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MINIMIZING YOUR RISK & AVOIDING LEGAL

PROBLEMS

AWCISeptember 22, 2016

Memphis, TN

By: Don GregoryAWCI General Counsel

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Top Risks in Today’s Construction1. Labor Shortage 30%

2. Contract Language 22%

Source: AGC/FMI(2016)

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Conditional Bids

Your first – and perhaps last – chance to make the rules.

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1 Did You Condition Your Bid?

This bid is conditioned upon the use of the

ConsensusDOCS 750, AIA A401 or other subcontract

language acceptable to subcontractor

“

“

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Use ASA bid proposal form or similar language:

Favorable Conditions of Proposal:

+ Beginning work constitutes acceptance of bid

+ Change in material price by 5% or more warrants equitable adjustment

+ Not required to name additional insureds

+ Favorable payment terms

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Use ASA bid proposal form or similar language:

Favorable Conditions of Proposal:

+ Entitled to equitable adjustments for modifications to schedule, delays outside sub’s control

+ Entitled to rely on contract documents

+ Lien waivers exclude retainage and unbilled changes/claims

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Conditional Bids

Can be incorporated into the Subcontract scope (attach as exhibit A)

OR

Retain leverage for subcontract revisions

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Securing Equitable Contract Terms

Some Killer Contract Clauses1. Contingent Payment

2. No Damage for Delay

3. Waiver of Lien and Bond Rights

4. Unconditional Lien Waivers Before Payment

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Securing Equitable Contract TermsKILLER CONTRACT CLAUSES

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Two Types: Contingent Payment+Pay-If-Paid+Pay-When-Paid

Killer Contract Clauses

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The Harsh Payment Term

+ Pay-If-Paid+ You don’t get paid IF they don’t get paid.

Killer Contract Clauses

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How To Spot A Pay-If-Paid Clause?

Killer Contract Clauses

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Progress Payment

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Same Goes For Final Payment

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To Be Enforceable A Pay-If-Paid Clause Must Be:+Clear and unambiguous

+If not, construed against the drafter+Will render the term Pay-When-Paid

+Why is that important?+It must be drafted correctly +If not, “benefit of the doubt” will go to the

subcontractor+Construed as the more favorable Pay-When-Paid

Pay-If-Paid Clause

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Future of Pay-If-Paid+Unenforceable By Statute In Certain States

+Wisconsin+South Carolina+Delaware

+Pay-If-Paid v. Right to Lien+Why have a mechanic’s lien statute when it can be defeated

with a Pay-If-Paid clause? +Lehrer McGovern Bovis, Inc. v. Bullock Insulation, Inc., Lien

waiver and pay-if-paid provisions are unenforceable based upon public policy favoring the statutory right to a mechanic's lien.

Pay-If-Paid Clause

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The Kinder-Gentler Payment Term+ Pay-When-Paid

+Paid within a reasonable period of time.+General Contractor still obligated to pay even if

Owner doesn’t make payment.

Pay-When-Paid Clause

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Example+AIA A401-2007 §11.3

+If Owner fails to pay, payment on demand.

Pay-When-Paid Clause

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Practical Pointers

+Look for contracts with good payment terms+Fixed Payment Terms+Pay-When-Paid Language

+Try to insert Pay-When-Paid Language+Use AIA A401 or ConsensusDOCS 750

+Modify Pay-If-Paid Language

Securing Equitable Contract Terms

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Killer Contract Clauses#2 No Damage for Delay

Not Enforceable Under Ohio’s Fairness in Construction Contracting Act.

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Sole remedy is a time extension.+ Generally unenforceable if –

+Statute/Case considers it against public policy.+Extent or nature of delay was not foreseeable.

+TIME IS MONEY!

No Damage for Delay

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Killer Contract Clauses

#3 Waiver of Lien and Bond Rights+Contrary to popular belief, in many states

an “upfront” lien wavier (withoutindependent consideration like payment) is ENFORCEABLE.

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Lien Waiver LanguageExample

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Killer Contract Clauses#4 Unconditional Lien Waivers Before Payment

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What comes first – the chicken or the egg?+ One solution:

+ Condition your lien waiver …followed by a trailing unconditional lien waiver.

Lien Waivers

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Conditional WaiversUse Conditional Waivers For Progress Payments

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Signing WaiversBe Careful When Signing Waivers For Partial Payment

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Proper NoticeNobody Likes It

Everybody Needs It

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Change Orders in Writing+NOTICE, NOTICE, NOTICE+Avoid provisions that:

+ allow one to direct additional work without agreement on price

+ make payment for the additional work contingent upon approval/payment by the owner

+ allow “backcharges” without notice. ConsensusDOCS 750

Proper Notice

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Proper NoticeThe Risk of Proceeding Without A Change Order or Written Direction

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Would love to perform the work without delay, but YOUR contract makes me stop to get a change order signed in advance!

Proper Notice

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Proper Notice

Language to Protect Yourself+Unless you indicate otherwise, we will

proceed with the additional work as we were directed in the progress meeting earlier today and this e-mail shall serve as continued notice of our intention to receive additional compensation for this change

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Proper Notice

Don’t Get Burned By Signing a Change Order with Broad Waiver Language

+Be careful when signing change orders+ Change Orders should just waive costs for

that specific change rather than all possible extra costs through the date of the change order.

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Questions from Members?

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Kegler Brown Hill + Ritter Co., LPA65 E. State Street, Suite 1800 Columbus, OH 43215Office: (614) 462-5416 Email: dgregory@keglerbrown.com Website: www.keglerbrown.com

Presenter: Donald Gregory, Esq.

Don is a Director and Chairman of the Construction Law practice area at Kegler Brown Hill + Ritter. He primarily represents subcontractors, suppliers, owners, contractors and others in the construction industry. Don has been involved in many of the most sizeable and important cases impacting the construction industry, including disputes concerning bid challenges, claims, mechanic's liens and prompt payment. Don is active both as an advocate in the Alternative Dispute Resolution process, and regularly serves as a mediator and arbitrator solving complex construction disputes. He has experience utilizing arbitration, mediation, dispute review boards, partnering and summary jury trials.