My friend Melissa Brumback of Construction Law in North Carolina said that my post yesterday on construction contract issues was SCARY (…although I think she only wanted a shout-out…). In any event, I am glad that I am receiving good feedback on my list of Top 20 Contract Issues.
In this third part of a four-part series, I will share some of the contract issues for contractors and subcontractors to review before signing a construction contract. The next five include:
- Warranty: Make sure to check out what warranties and representations are made in the contract. What is the warranty duration, and does it start at substantial or final completion? The warranty period start at substantial completion, particularly if Owner intends to begin partial occupancy.
- Force Majeure Risks (weather, war, strikes): This is a tricky one. Make sure you identify who bears the risk of force majeure events in terms of time and cost? If weather is the culprit, you may want to define what kind of weather impact will allow for recovery, whether "excessive weather" (which is what the Contractor may want) or "unusually severe weather" (which is what the Owner will probably push for).
- Substantial Completion: Does substantial completion contemplate occupancy of the building or structure? Are you required to have a local agency-issued certificate of occupancy, or temporary occupancy permit in order to achieve substantial completion? If not addressed in the contract, most states will have a statute or law on when substantial completion occurs.
- Payment Terms: What are they, and is there a condition precedent to payment? Despite the common confusion between the terms, there is a big difference between "pay if paid" and "pay when paid" clauses. Also, look to see if there is interest on late payments available?
- Dispute Resolution Terms: Is mediation a condition precedent to other forms of dispute resolution? I recommend making mediation mandatory before proceeding further with other forms of dispute resolution. Also, make sure that the Owner doesn’t get to unilaterally select the dispute resolution method at the time of the dispute. Agree in advance to either litigation or arbitration. Most important, do you have the right to recover attorneys’ fees, or is it one-sided in favor of the Owner? If so, either delete it or make it mutual so that the "prevailing party" gets their attorneys’ fees.
Stayed tuned for the final post in this series, covering liens, indemnification and assignments. What recommendations do you have regarding contract issues?
Image: Ashley Cross