Tag Archives: damages

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.

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.

 

Owner Drafted Indemnity Provisions: Kryptonite for designers?

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be careful sign
Be careful with indemnity provisions (and small animals)!

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Are you being asked to sign contracts that are prepared by the Owner?  If so, do you have a policy in place to have each such contract, Master Agreement, or Statement of Work be reviewed by your attorney?  You should.  An ounce of caution is worth a pound of cure, as they say.

One of the most important contract terms to review in any contract is the indemnity provision.  I’ve discussed how indemnity provisions work in the past.  If you haven’t already read that post- do it now.  (Go ahead, I’ll wait).

Today, I want to address indemnity in the context of non-form contracts presented to you by an Owner for execution.  Generally these are presented with no expected negotiation on your part.  Remember, however, that everything can be negotiated.  A few small changes up front can save you lots of time and expense later if there is ever a lawsuit. 

Because these contracts are drafted by the Owner (or, rather, his horribly biased zealous attorney), they tend to be overreaching and broad.  Recent contracts I have reviewed ask the architect to indemnify the owner for the design team’s negligence, “regardless of whether or not other parties are also negligent.”  That phrase is very troubling, and should be stricken.  Otherwise, the Owner will have an argument that because the design team was negligent, they must indemnify the Owner for all negligent acts (other than the Owner’s own negligence), including those by other parties.   

A better, proportional indemnification provision should include indemnification “to the extent the claim is found to be caused by the negligence of the design team.”  (Even better, of course, would be a limitation of liability based on your design fees, but I recognize that it is often impossible to negotiate such a limitation with some blood-sucking sophisticated Owners.)

Do you have comments about indemnity provisions in contracts you have been asked to sign?  Drop me a note in the comment section, below.

Photo via Creative Commons License.

A Building Code Engineer’s perspective on the Earthquake

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Imad Naffa

Imad Naffa

After my post on the Japan Earthquake last week, I heard from Civil Engineer Imad Naffa.  Imad is a self-described “atypical Civil Engineer with passion for providing Building, Fire, Accessibility, ADA, LEED, Green and AEC related info. and resources”  and the President and Founder  of Naffa International, Inc., a Building Code Consulting Firm based in Fresno, California.

Imad has written about the Earthquake and Tsunami from the Building Code perspective in an article for his Blog entitled “Japan’s Earthquake and Tsunami My take as a Building Codes Engineer.”   Check it out, as well as his interactive, curated Earthquake site.     Editor’s Note:  Since this was first posted, Imad has passed away.  His blog was apparently taken down by his family, who have my deepest sympathies.  Imad was a creative, knowledgeable, and kind man.  He is missed.

Do you agree with Imad that  it is imperative that the U.S. improve and update design, construction  methods and building codes?  Let Imad and me know your thoughts in the Comment section, below.    And, if you are interested in Building Code resources, be sure to check out his comprehensive list of Technical Links, which I am adding to this Blog’s Resources page.