Sneak Peek: Tomorrow I have the honor of guest writing on Chris Hill’s Construction Law Musings blog. I previously wrote a post on Chris’ blog back in August 2010. I must not have have made too much of a mess over there, as he’s signed up for more.
My topic will be about contract essentials, so you won’t want to miss it. I’ll post a link to the article here once it goes live. Here’s the link.
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Photo: from Moon, Stars & Paper via Creative Commons license.
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.
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.
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: 
[This article was originally published on May 5, 2011]
Engineering News-Record (ENR) has released its annual list of the largest 500 design firms in the United States. The list is based on design revenue generated by the firms, and covers both public and privately-held companies.
The bad news? According to ENR, overall design revenue of the top 500 firms ($79.8 billion in 2010) was down 0.2% from 2009. I know my clients have been hit hard.
One thing that construction lawyers see in down markets is more lawsuits. Whereas in good times people will let something go to move on to their next project, in slow times contractors and owners sometimes look for a scape-goat. That scape-goat, more often than not, is an insurance-carrying design firm. Sad, but true. Now, more than ever, make sure that you are practicing good risk avoidance, documenting everything, and communicating thoroughly.
There is some good news: “There is a general feeling among the Top 500 firms that the markets will recover over the next 12 months.” Let’s hope they are right.
What do you think? Will the market improve this year? How is your company weathering the economic storm?
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.