Extent of risk taken in a contract with a no damage for delay

clause cannot be overemphasized

• For owners
• For general contractors

For general contractors

• For subcontractors
• Construction delays, and the damages that result, are the cause of

most claims in the construction industry most claims in the construction industry

• "No damage for delay clause" can be, and frequently is used to

thwart any attempts to collect damages as a result of delays

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COKINOS BOSIEN & YOUNG

“No Damage for Delays” Clause

• Will begrudgingly give time extensions
• Will not want to pay true cost for delay

f

• If any delay damages at all, will try to limit them to

Actual Cost

• no inefficiency claims

no inefficiency claims,

• no actual vs. as‐built analysis,
• no home office overhead,
• limited extended general conditions

104

COKINOS BOSIEN & YOUNG

“No Damage for Delays” Clause

• Clearly enforceable in most jurisdictions
• Varies by state
• Example: Colorado and Oregon maintain

statutes which prohibit the enforcement of these clauses on public works projects

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COKINOS BOSIEN & YOUNG

“No Damage for Delays” Clause

• These clauses are often used in proprietary
• These clauses are often used in proprietary

subcontract forms to declare that the General Contractor has no liability to the Subcontractor for d l delays.

• Example:
• If Subcontractor is responsible for any delays in the

If Subcontractor is responsible for any delays in the time and sequence of the schedule, Subcontractor shall pay Contractor for all costs and damages suffered by Contractor as a result of such delays, suffered by Contractor as a result of such delays, including any damages against Contractor under the Contract Documents.

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COKINOS BOSIEN & YOUNG

“No Damage for Delays” Clause

Example cntd: Example cntd:

• In the event that Subcontractor’s performance of the Work

is delayed or interfered with, for any reason and for any period of time by acts or omissions of Owner Contractor period of time, by acts or omissions of Owner, Contractor

• f other subcontractor, Subcontractor may request an

extension of time for performance of the Work, but shall not be entitled to any increase in the Subcontract price or not be entitled to any increase in the Subcontract price or to damages or additional compensation as a consequence

• f such delays or interference, except to the extent that the

Contract Documents entitle Contractor to compensation for p such delays, and then only to the extent of any amounts that Contractor may, on behalf of Subcontractor, actually receive from Owner for such delays.

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COKINOS BOSIEN & YOUNG

“No Damage for Delays” Clause

• Most of the case law from all jurisdictions has shown
• Most of the case law from all jurisdictions has shown

that the application of these exceptions to a "no damage for delay" clause is extremely limited

• Exceptions to enforceability:
• (1) fraud, misrepresentation, or bad faith;
• (2) active interference by the owner with the contractor's
• (2) active interference by the owner with the contractor s

performance;

• (3) unreasonable delay, particularly delay which amounts

to abandonment of the project; and to abandonment of the project; and

• (4) delay not intended or contemplated by the parties to

be governed by the provision.

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COKINOS BOSIEN & YOUNG

Dispute Resolution Terms

• Clearly define the procedures to be followed when a dispute arises
• Identify and set forth in detail the dispute resolution mechanism(s) to be used

– Mediation – Arbitration – Litigation

• Identify prerequisites to Mediation, Arbitration or Litigation

– Informal Discussions/Direct Discussions – Determination by Initial Decision Maker (IDM) or Architect – Dispute Mitigation Procedure such as Project Neutral or Dispute Review Board (DRB)

• Identify law to govern dispute and venue where dispute is to be resolved
• Identify law to govern dispute and venue where dispute is to be resolved
• Provide that Work must continue during dispute
• Notice provisions should be closely followed
• Carefully document disputes so that they are preserved and so that Lien and Prompt Payment Act

y p y p p y claims are not established by non-payment

• If using a form contract, be mindful of and understand its dispute resolution provisions
• Form dispute resolution provisions can and should be modified

109

Comparison of AIA and ConsensusDOCS Di t R l ti P i i Dispute Resolution Provisions

AIA A201 ConsensusDOCS 200

Litigation is default Parties must explicitly choose arbitration by checking appropriate box A third party (IDM or Architect) must assist in No express default for litigation Parties choose ADR mechanism No initial decision requirement prior to mediation, arbitration or litigation A third party (IDM or Architect) must assist in dispute resolution process Initial decision from IDM or Architect is to be issued prior to proceeding to mediation, arbitration

• r litigation

arbitration or litigation Require “direct discussions” first between representatives and then between senior executives before submitted to dispute mitigation and/or resolution procedures

• r litigation

Mediation is prerequisite to arbitration ADR process administered by AAA and/or resolution procedures Parties can choose a Project Neutral or Dispute Review Board as dispute mitigation procedure Does not specify an organization to administer ADR ADR process Construction Industry Mediation Rules of AAA apply to mediation/arbitration unless parties agree otherwise 110

