Tag Archives: document

What is Indemnity, and why should you care?

Posted on by

barber shop poleIf you have ever asked a lawyer to review your construction contracts (and you should have), you may have noticed that lawyers get very excited over the indemnity provisions that may or may not be in the contracts you are contemplating signing.  What are indemnity provisions, and why should you care?

What is it?

Quite simply, an indemnity provision is a statement that one of the parties agrees to pay any sums the other party might otherwise be legally required to pay to a third party.  Now that I’ve mentioned picking up someone else’s tab, I hope I have your attention.  As you might imagine, an indemnity provision can be a costly item, so you should have a thorough understanding of what such a provision means.

In general, indemnity provisions are contractual, and contract rules concerning them apply.  What that means is, if the contract says you will pay for the owner/builder/developer/designer’s legal liabilities to others, you may have to open the checkbook.

Common Indemnity Provision

An example of one type of indemnity provision is AIA A201 3.18.1, which states:

To the fullest extent permitted by law the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys’ fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself), but only to the extent caused by the negligent acts or omissions of the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder. . . .

When is it not legal?

There are some exceptions to the general applicability of indemnity provisions in North Carolina—most noticeably: you cannot be indemnified against your own negligence.  If an indemnity provision purports to indemnify one party against that person’s own negligence, public policy and state law prohibit such an indemnification in North Carolina  The applicable statute N.C. Gen. Stat. §22B-1, which reads:

§ 22B-1. Construction indemnity agreements invalid

Any promise or agreement in, or in connection with, a contract or agreement relative to the design, planning, construction, alteration, repair or maintenance of a building, structure, highway, road, appurtenance or appliance, including moving, demolition and excavating connected therewith, purporting to indemnify or hold harmless the promisee, the promisee’s independent contractors, agents, employees, or indemnitees against liability for damages arising out of bodily injury to persons or damage to property proximately caused by or resulting from the negligence, in whole or in part, of the promisee, its independent contractors, agents, employees, or indemnitees, is against public policy and is void and unenforceable. Nothing contained in this section shall prevent or prohibit a contract, promise or agreement whereby a promisor shall indemnify or hold harmless any promisee or the promisee’s independent contractors, agents, employees or indemnitees against liability for damages resulting from the sole negligence of the promisor, its agents or employees.
[Emphasis added].

However, construction indemnity clauses indemnifying a party for its own negligence can be valid and enforceable so long as the offending portion of the indemnity clause can be redacted (that is, stricken from the paragraph).  Vecellio & Grogan, Inc. v. Piedmont Drilling & Blasting, Inc., 183 N.C.App. 66, 644 S.E.2d 16 (2007).  In the example of the AIA A207 provision above, the phrase “To the fullest extent permitted by law” acts to keep the phrase within the permissible parameters of North Carolina law.  Therefore, if you signed a contract with such a provision, you may be on the hook.

Be Careful with Indemnity Provisions

Not all indemnity provisions are equal.  Some, such as in the above example, make attorney fees part of the expense which is passed along.  Others expressly exclude attorney fees.  Some provisions include a “duty to defend” on behalf of the other party, while others are silent on that issue.  What is most important is that you recognize that such language is extremely important and should be discussed in detail with your knowledgeable construction lawyer.

As with getting your hair cut, you could do it yourself, but should you?

________________________________

Photo “Barber Shop Pole” by MyEyeSees via Flickr/Creative Commons License.

5 Ways to Ruin Your Business (Tues Tip)

Posted on by

Failing Street streetsignWhile my goal on this blog is to help your construction, architecture, or engineering practice thrive, sometimes it’s best to demonstrate by example of what *not* to do.  This list is good for any business, not just those in the construction field.

1.

Don’t bother running a credit report, Google check, or otherwise investigating who you will be doing business with. If you do check references, only call the cousin they listed, because a credit reporting service might cost money.  (Can you say penny wise and pound foolish?).

2.

Don’t talk about costs, estimates v. fixed fees, and extras up front.  Wait until they get the bill and complain to have that conversation. (It’s much less awkward then!).

3.

Don’t bother to train your staff or even tell them who the important clients are– let them treat your most important customer like an annoying telemarketer.

4.

