Understanding and modifying key construction contract terms

1. Drafting Construction Contracts: Key
Provisions and Common Pitfalls
Understanding & Modifying Key Construction Contract Terms
Melissa Dewey Brumback, J.D., LEED Green Assoc.
Ragsdale Liggett PLLC
Raleigh, North Carolina
919.881.2214
mbrumback@rl-law.com
My blog: www.constructionlawNC.com

2. TODAY’S TOPICS
A. Scope of Services
B. Duties of Parties
C. Modifications to Project
D. Termination Issues
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3. A. SCOPE OF SERVICES

4. Address all open issues:
-- included v. excluded
-- additional services?
-- Proposal v. Contract Description
-- rounds of bidding?
-- value engineering?
-- A/E v. Owner’s rep?
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5. Unit Pricing
When does it apply?
Assumptions? Exceptions?
Ex: rock unit pricing only applies when rock
measures X
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6. Extended Construction
Is A/E paid for additional on-site admin
where contractor delays project?
How will delays be
determined?
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7. Time considerations
• “Time is of the Essence”
• Liquidated damages?
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8. Contingencies & Assumptions
• No unforeseen conditions (i.e., bad soil)
• Financing considerations prior to start
• Timely delivery of Owner equipment
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9. Example of Contingency GMP Contract
• Contractor shall update the budget for the Project using
then-current pricing for identical Project materials as
were previously priced. Within fourteen (14) days of receipt
of the Recalculation Notice, Contractor shall provide an
updated GMP to Owner reflecting the revised budget.
• Within seven (7) days …, Owner shall notify Contractor of
its acceptance or rejection of the Revised GMP. If Owner
accepts…, the parties shall execute an Amendment to the
Contracts reflecting the Revised GMP and incorporating any
other additional terms. . .agreed upon by the parties in the
interim (the “Commencement Amendment”).
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10. Safe harbor provision
Agreement Not to Claim for Cost of Certain Change Orders:
“. . .Owner agrees not to sue or to make any claim. . . unless
the costs of such approved Covered Change Orders
exceed __% of Construction Cost, and then only for an
amount in excess of such percentage.
Any responsibility of Engineer for the costs of Covered
Change Orders in excess of such percentage will be
determined. . . .but will not include any costs that Owner
would have incurred if the Covered Change Order work
had been included originally. . .”
(EJCDC, Ex. 1, Alloc of Risks, Form E-500)
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11. B. DUTIES OF THE PARTIES
1. Owner duties
2. Design team duties
3. Contractor duties
4. Mutual duties of all parties
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12. 1. Owner’s Duties
Access
• occupied buildings; University settings
• self-performed work cannot interfere
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13. Owner’s Duties
Furnish surveys and data re: site
“The Contractor shall be entitled to rely on
the accuracy of information furnished by the
Owner but shall exercise proper
precautions relating to the safe performance
of the Work.”
AIA201 § 2.2.3
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14. Owner’s Duties
Unforeseen Conditions: liability ultimately
rests with Owner
-- if Owner relied on Geotech report, they
may be liable too
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15. Owner’s Duties
§ 3.7.5 Concealed or Unknown Conditions. If the
Contractor encounters conditions at the site that are (1)
subsurface or otherwise concealed physical conditions
that differ materially . . .or (2) unknown physical
conditions of an unusual nature, . . . the Contractor
shall promptly provide notice to the Owner and the
Architect. . . [within] 21 days. The Architect will
promptly investigate . . . and, if the Architect
determines that they differ materially and cause an
increase or decrease in the Contractor’s cost of, or
time required for, performance of any part of the
Work, will recommend an equitable adjustment. . .”
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16. Owner’s Duties
Payment Terms
• Payment terms as specified in contract;
core Owner duty
• Non-payment: need to document reasons;
pay undisputed portion
• Figure lead time needed
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17. 2. Designer’s Duties
Plans & Specs (Spearin doctrine)
[I]f the contractor is bound to build according to plans
and specifications prepared by the owner, the
contractor will not be responsible for the
consequences of defects in the plans and
specifications. This responsibility of the owner is not
overcome by the usual clauses requiring builders to visit
the site, to check the plans, and to inform themselves of
the requirements of the work, ...”
United States v. Spearin, 248 U.S. 132 (1918)
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18. Designer’s Duties
Owner’s representative
Acts as Owner’s rep.
Authority to act only as provided in Contract
documents § 4.2.1
• What is “construction observation”?
• What is entailed in “periodic observation”?
• What is encompassed in on-site construction
supervision?
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19. Designer’s Duties
On-site Observation
§ 4.2.2 The Architect will visit the site at intervals
appropriate to the stage of construction, or as otherwise
agreed with the Owner, to become generally familiar
with the progress and quality. . ., and to determine in
general if the Work is being performed in a manner
indicating that the Work,. . . will be in accordance with
the Contract Documents. However, the Architect will not
be required to make exhaustive or continuous on-
site inspections to check the quality or quantity of
the Work.
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20. Designer’s Duties
Designer should spell out in detail what
observation services are/are not part of contract
i.e.: “Designer will make X number of visits during
the Y Phase of Construction. These visits will
only be to ensure general compliance with the
plans. Not every portion of the job will be
observed; only random samplings will be
observed at any such field visit.”
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21. Other Duties of Designer
• Review and certify Applications for
Payment
• Reject work that does not conform to
Contract
• Review, approve, take appropriate action
on shop drawings, samples, etc.
• Initial arbitrator of disputes
• Other work IF in contract
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22. 3. Contractor’s Duties
• Means & Methods, Techniques,
Sequences or Procedures
– for self-performed work
– for subcontractors
• Merchantability
• Fitness-particular purpose
• Good workmanship
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23. Contractor’s Duties
Warranty:
• materials & equipment of good quality and
materials will be new
• the Work will conform to the requirements
of the Contract Documents
• the Work will be free from defects
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24. Contractor’s Duties
Site Supervision
Contractor responsible for subcontractors
• should have similar duties/responsibilities
in subcontract
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25. Contractor’s Duties
Scheduling & work-force
• Duty to create & keep schedule
• Duty to properly staff job
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26. Contractor’s Duties
•Expediting work if
behind schedule
•Trade stacking
issues
•If acceleration due
to others, timely
notice to owner
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27. Timeliness of Notice of Delay/Change
14 days
21 days
30 days
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28. 4. Mutual Duties of the Parties
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29. Implied Duty Not to Hinder
•Not delay/hinder any other party
•Nondisclaimable
•Includes Owner’s separate
contractors; Design Team
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30. Standard of Care
• Reasonableness, NOT perfection
• But: ‘highest,’ ‘best,’ or ‘most qualified’
increases the standard of performance
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31. Duty to Disclose
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32. C. MODIFICATION TO THE
CONSTRUCTION PLANS &
SPECIFICATIONS
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33. the Contract "Change" Clause
• Mechanism for change
• Allows Flexibility
• In standard contracts
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34. Changed Terms Agreed to?
No
Yes
EJCDC?
Change Order No
Yes
Change Directive
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35. When terms cannot be agreed upon
AIA 201 ConsensusDOCS EJCDC C-700
200
Directive/ Construction Directives dealt with Interim Directed
Instruction Change Directive in CO process Change
Process (CCD)
(lump sum; unit §8.2.1 & §8.2.2
prices; agreed upon
manner)
§7.3.3
Partial Partial Payment Payroll and labor: Owner pays 50% of
Payment Architect-interim 15% estimate
Particulars determination Payment to subs:
5%
§7.3.9 §12.01.C.2 §8.3.3