Mediation

Advantages Disadvantages Relatively quick May not be suitable where parties require Generally, inexpensive Confidential Focuses on the interests of the parties a court judgment (e.g. injunction) May not be appropriate in fraud cases Potential for exposure of legal strategies Focuses on the interests of the parties (business relationships, external pressures, reputational issues, etc.) and not just their legal rights and weaknesses to other side Provides parties with the opportunity to appraise their case with a mediator in confidence Process is conciliatory and outcome Process is conciliatory and outcome consensual Procedure is flexible to suit parties and dispute

111

Topics to be Addressed in Mediation Provision (1) Mediation Provision (1)

• Prerequisites to Mediation (Direct Discussions, Initial Decision, etc.)
• Mandatory or Voluntary

S t ifi ti f f

• Set specific time frames for:

– Making demand for mediation – Selecting mediator – Conducting mediation Conducting mediation

• Mediation Forum

– Entity/Person(s) that will administer the mediation

• AAA, JAMS or similar service
• Court
• Private

112

Topics to be Addressed in Mediation Provision (2)

• Mediator

– Mediator selection

• Parties agree on mediator

Mediation Provision (2)

Parties agree on mediator

• IDM or Architect select mediator if parties cannot agree
• May want to identify potential mediator in advance of dispute in contract
• Court appointed

Court appointed – Requisite experience of mediator

• May want to require some experience with construction disputes or other

expertise relevant to project

• May want to require substantial mediation experience
• Venue for mediation
• Required attendance at mediation

– Person with authority to settle dispute should be in attendance – Persons (such as project manager or party representative) that were involved in the matter in dispute should be in attendance

• Costs associated with mediation should be shared evenly

113

• Costs associated with mediation should be shared evenly

Arbitration

Advantages Disadvantages Advantages Disadvantages

More informal than litigation Faster and cheaper (generally)* No right of appeal (except under very limited circumstances) Arbitrator(s) likely to be knowledgeable in construction law Parties have more control over process and schedule No right to complete discovery Possibility of unknown bias and competency of arbitrator(s) No jury schedule Parties control amount of discovery, if any Exclusionary rules of evidence do not apply; evidence comes in as long as relevant and l ti No jury Arbitrator(s) may make award based on broad principles of justice and equity and not on rules of law and evidence or the contract language non-cumulative Can be confidential because no public hearing or public record Less exposure to punitive damages and run away g g Very high possibility of compromising or splitting the baby awards Less likely to get fees and punitive damages p p g y juries Award is final; normally, no right of appeal No reasoned opinion unless asked for Scheduling on consecutive days can be a challenge 114

* Arbitration is commonly thought to be faster and cheaper than litigation, but in reality it can cost just as much, if not more, than litigation due to the number of parties, arbitrators, amount of permitted discovery, complexity of the issues, and arbitration fees

Topics to be Addressed in Arbitration Provision (1) Arbitration Provision (1)

• Prerequisites to Arbitration (Direct Discussions, Initial Decision, Mediation, etc.)
• Set specific time frames for:

– Making demand and responding to demand – Selecting arbitrator(s) – Conducting discovery Conducting arbitration proceedings – Conducting arbitration proceedings – Issuance of award

• Arbitration Forum

– Entity/Person(s) who will administer the arbitration y ( )

• AAA, JAMS or similar service
• Private
• Court

– When selecting Arbitration Forum pay close attention to the forum’s costs, arbitration panel members, and rules – If decide to privately administer arbitration, consider adopting AAA, JAMS or similar service’s rules

115

Topics to be Addressed in Arbitration Provision (2)

• Arbitrator(s)

– Number of Arbitrators should be an odd number, such as 1 or 3 – Arbitrator(s) Selection

( )

• Parties agree on all arbitrators
• Parties each select 1 arbitrator and the selected arbitrators appoint a third as

chair

• May want to consider identifying potential arbitrators in advance of dispute in
• May want to consider identifying potential arbitrators in advance of dispute in

contract – Requisite experience

• May want to require a certain number of years experience in construction

law or some other expertise relevant to project

• May want to require case management expertise
• Venue for arbitration

Di P t

• Discovery Parameters

– Limit document and deposition discovery

• Set specific number for each

R i di b di tl l t d t i

116

• Require discovery be directly related to issues

– Set tight timeframes for completion of discovery

Topics to be Addressed in Arbitration Provision (3)

• May want to provide for dispositive motions
• Arbitrator(s) Award

– Consider remedy parameters

( )

Consider remedy parameters

• High/low limitations
• Baseball arbitration
• Elimination of punitive damages
• Award of attorney’s fees to prevailing party
• Award of arbitration fees and costs to prevailing party

– Consider requiring the arbitrator’s decision to comply with applicable substantive law law – Require arbitrator(s) to issue a reasoned opinion – Set time-frame for issuance of award

• May want to provide for consolidation of arbitrations and joinder of other parties

117

Topics to be Addressed in Arbitration Provision (4)

• Standard for Review

– Consider providing for an appeal to an appellate arbitrator or to Court

( )

• Arbitration Costs

– Generally, parties share evenly the arbitration costs – Consider requiring the losing party to pay all arbitration costs (forum fee, q g g p y p y ( arbitrator(s) costs, etc.) – Consider requiring the losing party to pay all legal costs (attorney’s fees, etc.)

