Category Archives: Contracts

The Architect Has No Clothes! (or, why subconsultant contracts matter)

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Caesar statute

Everyone is probably familiar with the story the Emperor’s New Clothes.  There, the Emperor is not wearing anything but his birthday suit, and yet everyone is afraid to tell him so.  Today’s lesson is how to avoid being the clothesless fool by making sure you are covered with appropriate contracts with your subconsultants.

Previously we have talked about the need for a written contract on your construction projects.  Usually, the focus is on the contract agreement with the Project Owner.  Just as important, however, is the contract with your subconsultant.

A recent case brought to the attention of the E&O carrier Victor O. Schinnerer demonstrates what can happen when you have a signed contract with the Project Owner, but your subconsultant contract is not yet formalized.

The architect’s subconsultant agreement had been revised by the subconsultant to include the following language: 

Subconsultant’s maximum aggregate liability under this Agreement shall not exceed $250,000.

Having been warned of the dangers of limiting the liability of a subconsultant without having a corresponding limitation in the prime agreement, the architect attempted to further negotiate with the subconsultant. The subconsultant agreed to increase their liability to $500,000 but said “I am told by our legal counsel that based on the work we are doing and the amount of our fee, $500,000 is our limit.  

Work on the project had already started, but the subconsultant was withholding their design documents until they received a signed contract.  At that point, the architect turned to his E&O carrier for advice.

His options were limited at that point, and the architect was left with weighing the risk of a claim in excess of $500,000 versus the risk of a delay claim from the Project Owner if he took time to seek out a new subconsultant.  Essentially, the architect had no clothes.

Keep this lesson in mind the next time you are negotiating with subconsultants about a planned project.  You should ensure that their contract has the same obligations that you have in your contract with the Owner.

Have you experienced a situation where you were contracted to perform, but your subconsultant refused to sign a contract with similar terms? How did you handle it?Drop me a line in the comment section.

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Photo: (c) Mary Harrsch via Flickr/Creative Commons License.

Surety Bonds & Baseball (Guest Post)

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ballpark construction surety issuesIn lieu of a Tuesday Tip, today we have another Guest Post, this time by JW Surety Bonds, an A+ BBB-rated surety agency outside Philadelphia that sells surety bonds nationwide.

Take Me Out to the Surety Bond Game

Nothing says summer like heading to the ballpark for nine innings of cheering, athleticism and hotdogs. While the excitement of professional sporting events may not immediately bring to mind the less-thrilling (yet highly important) world of surety bonds, the two are intricately tied together.

Most obviously, multi-million contract bonds start the process of any new stadium building project. As stadiums get more and more complex, each trying to outdo the previous contender, the financial strain put on contractors becomes more acute. Thorough research is needed by surety companies to weed out wanna-be firms from those with the actual resources and know-how to erect a high definition, 4-D, interactive scoreboard the size of theChryslerBuilding. Team owners need to know their pampered players will have a locker room to call home by the time opening day rolls around, or risk the ire of sports-deprived fans.

Beyond the general infrastructure, bonds are also required to secure everyone’s favorite part of a sporting event: the beer vendors. Corporate catering services or individual vendors hired to work in a stadium may be required to obtain liquor tax bonds as a promise to the government that they will truthfully report and pay all applicable taxes on alcohol sales.

Stadium owners can also require that food vendors of all kinds secure a performance bond to cover the length of the season. While the details of such a performance bond vary widely, they essentially serve to guarantee that the vendor will provide enough soft pretzels, hot dog buns and roasted peanuts to last through playoffs. Should a vendor default on their bond, the stadium owners could file a claim to receive funds to hire someone else to feed the masses for the remainder of the season.

About the only thing in a stadium that can’t be bonded is the players, but not for lack of trying. In 1983, the coach of aUSOlympic volleyball team admitted to requiring his star player to post a performance bond. The player had previously quit, and the coach demanded a cash deposit to guarantee the player would stick around through the 1984 Olympics if he was allowed back on the team. While creating a contractual and financial obligation for a pitcher to complete a no-hitter or a pinch hitter to steal a given number of bases would be appealing to team managers, it’s neither practical nor beneficial.

With the average cost of a new stadium at just below half a billion dollars, and annual sports revenue well into the millions, it makes good business sense for owners to carefully vet and bond all parties involved, ensuring a homerun success.

Questions or comments about surety bonds, and your experiences dealing with bonding companies?  Share in the comment section below. 

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 Photo by  vivoandando via Flickr/Creative Commons license.

