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Key Contract Provisions � Schedule � Change Orders � Deadlines � Indemnification � Insurance � Payment � Deficiencies � Termination � Dispute Resolution � Prohibited Terms in Wisconsin
Schedule � Delays and extensions of time � Circumstances justifying extensions of time are usually quite limited � Owner-caused delays (such as failure to make decisions promptly, delays by Owner’s own forces, etc.) � Unexpected or hidden conditions (e.g., soil, hazardous materials, etc.) � Unusual weather conditions � Delays in release of plan/bid packages � Force majeure events (e.g., acts of God, fire, war, etc.)
Schedule � Subcontracts usually consistent with, or incorporate, contract between General Contractor and Owner � Subcontractors should be aware of how/when General Contractor can change subcontractor’s schedule � Subcontractors should be aware of what happens when subcontractor is delayed by General Contractor or by other subcontractors � Pay attention to deadlines for claims (discussed in following section)
Schedule � Remedies if behind schedule � Owner’s right to require General Contractor (or General Contractor to require subcontractor) to work overtime, add labor, expedite deliveries or take other actions to catch up, at General Contractor’s (or subcontractor’s) cost. � Owner’s (or General Contractor’s) right to take over all or part of the work. � Termination?
Schedule � Liquidated vs. consequential damages � Liquidated = a fixed amount for each day the project is delayed beyond the completion date. � Consequential = an open ended amount of delays which could be sought to recover damages that indirectly flowed from a breach of contract that caused a delay. � Standard AIA and ConsensusDocs contracts contain mutual waiver of consequential damages. � Some contractors/sureties prefer liquidated because known $ of risk. � Owners often want consequential damages in order to potentially recover for losses due to delay in project completion. � Likely get passed along to subs if General Contractor agrees to contract term.
Change Orders � Changed conditions � Site conditions � Hazardous materials � Changes in plans or specifications � Additional work added to scope � Delays
Change Orders � Usually must be in writing, signed by both parties, prior to work being performed � Risk in proceeding without signature � Try to minimize risk by documenting in some way: � E-mail confirming direction, notice of extra � Meeting minutes, project log � General Contract and/or Subcontract may have deadline for submission of change order requests
Deadlines � Need to carefully review contract � Shop drawings/submittals � Requests for payment � Date for submittal/payment � Change order requests � Most often there is a deadline for when change order must be requested after event occurs. � Be aware of any documentation requirements that must be met.
Deadlines � Claims � Contract should specify deadline for claims for additional time/money. � A201 Section 15.1.2 requires that general contractors’ claims be initiated within 21 days after occurrence of the event giving rise to the claim or after the claimant first recognizes the condition giving rise to the claim, unless different deadline is specified. � A401 Section 5.3 requires that subcontractors’ claims be made by the time specified by the contract, but no later than two (2) working days before the time the claim is due from the general contractor under the general contract (see above). � Statutes of limitations. � May be waived if not raised in writing prior to submitting final pay request.
Indemnification � What is it? � Requiring a party to reimburse the other party under certain circumstances. Used to allocate risk to party most able to control it. � Often indemnity provisions hidden in several places: � Broad indemnity � Indemnity from liens, etc. � Indemnity from hazardous materials
Indemnification � Look at: � When the indemnity obligation is triggered � Loss � Claim by a third party � Because of: � Anything related to the work � Failure to perform in accordance with contract � Specific limited circumstances (discovery of hazardous materials, etc.) � Who is being indemnified � Often includes persons or entities other than the contracting party. � Architect, general contractor, owner, other contractors/ subcontractors, etc.
Indemnification � Look at extent of obligations � Try to limit to own actions/omissions (or those of a person or entity who you are responsible for) � “to the extent” – usually indicates a proportional responsibility � Exceptions referring to the other party’s “sole negligence” would seem to require you to cover even when the other party was partly at fault � Some states dictate whether/how much liability can be shifted to another party
Insurance � Coverage � Review with agent to confirm you have coverage for required events and amounts: � Contractual liability (i.e., indemnity terms) � Additional insured provisions � Mold � Proof of Insurance
Insurance � Waiver of subrogation � Subrogation is the ability to step into the insured’s shoes and make a claim against a third party � Waiving it means an insurer who pays out a claim may not have the right to seek reimbursement from the third party allegedly liable for the loss � Some insurers will refuse to waive � Consistency � Make sure contracts on one project are consistent
Payment � Timing of Payment � Contracts typically take one of two approaches: � Payment due within X days of General’s receipt of payment from Owner � Provided pay application received by X date of a given month, then payment due by end of following month � “Pay when paid” is a lawful provision � Retainage � Percentage of retainage varies, but 10% is typical on private projects � Retainage typically not released until final payment and acceptance of project by Owner � Subcontracts may require warranty information, O&M manuals, etc. to be submitted before retainage due to subs
Payment � Subcontractor typically has contract obligation to timely pay its subcontractors and suppliers, even without payment from General � Could result in liens filed against project � Subcontractors should consider flowing- down payment provisions
Payment � General’s remedies: � Contract typically allows General to withhold payment if subcontractor not paying its subs and suppliers � Declare subcontractor in default of contract � Joint or direct payment agreement
Payment � Liens can have a critical impact on the project: � Owner/Lender will likely withhold payment on draw request until lien is cleared up � Added costs to resolve � Statute requires general contractor to defend Owner in any lien action that is not the result of Owner’s failure to pay � Subcontract will, in turn, typically require sub to indemnify and defend general � Both general contracts and subcontracts also typically require that liens be bonded-over (statutory procedure to follow)
Payment � Price Escalation Clauses � Allow adjustments to a contract price based on certain specified events (e.g., labor or material costs rising beyond a specified amount) � Should clearly define the labor or materials in question, specify when price adjustments are to be made, and clearly describe the process (including baseline, triggering threshold, method of adjustment, any upper cap, and notice and documentation requirements).
Deficiencies � Failure to perform as required � May include: � Deficiencies in the work or defects in materials provided � Typically General and Architect/Owner have authority to reject work � Failure to comply with the project schedule � Refusal to timely complete punchlist work
Deficiencies � Contractual Notice and Cure Requirements � Contracts/Subcontracts often require advance written notice and right to cure � Make sure notice/cure timelines are realistic � Make sure to follow required manner of delivering notices (e.g., certified mail, etc.) � Timely respond, in writing, to any deficiency notices
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