118

Litigation

Advantages Disadvantages

Large body of substantive law controls dispute May take a long time to get to trial Set procedures exist that govern dispute Parties do not have to create their own rules Judge must be impartial Minimal limitations to discovery (“paper war”) Costly legal fees Schedule controlled by judge and courthouse Right to appeal Trial on consecutive days Judge will more strongly police the parties and counsel Lack of finality due to right to appeal Trier of fact (judge or jury) may not have any knowledge of construction law and issues Ability to appeal award based on procedural counsel Judge/jury more likely not to split the baby More likely to get punitive damages (although still hard to get) Ability to appeal award based on procedural issues Proceedings are open to the public Judges hate construction cases because they lack e pertise lack expertise 119

Topics to be Addressed in Liti ti P i i Litigation Provision

• Prerequisites to litigation (Direct Discussions, Initial Decision, Mediation, etc.)
• Choice of law and choice of venue clause
• May want to consider waiving trial by jury
• May want to consider adding a clause that prevailing party is entitled to legal costs

(attorney’s fees, court costs, etc.)

120

Other Dispute Resolution Mechanisms (1)

• Parties should feel free to fashion whatever dispute resolution mechanism works for

them

• Research ADR options in applicable jurisdiction
• Other options utilized in the construction context include:

– Standing Project Neutral:

• One or more individuals identified in construction contract (or appointed

later) to be on-call to a construction project to assist the parties if a dispute later) to be on call to a construction project to assist the parties if a dispute

• arises. The Standing Project Neutral can assist the parties in agreeing upon

dispute resolution procedures, facilitating discussions/negotiations, mediating disputes, and rendering recommended proposals for settlement. – Standing Dispute Review Board:

• Group of individuals, usually with both substantive and procedural

experience, identified in construction contract (or appointed later) to hear all disputes and render non-binding determinations on a construction project.

121

Other Dispute Resolution Mechanisms (2)

– Expert Determination:

• Expert appointed by the parties to resolve dispute usually over highly

technical issue. The appointment of the expert, his/her terms of reference, technical issue. The appointment of the expert, his/her terms of reference, and his/her powers are generally addressed in separate agreement. – Mini-Trial/Mini-Arbitration:

• Non-binding mini-proceedings, wherein judge(s) or arbitrator(s) issue non-

g p g j g ( ) ( ) binding decisions based on limited evidence and arguments by counsel. Matter is usually submitted via affidavits, expert reports and/or memoranda. – Private Judging:

• There are three general types of private judging: (1) a temporary judge, with

the agreement of the parties and approval of the court, serves all judicial functions required at the trial level, including rendering a judgment, (2) a private judge, appointed by the court, acts as a general referee to take evidence and render a report to the court which the court may adopt as a judgment, and (3) a special master, appointed by the court, performs a specific judicial function such as controlling discovery or handling accounting

• r other technical evidence.

122

Other Dispute Resolution Mechanisms (3)

– Med-Arb:

• Parties undertake mediation. If it is not successful, the mediator changes

roles and arbitrates the same dispute. – Arb-Med:

• Parties undertake arbitration. Before the award is delivered, the parties

undertake mediation to attempt to resolve the dispute by agreement. If a settlement is reached, then the award is never handed down. If no settlement is reached within a set time limit the award is handed down and settlement is reached within a set time limit, the award is handed down and binding on the parties. – High-Low Arb:

• Parties establish, prior to the hearing, a range in which the arbitration award

must be lf the award is between the high and low figures then it is final If must be. lf the award is between the high and low figures, then it is final. If the award is above the pre-set maximum, it is adjusted to the agreed-upon high figure and if the award is below the pre-set minimum, it is adjusted to the agreed upon low figure. Parties often agree to not inform the arbitrator

• f the high-low range.

123

Other Dispute Resolution Mechanisms (4) Other Dispute Resolution Mechanisms (4)

– Baseball Arbitration:

• The arbitrator(s) are asked to decide which party in dispute has the more

reasonable position. Whichever side the arbitrator(s) take, the arbitrator(s) are required to accept that party’s position, without revision.

124