Tag Archives: terminology

What is Indemnity, and why should you care?

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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?

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

What is “green design” ?

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What is included in “gPlatinum LEED signreen design”? Green design (also known as sustainable design or environmental design) is the concept of construction built with principles of economic, social, and ecological sustainability.  The most well-known green design, by far, is the LEED green building certification process of the US Green Building Council.

Yesterday, I had a chance to attend Phil Kabza (“SpecGuy”)’s presentation “Specifying LEED Requirements: The Best of Green from Masterspec” at the GreenNC trade show.

According to Phil, there are 4  general LEED credit requirements for construction, including:

1.  Refrigerant & clean agent removal

2.  Construction waste management

3.  Construction indoor air quality management

4.  Measurement & verification (post construction)

As Phil emphasized, LEED specs must be project specific, and should not simply be cut and pasted from previous projects.

Want to see a LEED specification in action?  Check out an example of a LEED Spec on Sustainable Design Requirements (01 81 13) here.

Interested in learning more about LEED and its requirements?  Check out the mother of LEED, the USGBC .

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Photo “Platinum LEED” by Seth Anderson via Flickr/Creative Commons License. 

The Architect’s and Engineer’s “Standard of Care” (Law note)

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drawing architectural plans

Architects and engineers are required to meet the appropriate standard of care for their work on a construction project.   Such a simple phrase is actually a very loaded statement.  What, exactly, is the “standard of care” that the design professional is required to meet?  This is one of the “terms of art” that lawyers love and everyone else tends to hate.

Basically, the “standard of care” is a shorthand description that states the designer owes a duty to perform reasonably well on the project.  How is “reasonably well” defined?  It is not perfection.  It is, however, the showing of “reasonable care” and performing the “level of skill and diligence those in engaged in the same profession would ordinarily exercise under similar circumstances.”  Again, what?  If you are an architect practicing in, for example, Raleigh, you will be presumed to:

1.  possess the required degree of learning, skills, and experience that is ordinarily possessed by similarly situated professionals in the community (that is, perform as well as other architects practicing in the Raleigh area);

2. use reasonable and ordinary care and diligence in the exercise of your skill to accomplish your professional tasks; and

3. use your best good professional judgment in performing your professional tasks.

Notice that nowhere did I say that the architect’s plans had to be perfect.  However, the plans do need to meet a “typical” standard.  They must meet the applicable Codes.  They must generally be sound.  But they do not have to be perfect.  (Question: Is there ever a perfect set of plans?).

Courts in North Carolina have spent a lot of time, and a lot of ink, discussing the deceptively simple concept of “standard of care,” but essentially this is how it is defined.  If you want to read caselaw discussing the standard, a good case is RCDI Const. Inc. v. Spaceplan/Architecture, Planning, & Interiors, PA., 148 F. Supp. 2d 607 (W.D.N.C. 2001).

Note for Contractors & Subcontractors

If you are not a licensed professional, are you off the hook?  No.  But your duties fall under the “implied duty of workmanship“.  Essentially, you have a duty to make sure your work is sufficiently free from defects such that it meets the requirements of the Contract documents.

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Photo Drawing up the plans (Doors & Windows) by Sailing “Footprints: Real to Reel” (Ronn ashore) via Flickr and made available via an Attribution-Noncommercial-Share Alike 2.0 license.

 

Pay When Paid Clauses in the NC Construction Contract

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“Pay when paid” clauses are clauses found in many construction contracts that state that the contractor will pay his subcontractor only if and/or when the contractor receives payment from the owner.   Are these clauses enforceable?  The answer depends on (1) what state you are in and (2) what choice of law provision is contained in your construction contract.

A limited number of states do honor “pay when paid” clauses under the theory that the parties are usually sophisticated parties who negotiated the contract terms and as such they are duty bound to honor those terms.   When such a clause is enforced, it can prove fatal in a case where the owner files bankruptcy or otherwise defaults on its payments to the general contractor.

In North Carolina,  such clauses are unenforceable as against public policy.

Performance by a subcontractor in accordance with the provisions of its contract shall entitle it to payment from the party with whom it contracts. Payment by the owner to a contractor is not a condition precedent for payment to a subcontractor and payment by a contractor to a subcontractor is not a condition precedent for payment to any other subcontractor, and an agreement to the contrary is unenforceable.

N. C. Gen. Stat. Section 22C-2.

Does that mean that, if you are a subcontractor, you don’t need to worry about such “pay when paid” clauses in North Carolina?  Not necessarily.  It depends on what law is the law that will be applied by the court.  If your contract states that the law of another state will apply, you need to know if that state is one in which “pay when paid” clauses are enforceable.  In some states, such as Virginia, the contract is king and whatever the contract says will be enforced.  Such clauses are also generally enforceable in a few other states such as Connecticut and Michigan.

Other states take a more cautious view, and hold that such clauses are only enforceable if unambiguously written, including  Arizona, Ohio, and Massachusetts.

States which concur with North Carolina’s view that such clauses are unenforceable include New York, California, and South Carolina.

Therefore, it is important to know not only what your contract says, but what state’s law will apply to your contract.

Because case law and statutes change the law regularly, consult a licensed attorney in the jurisdiction you are concerned about to learn the latest status of contingent payment clauses in that jurisdiction.

What is not in your construction contract can be just as important as what is in the contract

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excludedEver wonder why lawyers like to write contracts that seem to go on, and on, and on? By nature, lawyers are doomsayers. We try to minimize risk, and sometimes that takes the form of a contract that “only a lawyer could love”.

We will cover important contract terms in future blog posts, but for now, did you know that what is not in your construction contract is just as important as what is in there? Many times the heart of a construction dispute stems from confusion or mistaken assumptions about what, exactly, was agreed upon.

In addition to having a very detailed “Scope of Services,” in which you specify exactly what you will be doing on a project, you should also develop a standard “Exclusions from Services” list, and that list should be a part of every contract.

Such an exclusion list should include:
— anything you were specifically asked not to perform
— anything the owner indicated was to be provided by others
— anything which involves specific contractor coordination (unless
you are providing this service)
— a listing of anything above and beyond normal conditions (for
example, “attendance at more than X meetings a month”)
— a general “catch all” statement that anything not specifically
specified in the Scope of Services is not covered

Of course, what specific things should be listed in your Exclusions list depends on what field of construction you are in. Design professionals need to focus on coordination issues, duties with respect to other design professionals on a large project, duties relating to oversight of contractor work, and related issues. Contractors should focus on their responsibility to work with and/or around other trades as well as related work that the owner does not intend to pay for which can result in scope creep.

While it might seem like wearing belts and suspenders at the same time to write out a Scope of Services and also include an Exclusion from Services list, the minimal extra effort in developing such an Exclusion list will pay you back in volumes should a dispute on the project ever arise.

Photo (c) Markus Spiske.