Construction Contracts What You Need to Know March 19, 2015

Construction ContractsWhat You Need to Know

March 19, 2015

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WHO WE ARE

Kevin A. Delorey, Partner– Quarles & Brady, LLP

Charlie Kilander, CPCU, ARM– Risk Management Account Specialist– Integrated Risk Solutions, Inc.

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WHO YOU ARE

Industry Representation

General Contractors vs. Subcontractors

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AGENDA

Contract Form Overview

Contract Document Issues

Indemnification Clauses

Best Practices for Reviewing and Negotiating Contracts

Questions!

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SOMETHING TO THINK ABOUT

How many of you enter into contracts in the course of your business?

How many of you review each and every line, and each and every item included in every contract?

How many of you know your assumed exposure?

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CONTRACT FORMS

AIA

ConsensusDOCS

DBIA

EJCDC

Owner-Specific Forms

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CONTRACT DOCUMENT ISSUES

Sign a Complete Document

Never sign an incomplete contract

Fill in all blanks

Attach all exhibits and schedules

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Do not sign personally Always sign in a representative capacity

Failure to do so can result in personal liability

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WORDS MATTER!

Essential Terms

vs

"Boilerplate"

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Standard of CareIs “average” good enough?

What are owner’s expectations

Will matter if claims arise

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Payment Procedures

Establish ground rules at the outset Follow the process Involve a third party (title company; construction monitor,

etc.) Lien waivers are a must (local law) Retainage (local law)

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Insurance Coverage – applicable? Amounts Insureds / Additional Insureds Bonds

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Change ManagementWhen is a schedule/cost change justifiedHow is it documentedTime periods for claimsContinued performance during dispute

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Substantial CompletionHow definedWho determinesWhat if delivery is late (LD’s?)Punch list process

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WarrantiesWho givesHow longClaims limitationsReserve contract rights

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TerminationFor cause/for convenienceCompensationNo unearned profits

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Assignment Owner needs this right for

– Future purchaser– Project lender

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HOLD HARMLESS VS. INDEMNIFY VS. DEFEND Hold Harmless

– To protect another against the risk of loss as well as actual loss– Tends to be interpreted as “pay as expenses are incurred”

Indemnify– Reimburse for any damage

• Narrower than HH – no protection against the RISK of loss, just actual loss

– Tends to be interpreted as “payment at final disposition”

Defend– Indemnitor has to supply defense attorney and actively be

involved in the defense of the matter

The above two amount to passive involvement (recoupment) matters, defend means active participation

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HOLD HARMLESS VS. INDEMNIFY VS. DEFEND

Does “Indemnify and Hold Harmless” include Defense?– NO!

If one party wants the other to defend them against claims and the costs associated with it – this needs to be expressly stated

Otherwise the provision only requires a recoupment or reimbursement of the costs and damages after the initial party has expended their own time and money

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INDEMNIFICATION AGREEMENTS

Broad Form Agreement– All of the risk of loss described in the contract is transferred

to the lower tier regardless of who is at fault for the loss

Intermediate Form Agreement– All of the risk of loss described in the contract is transferred

to the lower tier except when the loss is entirely the fault of the higher tier

Limited Form Agreement– The lower tier is obligated to reimburse the higher tier for

its share of the liability of loss described in the contract.

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Example #1

To the fullest extent permitted by law, the Sub-contractor shall defend, indemnify, and hold harmless the Contractor, its officers, directors, employees, and agents from and against all actual or alleged claims (including but not limited to property damage, bodily injury, sickness, or disease), damages, losses, and expenses (including but not limited to attorney, court, mediation, or arbitration fees) arising out of, relating to, or connected in any way to the performance of work described in this contract, whether or not caused in part by the Contractor.

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Example #2

To the fullest extent permitted by law, the Sub-contractor shall defend, indemnify, and hold harmless the Contractor, its officers, directors, employees, and agents from and against all actual or alleged claims (including but not limited to property damage, bodily injury, sickness, or disease), damages, losses, and expenses (including but not limited to attorney, court, mediation, or arbitration fees) arising out of, relating to, or connected in any way to the performance of work described in this contract, whether or not caused in part by the Contractor, but only to the extent caused by the acts, omissions, or liability of the Sub-contractor or others providing services under this contract.

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IMPACT TO INSURANCE

Know what you are signing

Make sure your insurance policies cover what you are agreeing to

Certificate Issuance

Blanket Waivers vs. Individual Waivers– Blanket – where agreed to in an insurance contract– Individual – needs to be endorsed to the policy

Primary vs. Excess– Does contract specify the party to be primary– Does the contract specify insurance forms needed (CG 2010)

Additional Insured Status– Your policy will stand in the shoes of the additional insured

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BEST PRACTICES

Internal Review Process– Who is reviewing the contracts?– Who is authorized to sign contracts within your company?– Are insurance requirements/coverages being reviewed?

External Review Process– Attorney– Insurance Agent– Insurance Carrier

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CONSTRUCTION CONTRACTS

QUESTIONS???

Documents

Construction Contracts What You Need to Know March 19, 2015