Developing a Contracting
Rights and Minimizing Risk
Greenleaf and Julie Earnest
Having been involved in hundreds of construction disputes, we are often not surprised by the level of attention (or the lack thereof) that glazing subcontractors pay to the terms and conditions in their contract documents. Although usually well-focused on the scope of the work, plans and specifications, contractors often overlook key contract provisions, which, in the long run, could spell financial disaster. This article is the first of a three-part series that will discuss some of the contractual and practical concerns glazing contractors should consider to help minimize the risk of potential claims and to preserve their rights, should they encounter a claims situation.
The concept of that “he who controls the money controls the contract” language is not lost. Typically, the lower you are on the contractual “food chain” the more difficult it is to negotiate contract language in your favor. This does not mean the negotiation effort should be abandoned, but rather that you should stand firm on certain contractual clauses that could cause a serious financial burden if certain events are triggered.
One of the keys to minimizing risk and preserving claims is establishing a contracting policy. Most contract glaziers firms either do not have a contracting policy or fail to adhere to one.
A contracting policy simply establishes a firm position on certain contractual clauses the company either absolutely accepts or absolutely rejects (i.e. “deal breakers”). Before beginning to adopt such a policy, there needs to be a full understanding of the impact certain contract clauses could have on your company. We suggest that the company decision makers sit down with an experienced construction contract attorney and consider the more important contract clauses. This can be done in a role-play situation that considers a worst-case scenario on a project. We have provided some considerations in a checklist format (see page 10) that sets out some of the more important contract clauses that may be encountered in a construction contract. The goal here is to work through a dialogue concerning these clauses so that each company can come to a decision about the clauses that are most likely to leave the subcontractor open to financial risk. The attorney should understand the myriad of clauses so that he/she can play the role of devil’s advocate (a natural occurrence for attorneys). The decision makers can then come to a consensus on a number of “deal breakers,” which the subcontractor either requires in every contract or requires to be excluded from every contract. For example, can one afford to accept liability for consequential damages on a project, which, if delayed, could cost the owners millions in lost rent/profits? Will the contractor indemnify for the negligence of others? The discussion of these issues, as well as how they apply to your particular niche in the construction market, should be discussed and weighed against the financial realities of drawing a line in the sand.
Make a Commitment
The final step in the process is deciding upon and committing to a company policy and putting it in writing. All of your management personnel (including project level management) should be apprised of this policy, and the policy should be considered mandatory.
Exceptions to the policy should be considered by the decision makers on a case-by-case basis.
We have seen successful contractors in business for many years go broke over bad decisions on the front end of projects. Developing a contracting policy and sticking to it will help you minimize that risk.
Contract Policy Considerations
Recitals (be wary of recitals that include warranties you have not made).
Scope of Work (make sure it matches your proposal or incorporates your proposal).
- Lien waivers (attach acceptable form “to extent of payment only.” Reserve claims and
- Withhold payment (be careful that this provision is not overly broad; it should still allow for payment of undisputed sums);
- Payment to subcontractor (establish mandatory pay time or right to stop work);
- Pay when paid (check for enforceability of provision, establish fixed payment terms if possible);
- Overtime (allow for collection of overtime premiums if overtime requirement is not your fault);
- Pursue payment (need the right to immediately seek dispute resolution if unpaid);
- Nonpayment (need the right to immediately stop work).
- Force majeure (do not accept risk for same; make sure only traditional force majeure events are included);
- Suspension of work (unreason-able time requires termination/payment);
- Time extension requests (should not be the sole remedy for delay; should be allowed compensation too);
- Delay damages (should be allowed for delay caused by others);
- No damage for delay (check for legal enforceability; resist this clause).
Flowdown (review all higher tier contracts/documents that are incorporated in your contract and do not warrant that you have reviewed and agree to documents that you have not seen).
- Cooperation of subcontractor (all schedules should be “mutually agreeable,” not force fed; resist language that the schedule can be adjusted without compensation and beware of forced supplementation and the costs that accompany the same, i.e. forced schedule issues).
- Authority to issue change orders (pay attention, try to make authority for same broad);
- Written change orders (get written change order before performing work);
- Equitable adjustment (be careful that profit and overhead percentages are not limited);
- Back charges (be careful of unilateral assessments without objection and the inclusion of unreasonable mark ups).
Review Drawings and Specifications (don’t warrant and accept all drawings and specifications, just your scope).
- Authorized representative (be sure you communicate in writing with the people designated in the contract).
Design/Build (be careful of assuming design responsibility when not designing).
Submittals (be sure that submittal review time is reasonable and set forth in writing).
Substitutions (be careful of accepting design responsibility for “approved” substitutions).
Liens (strike any language limiting lien rights or indemnifying unless you are “timely and properly paid”).
Insurance (get the required scope of coverage to your agent and make sure contract language matches your coverage)
- Builders risk (usually the owner’s responsibility, but make sure the general contractor agrees to pass through benefits of coverage);
- Deductibles (be careful of excessive deductibles and who pays it);
- Waive subrogation (always seek mutual waivers of subrogation).
Defective Performance (limit remedy to correcting work, not other “add-ons”).
Warranties (limit to one year from substantial completion unless agreement on special warranty, products etc. that are warranted by your supplier).
Disputes (make sure you have rights as a separate “party,” not a bystander and be careful of assuming any portion of the general contractors/owners costs and attorneys fees).
- By glazing subcontractor (should be allowed at least for nonpayment or unreasonable suspension of work);
- Termination of contractor (read and understand this provision);
- Termination for convenience (should include some profit).
Rick Greenleaf is one of the founding partners of the Colorado law firm Berg Hill Greenleaf & Ruscitti LLP. Since the 1980s his practice has been exclusively focused on providing advice and representing clients involved in the construction industry.
Julie Earnest is an associate with the firm specializing in construction law.
Visit their website, www.bhgrlaw.com.
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