Don’t bother to keep organized documentation on projects.  Only lawyers worry about those details.  (And you, when you get sued or audited).

5.

Don’t answer written communications  in writing– a phone call or handshake is all that is necessary.  (Who needs “proof” when you go to court? The jury will believe you over the written documents, right?).

_____________________

Any other big mistakes that should be added to the list?  Let me know your thoughts in the comments!  (And as always, if you enjoy these tips, please sign up for email delivery of my blog posts so you can be sure to see them all).

_____________________

Photo “Failing Street” by Chris Daniel via Flickr via Creative Commons License. 

 

Follow your Change Order Requirements

Posted on by

 check markIt is extremely important that you follow your written contract requirements.  No where is this more evident than in the change order process.

Most contracts have an explicit provision for the payment for additional work– and they generally require a written, signed change order (or change directive) before the work is performed.  Can you get by with verbal agreements for additional work? Sometimes yes, sometimes no.  Will it be much harder to get paid for additional services without a signed change order? You bet.  So why put yourself through that trouble?

Often times parties begin to “waive” formal requirements for written change orders, and construction projects are often on tight deadlines where stopping work to get a fully executed change order would bog down the schedule.  However, you run the risk of throwing yourself on the mercy of the Court when you don’t play by the contract rules.

A new case out of the Eastern District of Virginia demonstrates this fact very clearly.  In Artistic Stone v. Safeco, 2010 WL 2977894 (E.D.Va July 27, 2010), the Court held that the requirement that change orders be in writing was to be strictly construed and the subcontractor in that case could not recover for verbal change orders that violated the written change order requirement.  The Court held that where there is a method to ensure recovery of additional extra work in the written contract, the subcontractor could not recover additional money when it failed to follow that method.

“Written change order requirements maintain order and predictability in the construction business, and are meant ‘to avoid subsequent disagreement, and prevent just such a controversy as has arisen in this case.  For this reason, ‘where there is a method under the contract by which a party can insure the recovery of the cost of extra work, that party is not entitled to recovery where it fails to follow that method.'” Artistic Stone Crafters at 5.   [Internal citations omitted.]

A North Carolina court would likely concur.

To ensure you can fully recover for extra work, make sure it is authorized.  Follow the contract.  If circumstances make it so you cannot always follow the contract terms, document the situation as best as you can.  A follow-up email, confirming a verbal change order, would at least provide written evidence you can present in Court, should it come to that.  Otherwise, arguments can and will be made that the person who gave the change order wasn’t authorized to do so, and you may be stuck with no recovery for the extra work.

_______________________

Photo “white check mark on blue- acrylic on canvas” by kylemac via Flickr via Creative Commons license.

Tues Tip | NC HUB Requirements for state construction projects

Posted on by

If you bid on state work in North Carolina, or want to, you should be aware of the Office for Historically Underutilized Businesses (HUB).   [You should also be aware that there may be changes coming soon in light of a recent 4th Circuit Decision with regard to who still qualifies as a HUB.]

Historically Underutilized Businesses logo

1.  What does the HUB office do?

The HUB office is set up to:

  • help qualifying companies become listed vendors in their database
  • help contractors find HUB companies to solicit subcontractor bids from
  • answer questions about the HUB process for bidders

2.  Who qualifies as a HUB business?

By statute, a HUB business is one in which at least 51% ownership and control is held by minorities, women, disabled, and/or disadvantaged owners.  If you think you qualify, get certified! It can only give you more opportunities for public work.

3.  If I bid on a state contract, how do I comply with the HUB requirements?

Under the HUB statute, each bidder must do one of the following:

  •  identify on his bid the minority businesses that will be used and for what percentage of the contract;
  • sign an affidavit and provide documentation listing the good faith efforts to comply [see below]; or
  • sign an affidavit that all work will be self-performed

4.  What activities qualify as “good faith efforts” to identify a HUB subcontractor?

The statute provides that good faith efforts include:

(1)        Contacting minority businesses that reasonably could have been expected to submit a quote and that were known to the contractor or available on State or local government maintained lists at least 10 days before the bid or proposal date and notifying them of the nature and scope of the work to be performed.

(2)        Making the construction plans, specifications and requirements available for review by prospective minority businesses, or providing these documents to them at least 10 days before the bid or proposals are due.

