Planning Ahead for Additional Compensation

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.

 

Pay when Paid & Pay if Paid

pay here signRecently I was contacted by several readers asking questions about “Pay when Paid” clauses.  For those of you who may have missed it, I’ve previously addressed Pay When Paid issues in my April 29, 2010 post, Pay When Paid Clauses in the NC Construction Contract.

For a good discussion of the application of N.C. Gen. Stat. 22C-2, the Court of Appeals opinion American Nat. Elec. Corp. v. Poythress Commercial Contractors, Inc., 167 N.C.App. 97, 101, 604 S.E.2d 315, 317 (2004) is worth a read.

In that case, the electrical subcontractor sued the general contractor for delay claims. The contract provided that the contractor would only be liable to the subcontractor for delays if the contractor was compensated for such delays by the owner.  While such a term is clearly a “pay if paid” provision, the Court called the provision a “pay when paid,” and declared it unenforceable in North Carolina.  It seems likely, therefore, that the Court would find that both provisions have the same legal effect in North Carolina– that is, both are unenforceable.

One time when a “pay if/when paid” provision could be enforceable?  Residential construction of fewer than 12 units.

As always, consult your local attorney because such clauses very widely in their enforceability from state to state.

Questions or comments on “pay when paid” or “pay if paid”?  Drop me a line in the comments section, below.

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Photo: “Pay Here” via Freefoto.com / Creative Commons License. 

 

Active vs. Passive Negligence (Law note)

whole hog sign“As long as I was in, and in for good, I might as well go the whole hog.”

–Huck Finn, The Adventures of Huckleberry Finn by Mark Twain

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If you work on a North Carolina construction project, you, too, are in “the whole hog” if you are negligent.  That is, if you are negligent at all, you are on the hook for the full lot.  As we’ve discussed, joint tort-feasors (that is, two negligent parties who are jointly & severally liable) are generally not entitled to indemnity from one another.

However, there are exceptions, and today we’re talking about one such exception– the passively negligent party.  

What is passive negligence?

Active negligence is an action which causes damage.  In contrast, passive negligence is negligence due to inaction, omission, or the failure to do something that you are legally obligated to do.   The actively negligent party is primary responsible for paying any damages, and the passively negligent party is only secondarily liable.

For example, if a subcontractor is actively negligent in constructing the framing for a building, and the general contractor failed to notice the defect, the subcontractor is actively negligent and the general contractor is passively negligent. 

Indemnity of the passively negligent party

Where the active negligence of one tort-feasor and the passive negligence of another combine to proximately cause injury to a third party, the passively negligent tort-feasor who is compelled to pay damages to the injured party is entitled to indemnity from the actively negligent tort-feasor.  This is called common-law indemnity, as opposed to contractual indemnity, which we discussed in an earlier blog post. 

In our example above, the subcontractor, as the actively negligent party, is the party ultimately responsible for the poor framing and the resulting damages.  If the general contractor is sued by the owner, he can in turn sue the subcontractor for the damages which were caused by the sub.

Questions about active versus passive negligence?  Drop me a line in the comments below.

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Photo “Whole Hog Heaven BBQ” by Bill.Roehl via Flickr/Creative Commons license.

Contributory Negligence on the construction project (law note)

scale of justiceI’m sometimes asked if the percentage of “fault” is something that a client can rely on to reduce the amount of money they may owe on construction project gone bad.  The short answer:  no.   As I mentioned in my post on joint & several liability, if you are even 1% liable for the damages on a project, you can be hit with 100% of the damages. 

 This is not true in many other jurisdictions, where proportional fault (called comparative negligence) is often allowed.  In those states, if you are found 20% liable, you only have to pay 20% of the damages. Not so in North Carolina.  Here, unless you are entirely passively negligent (a concept we’ll discuss next week), you may be on the hook for the full amount.

That’s not fair!

Perhaps.  But, that’s life on a North Carolina construction project.  One concept that helps to reduce the unfairness factor is the concept of contributory negligence.  In North Carolina (but few other states), if a party is negligent at all (even 1%), they cannot recover from another negligent party.  

For example:  the owner of a project sues its general contractor on a project for a late project delivery which costs the owner money.  While almost all of the delay was the contractor’s fault, the owner also caused delay by failing to deliver owner-furnished equipment in time to meet the critical path of the project.  The owner’s own failure means that the owner itself is contributorily negligent and, under North Carolina law, the owner cannot recover the rest of its damages from the contractor.

But wait! There’s more.

Before you get too excited about contributory negligence, you need to understand the concept of  jury nullification.  When contributory negligence is explained to a jury, the jury may sometimes decide not to find fault where they might otherwise apportion fault, to avoid what they perceive as an unjust result. 

In the above example, the jury might decide the owner’s failure was not really contributing to the delay after all, and therefore award the owner damages.  This is called jury nullification, and it can take the sting out of contributory negligence.

Change to NC’s Contributory Negligence law?

The concept of contributory negligence (and its complete bar to any recovery) is one which many would like to change.  There has been legislation in the NC General Assembly in recent years to abolish contributory negligence in favor of a comparative-fault  negligence, as is common in most states.  So far, this has not happened.  As they say, however, the jury is still out on whether such a change will occur.  

Do you have an opinion on contributory negligence vs. comparative negligence? Think NC’s law should change to one based on percentage of fault?  Share in the comments below.

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Photo “Scale—Image”  by Matthias Kulka/Corbis via Picasa/Creative Commons License



Pre-holiday reminder: plan for delays (Tues Tip)

colored leafAs the weather (finally) begins to turn to fall, people begin to make plans for fall and winter holidays with family and friends.  While negotiating the ins and outs of whos turn is it to get you for Thanksgiving this year, remember to plan for holiday delays on your construction projects.

Schedules matter.  And yet, vacations, holidays, weather, sickness, and other delays happen.  As I’ve written about previously on this blog, it is important that you prepare for delays in advance & document unanticipated delays

You know you will not have a full crew working 100% between Thanksgiving and Christmas, or between Christmas and the start of the new year.   Neither will your subcontractors.   Plan on it, and accomodate those delays now, ahead of time.

You also need to make temporary arrangements to fill in the gaps during holidays and vacations– both your own absence from the project and that of other trades.    Figure out who should be the contact person in charge in your absence.  Notify everyone who needs to know.  Inquire of your subs, owners, and material suppliers how they are staffing around the holidays.  Advance planning now equals fewer chances for costly delays.

Think of it as an early present to yourself to save yourself from last minute problems!

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Photo “Fall Color, Autumn Colour, New England” by FreeFoto.com via Creative Commons License.