Construction Termination Part 2: How to handle construction administration when the contractor is getting fired

chameleonIf you’ve been working as a design professional for any length of time, you know that you must be a chameleon on the construction project.  You need to “step into the skin” of both  the Owner and the Contractor to determine who is at fault, and who should pay.

You are usually the Initial Decision Maker (IDM), and so you have a duty under the AIA documents to act fairly and impartially in making those decisions.  See AIA B101§

Even if you are not under an AIA contract, you still have that duty if you are the IDM or handling construction administration for the project.  More often than not, however, it will be the owner asking you to support its termination of the contractor “for cause”.

Should you do so?

Before making any decisions, see what the contract says about when a contractor can be fired.  There is usually one set of specific facts that supports this.  In A201§14.2.1, the Owner may terminate the Contractor if the Contractor:

  1. repeatedly refuses or fails to supply enough properly skilled workers or proper materials;
  2. fails to make payment to Subcontractors or Suppliers in accordance with the respective agreements between the Contractor and the Subcontractors or Suppliers;
  3. repeatedly disregards applicable laws, statutes, ordinances, codes, rules, and regulations, or lawful orders of a public authority; or
  4. otherwise is guilty of a substantial breach of a provision of the Contract Documents.

You may have noticed that these are not set formulas.  If job staffing varies from day to day, when does the lack of manpower rise to a justifiable reason to terminate a Contractor for cause?  What if the lack of proper, sufficient material for the jobsite is due to outside forces like lack of manpower in the community due to post-pandemic shortages?  And what is meant by the nebulous phrase “otherwise is guilty of a substantial breach?”

The Owner will be looking to the design professional to certify that one of these “causes” exists.

If you make an independent investigation and decide the Owner does not have “cause”, you can remind the Owner of its ability to terminate “for convenience” at any time.   The difference between “cause” and “convenience” has to do with how much, if any, money the contractor is entitled to from the owner.  Simply put, if it is for convenience of the owner, the contractor will get money for lost profit and opportunity; if he is fired with reason, he may end up owing the Owner money.

When terminating a Contractor for cause, the Owner risks a later finding that its action in terminating the contract was without just cause.  If this happens and you assisted in making the determination that the Owner’s termination was justified, you will be sued.  Almost as sure as the sun sets in the West—if there is a wrongful termination lawsuit, you will be part of it.

So, make the decision carefully, and document, document, document the reasons for it.

First, are there any less drastic steps could be taken?  For example, the Owner could elect to stop further work until a contractor corrects bad construction.  (See AIA A201 §2.4).  Or, the Owner can carry out work itself, with proper notice and a 10 day opportunity to cure.  (See A201 §2.5).  The Owner may not be aware of these options—so point them about if they could stop the nuclear termination option.

Second,  review the contracts to ensure all proper notices are being given.  Prior to termination, the Owner must give a 7 day written notice to the Contractor and, depending on the contract used, an opportunity to cure.  See A201 §14.2.2.   The notice should be given to both the Contractor and any relevant surety. If the Contractor does not begin work to correct the deficiencies within 7 days, then the Owner can terminate the agreement and complete the work through alternative Contractors.  While the notice requirement is the Owners and not yours, tell the owner, in writing, what they must do.

Next week, how to handle construction administration when the contractor is the one doing the firing.

In the meantime, have you ever had to make the convenience v for cause analysis?  How did you do it?  What actions or inactions of the contractor were important to your decision?  Share below.

Photo © Krahulic from Pixabay via Creative Commons License

Construction Termination Issues for the Architect and Engineer: Part 1– Introduction to the Series

Earlier this year, I was asked to talk to other construction lawyers on the topic of termination.  My first question was– whose termination are we talking about here– the architect / engineer?  The contractor?  Is someone wanting to “fire” the owner?  The answer, as it turns out, is — yes.  That is, yes, any and all of the above termination topics were on the table.

As you may have suspected, even the threat of a termination is bad, bad news.  It is the “nuclear option” for a construction project.  Everyone risks getting harmed.  As the design professional administering a contract, you run a risk of being dragged into litigation no matter what you do.  So, how should you proceed?  Carefully.

Elmer Fudd and dead Daffy Duck

As Elmer Fudd would say, be very, very careful!

To start, follow along in my new limited series on Termination Issues for Architects & Engineers (and all Design Professionals).  For the next few weeks, I’ll be posting about all sides of the termination topic, including:

Part 2:  How to handle construction administration when the contractor is getting fired

Part 3:  How to handle contract administration when the contractor is firing the owner

Part 4:  What to do when they want to fire you, the architect or engineer

Part 5:  What if You are the one that wants to quit?

and finally:

Part 6:  This is the End (Construction Contract Termination quick facts for the design professional)

Stay tuned for the next several weeks to learn all you ever wanted to know about termination, resignation, and the breaking of contracts.