(3)        Breaking down or combining elements of work into economically feasible units to facilitate minority participation.

(4)        Working with minority trade, community, or contractor organizations identified by the Office of Historically Underutilized Businesses and included in the bid documents that provide assistance in recruitment of minority businesses.

(5)        Attending any prebid meetings scheduled by the public owner.

(6)        Providing assistance in getting required bonding or insurance or providing alternatives to bonding or insurance for subcontractors.

(7)        Negotiating in good faith with interested minority businesses and not rejecting them as unqualified without sound reasons based on their capabilities. Any rejection of a minority business based on lack of qualification should have the reasons documented in writing.

(8)        Providing assistance to an otherwise qualified minority business in need of equipment, loan capital, lines of credit, or joint pay agreements to secure loans, supplies, or letters of credit, including waiving credit that is ordinarily required. Assisting minority businesses in obtaining the same unit pricing with the bidder’s suppliers in order to help minority businesses in establishing credit.

(9)        Negotiating joint venture and partnership arrangements with minority businesses in order to increase opportunities for minority business participation on a public construction or repair project when possible.

(10)      Providing quick pay agreements and policies to enable minority contractors and suppliers to meet cash‑flow demands.

Depending on which public entity is involved, different weight may be assigned to different parts of this criteria, or additional criteria may be required.

5.  What documentation is necessary to prove good faith efforts?

The short answer is, “it depends”.  The statute requires “all” documentation be provided.  If you are telephoning minority businesses and getting verbal denials, you must find a way to document that.  Better practice would be to send written requests for bids to HUB-certified businesses, so you can maintain a copy for submission with your bid.  The HUB website even has instructions for creating a HUB vendor/contractor Excel spreadsheet to track your efforts.

6.  Is the HUB process related to my local MBE/WBE [Minority-owned/Women-owned  Business Enterprise] certification?

As of last summer, there is now a statewide process to getting certified, the Statewide Uniform Certification (SWUC).  This change was made to streamline and centralize the HUB certification process and HUB database.

————–

Logo from NCDOA HUB website.

 

How to Smartly Handle Project Documents

Posted on by
mountain of construction paperwork

Paperwork by luxomedia via Flickr

In the Contract Risks Management Group on LinkedIn, L.H. Chin wrote an article about file keeping for contract risk management.  Basically, his premise is that if you cannot keep your Project files orderly, you have exponentially increased your chances of a problem later.   His particular example dealt with originals versus reproduced copies, which is only somewhat germane to North Carolina contracts.  (Here, copies can be used as evidence most of the time—though not always).  His main point, however, about the ability to minimize future risks by having good document control policies in place, is something every project manager should think about.

 Here are a few tips of my own in that regard:

1.   File all communications in one place.  Don’t keep faxes in one file, email in another, and letters in a third.  Don’t keep incoming and outgoing correspondence separated by vendor.  Keep it all in one chronological file.  If you ever find yourself needing legal assistance, this will save many hours and untold stress for everybody.

1.b.  Caveat:  don’t feel like you need to print out every email.  Do, however, maintain a separate email e-folder for the Project, and go ahead and print those really crucial, smoking gun emails.

2.  If you insist on violating Rule 1 (and I know those of you who read this blog would never consider such a thing, right?):  Have all the files, categories, and such you want, but please also make a “master” chronological file of all correspondence.   Just do it.

3.  If you have any communications with your lawyer, an insurance representative (outside of the normal bonding paperwork), or otherwise have documents relating to potential claims, do keep them separate.  Put all such correspondence, in a folder marked “legal,” away from the Project file to prevent inadvertent disclosure to anyone else if there is ever litigation on the matter.

3.b  If in doubt whether something should be in “legal” or “correspondence”, err on the side of “legal.”  Your attorney can always change the classification later, but she can’t put the genie back in the bottle if something that is privileged is mistakenly given to a party suing you.

If you have any questions about these tips, or want to discuss your current procedure for record management, shoot me an email.  My contact information can be found on my Firm bio or at the Footer of the Blog.  Or, you can simply leave me a note in the comments. 
 

___________________________________

Photo: “Paperwork” by luxomedia via Flickr/CC license.