36. What if there is no signed CO or CCD?
Federal project: out of luck
Other
project:
may qualify
for
equitable
relief
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37. What documentation required for
Compensable Change?
– description of change
– number of days needed
– amount
– signature and date
– back-up documents (consider
during negotiations)
• Proposals
• Invoices
• Logs
• Time Sheets
• Emails
• Faxes
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38. Delays to the Schedule
Excusable Compensable Concurrent
Delay Delay Delay
Not Caused by fault Fault of more
foreseen; (who decides?) than one
Act of God party
Yes Yes Yes
No Yes (actual) Maybe (if in
contract)

39. D. TERMINATION & SUSPENSION
1. For convenience (Owner only)
a. Suspension
b. Termination
2. Termination for fault
a. Fault of Owner
b. Fault of Contractor

40. 1. For Convenience
a. Suspension
AIA A201 §14.3: No more than 100% of
total days or 120 days in any 365 day period
(whichever less, after which Contractor may
terminate- see 14.1.2)
ConsensusDocs 200 §11.1: Up to 30 days
(after which Contractor may terminate- see
11.5.1.2)
EJCDC C-700 §15.01: Up to 90 consecutive
days

41. 1. For Convenience
b. Termination
• Only for owner
• Requires written notice
• Discretionary
• Upon receipt of written notice, contractor shall –
cease work; preserve work; terminate all subs and
PO’s
If expect issues up front, can require more notice or
conditions before suspension
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42. Recover Expected Profit on Work
not Performed?
Yes [A201 § 14.4.3]
No, but “premium” [200 §11.4.3]
No [C-700 §15.03B]; but costs to break
subcontracts recoverable
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43. 2. Termination for Fault:
a. fault of Owner
If work stopped for 30+days, for:
stop-work, emergency, failure of prompt
payment, failure re financial capability
If worked stopped for 60+days, for:
fault of Owner
If worked stopped for 100+% of total
number of days scheduled, or 120 days
in any 365 day period

44. 2. Termination for Fault:
a. fault of Owner (cont)
Must provide a 7 day
written notice to the
Owner (opportunity to
cure)
Damages = payment for
work executed & for
proven losses

45. 2. Termination for Fault:
b. fault of Contractor
– fails to supply workers and/or materials;
– fails to pay subs;
– disregards laws;
– fails to comply with plans & specs
– Otherwise guilty of substantial breach
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46. 2. Termination for Fault:
b. fault of Contractor (cont)
At least 7 day written notice to the
contractor. (Time can be
adjusted upfront.)
Any reasonable method to complete
the work
Damages: the cost of
repair/completion OR the
difference in value from what
was contracted
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47. Melissa Dewey Brumback, J.D., LEED Green Assoc.
Ragsdale Liggett PLLC
Raleigh, North Carolina
919.881.2214
mbrumback@rl-law.com
My blog: www.constructionlawNC.com
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