In the meantime, if you have any burning termination-specific questions or comments, drop them in the comments below.  See you soon!

Photo By Leon Schlesinger Productions, produced for Warner Brothers. – YouTube screen capture; Public Domain,

Incorporation by Reference in your Design Services Contract– what does this mean, and are you at risk? (law note)

Has an Owner ever asked you to sign his contract before you started work on a new design project?  Rhetorical question– this happens all the time, right?  Especially in commercial work, developers or owners typically are not happy to simply agree to your Proposal for Services, but instead want you to sign *their* contract.

No to dogs drinking and smoking on skateboard

Make sure you know the risks you are taking on- or just say no!  (Sign in a cafe showing a smoking, drinking, skateboarding dog)

There are some risks with that you should be aware of — one of which is the seemingly arcane and legalistic language that reads something like this:

“The Developer’s contract with Owner is hereby incorporated by reference.”

What does this mean?  This language means that you have legal responsibilities that you may not even be aware of.  If the Developer agreed with the Owner to a certain a time frame (i.e., a  “time is of the essence” clause), or any particular performance standard (LEED certification, for example), then you also have agreed to these terms.  Did you know that?

So many times when I’m asked to review a contract for an architect, there is language incorporating a document that they never have even seen.  NEVER sign any such contract until you have gotten the document “incorporated by reference”, viewed it with your risk managers, insurance broker, and lawyer, and made the decision that you can live with those terms.

Clauses that are incorporated *are* legally enforceable.  Make sure you know what you are getting into.

Hat tip to Colleen Palmer at Beazley A/E whose Managing Risk video on this topic inspired today’s post.

What about you?  Have you asked for all documents you are agreeing to, before executing on a contract?  If not, start doing so today.

Photo (c) Melissa Brumback.  Creative Commons License

Substitute Materials — what are your duties? what are your risks? (law note)

In managing a project as the design professional, you are called upon to wear many hats.  One of those hats is that of material specifier and, at times, substitute material approver.  What are your duties in looking at substitute materials?many hard hats

As always, the legal answer is “it depends”.  In part, it will depend on your role on the project and what, specifically, the contract says.  However, at its most basic, you can be sued for accepting an out of spec substitute material.  This is so even if you believed the spec met requirements based on information that the contractor gave you.  So, tread carefully in this area.

Do not assume any information that the contractor presents to you– take the time to research for yourself, call the manufacturer, and otherwise ensure that the product will work.

If the substitute is okay but will mean the Owner will get something a little different, make sure the Owner knows that and has approved the change.  Needless to say, get this consent in writing, as it could be evidence one day.

While you may not ultimately be held responsible for approving a substitute that is inferior, you don’t need the headache of finding that out from a Court.  Save your time, and your stomach lining, and make sure it’s correct and documented on the front end.

Have you been called upon to approve questionable substitute materials?  How did you research whether they would work or not?  Share in the comments below or drop me an email.

Are we having fun yet? Construction in a post-COVID world (law note)

Remember how I said to never assume?  Yeah, about that……   even when you plan for failures, mistakes, and other problems, sometimes things get so outside the realm of what you considered that it can leave your construction project spinning.  Take, as a random example, a world-wide pandemic that shuts down supply chains, shuts down job sites, and limits the labor pool.  Just as an example.

What does construction law say about pandemics?  They fall under an “Act of God” that you may have read about in your contracts, or in the contracts of the contractors working your projects.  An “Act of God” is an event that is not foreseeable, and as such not something the parties could have anticipated when they drafted the contract.  Acts of God generally excuse a party’s failure– for example, a contractor’s failure to complete the project on time can be excused when an “act of God” has occurred. 

By now, you’ve dealt with the practical fall out, one way or another.  Many projects no longer made financial sense for your clients.  Others may have been modified, reduced in scope, or had substitute materials put in place.

What do you, as an architect or engineer, do now, faced with the potential for further shut downs, supply chain issues, and other COVID variants?  The short answer is to give yourself options and assume changes will be needed to your own scope of work on each project.  Consider:

  1.  If the project needs to be re-designed to account for shortages, can that be an additional service that you get paid for?
  2. If the project requires substitute products, how many of those are part of your basic service, or is there a point at which you should get paid hourly for researching, reviewing, and approving substitutes?
  3. If the project takes a lot longer than anticipated to complete, whether due to government shut downs, labor issues, or supply chain problems– can you get paid increased contract administration fees?  And, is there a contract provision that allows you to increase your hourly rate after X number of months, to reflect inflation?

These are some of the ways that you, as a designer, can protect yourselves from ongoing delays, and make sure you are not tied to a project without a way to recoup your extra costs.

Thoughts?  Questions?   Share what’s worked for you or what you’d like to learn more about in the comment section below.