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

Expect the Unexpected (your design contracts in a post-COVID world)

Have you adapted your post-COVID practice to better plan for the “unexpected” ?  In particular, have you looked at–and revised– your professional services contracts to give yourself a little more breathing room for unaccounted issues that may arise?  If not, no time like the present.

Don’t like that saying?  How about ” a stitch in time saves nine?”  No?  Still nothing?  What about a picture of something so completely unexpected it shocks you– say, a fireman commuting home, in fire-fighting regalia, on a tricycle?  Okay, here you go…

Fireman-bikerNow that I have your attention– you should make it a practice to regularly review and update your professional services agreements, and you should consider issues such as:

  1.  Does your agreement provide for extra compensation if you have to spend more time or a longer period providing construction administration services for material delays or labor shortages?  If not, it should.
  2. Does your agreement have a well-written “act of God” provision– one that includes pandemic/epidemics as part of the “act of God” conditions in which a term may become void?  If not, add it now!
  3. Have you considered whether you want arbitration instead of litigation if a lawsuit does arise?  And if you want to arbitrate, does your contract give specifics, like how many arbitrators will decide the case?  These things can be added now with little effort, or you can pay your lawyer to negotiate them down the line.  Guess which is cheaper?

You *do* have a good, solid contract to begin with, correct?  If not, I’ve previously given examples of how to craft helpful scopes of services and how to add the protection of a well-crafted exclusion to your scope of services.   Check them out, and be ready for the next biker-fireman surprise in your future.

Photo (c) MelissaBrumbackCreative Commons License

Substitutions on a construction project — a Specification Writer responds

In response to the post about Substitute Materials on a construction project, Phil Kabza explains how his company, SpecGuy, handles tracking of all such materials on a project.specguy

Phil writes:

Excellent and important topic, about which there is much confusion among design professionals and contractors. We try to maintain definitions for:

  • Pre-bid requests for prior approval of proposed comparable products where products are named in the specifications
  • True pre-bid substitution requests that present an alternate type of product from that specified (ie., not “comparable” but perhaps suitable)
  • Post-award requests for approval of proposed comparable products “for convenience” of the contractor with or without credit to the owner
  • Post-award requests for approval of proposed comparable products “forcause” due to unavailability, failure to meet specified warranty, etc.
  • Submittal of non-complying products “to see if we can get away with it.”

Public agencies, owners, and design firms all have different approaches to each of the above, which requires the specifier to carefully define their terms in Division 00 Document “Procurement Substitution Procedures” and “Division 01 Section “Substitution Procedures,” as well as establishing consistency across the several hundred specification sections.

Thanks, Phil, for your boots on the ground perspective of how to consistently handle the specifications when handling substitute materials or products.

Your turn.  Thoughts or Phil or me?  Share below, or shoot me an email.