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It’s springtime in the construction industry, my friends. Banks are lending again, optimism has returned and the private, non-residential sector is heating up. Good news all.
But before you mobilize the yellow steel to your next jobsite, the deal’s gotta get done. And so ’tis the season of contract negotiation — which, if you’re not careful, could lead to the season of your discontent. That’s because some crazy stuff might be lurking in the document the party above you in the contractual chain wants you to sign.
Just ask Birmingham, Alabama construction attorney Burns Logan, the inspiration behind this post and its cheeky title:
There’s only one way to suss out the crazy in your construction contracts, and that’s by carefully reviewing them, as Sage Construction reminded us this week:
One of the three reasons cited in the linked blog post is “owners are pushing risk to GC’s.”
Tell me about it!
I spent last Thursday and Friday at a continuing legal education program offered by the Fidelity & Surety Law Committee of the American Bar Association’s Tort Trial & Insurance Practice Section (“TIPS”) at the Waldorf-Astoria Hotel in Manhattan.
One of the many highlights of the excellent two-day program was a panel discussion on Thursday featuring general counsel and risk managers from five large general contractors: The Walsh Group, Kiewit Corp., Turner Construction Co., Skanska USA and Granite Construction Inc.
During that panel discussion, Mr. Kenneth M. Smith, Assistant General Counsel of Granite, spoke about a topic near and dear to my heart: in-project claims prevention. Mr. Smith spoke about how claims prevention begins with the contract review process, which should feature a thorough identification and analysis of key contract clauses to ensure an appropriate allocation of contract risk between the parties. Legal counsel should follow that review with training of key project staff to ensure that they understand all key contract terms, such as claim notice provisions.
Mr. Smith then spoke about his company’s implementation of monthly impact reports to and/or conference calls with legal counsel to provide a periodic check-up on the health of a project. Are an excessive number of change orders creating a risk of cumulative impact damages? Is the project on budget? If not, in which cost codes can the cost overruns be found? Is the project falling behind schedule? Are there personality conflicts on-site that are preventing effective communication between and among project participants?
The purpose of getting answers to these types of questions on a periodic basis is threefold.
“Time is money.” Sure, it’s an overused cliché. But as construction industry participants know better than just about anyone else, there’s a whole lot of truth in those three simple words. When projects run late, completion costs invariably rise, frequently resulting in the assertion of delay claims (and counterclaims. And third-party claims. And cross-claims … you get the picture). “No damages for delay” clauses in construction contracts seek to manage loss exposure arising from delay by limiting a contractor’s remedy for delay to a time extension only. A typical “no damages for delay” clause might read as follows:
The Owner shall not be liable to the Contractor and/or any Subcontractor for claims or damages of any nature caused by or arising out of delays. The sole remedy against the Owner for delays shall be the allowance of additional time for completion of the Work, the amount of which shall be subject to the claims procedure set forth in the General Conditions.~ Werner Sabo, Legal Guide to AIA Documents, 2008 (5th ed.)
Such clauses aren’t always enforceable. In fact, under North Carolina statutory law, “no damages for delay” provisions are unenforceable in prime contracts between public owners and general contractors. See N.C. Gen. Stat. § 143-134.3. But in all other cases where such clauses are enforceable, do they provide an impenetrable defense against increased costs arising from project delay? Not necessarily. Continue reading