Don’t say Please– Threaten to Tow! (aka Contracts matter)

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No parking please sign No parking tow sign

 

I was wandering through downtown Wilmington, North Carolina the other week after a trial was pushed off of the court docket.  Not two feet away from each other I saw these two signs.

Ask yourself—if you were looking for an (illegal) parking spot to run a quick errand—which spot would you park in?  The one with the sign that nicely asks you not to park there, or the one with the sign that says they will tow you if you do?  I think we can all agree that in this case, being nice does not help that parking spot’s owner.  You know the other guy means business, so you take him seriously. 

What does all this have to do with architecture or engineering? 

It is a stark reminder that words can be powerful.  Your contract language can make the difference between getting what you want (the empty parking spot) versus having to live with something you don’t (someone in your space).  It can mean the difference between the dispute venue you favor or the right to additional compensation.

When it comes to your livelihood, don’t chance it to be nice.  Gentlemen’s agreements and saying “please” just don’t cut it any more.

Which parking spot would you use? Do I even have to ask?  Saying please is all well and good, but stating your rights upfront will get you farther.  Sign up for email updates directly to your inbox, so you never miss a post here at Construction Law NC!

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Photos in this post: Creative Commons License

Planning Ahead for Additional Compensation

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money for additional services for construction administration

Does your designer contract have provisions in it for additional compensation in the event the construction project takes longer than the parties anticipate?  If you use the AIA 201 (2007) general conditions for the Contractor, it may.  The AIA provisions include:

 

 § 1.1.2 THE CONTRACT

The Contract Documents form the Contract for Construction. The Contract represents the entire and integrated agreement between the parties hereto and supersedes prior negotiations, representations or agreements, either written or oral. The Contract may be amended or modified only by a Modification. The Contract Documents shall not be construed to create a contractual relationship of any kind (1) between the Contractor and the Architect or the Architect’s consultants, (2) between the Owner and a Subcontractor or a Sub-subcontractor, (3) between the Owner and the Architect or the Architect’s consultants or (4) between any persons or entities other than the Owner and the Contractor. The Architect shall, however, be entitled to performance and enforcement of obligations under the Contract intended to facilitate performance of the Architect’s duties.

The language that I bolded is very important language.  It may provide a mechanism to recoup additional service fees for extended construction administration services.  Note, however, that I said “may.”

If your fees are based on a set number of construction days, what happens if the project gets extended?  Do you simply go without pay for extra months of CA services?  Do you re-negotiate with the Owner at that time?   You should consider this issue in advance to avoid disputes later on. 

Best practice?  A clause in the Owner-Designer contract that states that additional services compensation will kick in after a certain date,  at a set value per month.  

If you wait until the issue comes up during the final phase of construction, you have much less bargaining power.  You also run the risk of the Owner claiming errors and omissions against you when you present a bill for extra services.  Deal with the issue up front, in much the same way that unit prices for rock overages are provided for upfront in the contractor’s contract. 

Do you have experience with getting additional compensation after construction delays?  What worked best for your company?  Share below. 

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 Photo (c) Freefoto.com via Creative Commons license.

 

Spend Less Time with Your Lawyer with these Tips (Tue Tip)

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 “The best time to plant a tree was 20 years ago.  The next best time is now.”  ~Chinese Proverb

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If you haven’t yet acted to streamline your contracts and your new client procedures, do so now.  Unless, that is, you like spending time with your lawyer.  Lawsuits take time and money.  Avoid them (and your lawyer) through good risk avoidance practices.  

Last year I wrote a post on 6 Ways to Limit Risk through effective use of contracts on your Projects.   Included in that list were such tips as:

  • Always, always, always use a contract for each new project.  (Verbal agreements are very hard to prove in Court).   Without a written contract, you are trusting yourself to laws you may not agree with or giving up valuable protections.   
  • Get your contract reviewed by your insurance carrier.  Insurance check-ups through your agent or broker are usually free.  Why risk it? 
  • Have your contract reviewed by your attorney.  ( I happen to know someone who does this regularly for her clients.)
  • Establish a new client protocol.  Make sure all new clients sign proposal or engagement letters.  Document now; worry less later.

These are all extremely important ways to minimize your risk.  Of course, if you are reading this blog, I recognize that I am probably preaching to the choir.  But it is worth repeating.  Just do it.

Do you have procedures that minimize your company’s risk?  Tell me in the comment section, below, what has worked for you.

If you need help creating or revising your contracts or client protocols, drop me an email at [email protected].  

Photo: (c) Freephoto.com via Creative Commons License.