Type of Contract where the contractor has the most risk?

Where owner has the most risk?

Fixed price contract

Cost-reibursable contracts (Cost plus, GMP)

See pg 133 for example

unpaid balance = k amt  - amt paid to contractor

Surety's obligation = Cost to complete - unpaid bal + liquidated dmgs

-only pay up to the Penal Sum which is original k amt

False, an intended third party beneficiary relationship will establish rights of recovery

p 19-20

This gives employees the power to decide for themselves whether they want to join or financially support a union

TN is a right to work state

state and federal laws that ensure that people providing labor or materials for construction projects receive payment

a subcontractor on a residential project where GC has contract with owner cannot file a lien

lien lasts 1 year after work is finished in TN- must file it within 90 days

- No damages for delay clause- means there is only a time extension for delays- no $

-Courts are split on this issue and usually do not enforce it if delay was directly from owner actively interfering

-This case ruled in favor of owner (Metro)

Type I vs. Type II differing site conditions

-definition, steps after, & proof

Type I- something must be indicated in a certain way in the contract documents, and when encountered on site, found to be different- to claim contractor must show they relied on contract docs causing detriment

Type II- Something differs materially from conditions normally expected, must be of such an unusual nature that it could not have been predicted for that kind of project- must give notice to owner- forced to use additional $ due to condition

-Gives ruling that you cannot terminate without giving notice

-McClain was brick mason and when Kimbrough wasn't happy with mcclain's work, he went and hired another brick mason without telling McClain and breached contract

-Not legally enforceable if contract contemplates illegal activity, contrary to public policy, not executed by authorized person

-Example is an unlicensed contractor performing work

-dealing with the enforceability of a contract by an unlicensed contractor

-this policy says the contract is null and void, can't seek relief in court

-TN stops short of door slamming- allows recovery of documented expenses with convincing proof- no recovery of profits

-if contractor exceeds its limit, it is considered contracting without license- 10% allowance

-Cost Plus- Owner reimburses contractor for work and then there is a fee that is stipulated in contract

-Actual costs plus 10% fee

-used when plans and specs are incomplete

-no incentive to control costs- good idea to hire CM

-cost reibursable- cost of services + fee + contingency

-no payment givent to contractor over the GMP, owner keeps any savings if under the GMP

-plans and specs must be complete

-reimburse actual cost plus a fixed fee determined as percentage of probable costs

-cost overrun no benefit to contractor

-used when plans and specs prohibit firm pricing

-cost reimbursable where fee is based on most probable cost

-owner and contractor split overrun/savings 50/50

-not cost reimbursable (meaning its fixed price)

-contractor paid an agreed fixed price paid on a pro-rata (proportionate) basis based on % of completion

- Contractor assumes all the risk (but gets all the savings if under budget)

-Usually limited to narrow scopes of work- utilities, earthwork

-estimated quantities with a fixed unit price

-payment depends on quantity of work performed during pay period

-Spearine performed work on a sewer exactly according to plans and specs- it is implied that the plans will be correct

-flood destroyed the sewer, but Spearine not responsible

-Ruling that contractors are not responsible for defects in plans and specs

- general: precisely what steps the owner and contractor are required to take to resolve disputes

-Time limits- 21 days after occurence

-Procedural steps to follow -who is the initial decision maker (architect unless noted otherwise) -whether after there is mediation/arbitration/court

-steps to appeal decision

-sovereign immunity- meaning that contractor cannot sue in state court of law- must go to claims court run by the state and there is no appeal

Red flag clause: Governing Law/Venue

TN Statute on governing law?

-Venue- location of action

-Governing law- which state law applies - law of project location or location of architect's place of business?

-TN statute- if the project is located in TN, laws of TN are applied clause saying otherwise is void

-General: right of owner to change the contract unilaterally, places limitations on that right, contractor's duty to perform change (construction change directive), and contractor's right to be paid for performing change

- also architect has a right to change (minor)

- Note the time limits

-the architect is to determine first

-applies to Type I and Type II site conditions

-article to suspend work if any human remains or archaeological sites are found

- excused or unexcused delay

- compensable or non-compensable

- Fed contract provisions are typically fair on delays beyond contractors control like acts of god and owner interference

-watch out for no damage for delay clause

-Termination for cause - examples: fails to provide sufficient labor, fails to pay subs, substantial breach of contract

-Must give written notice and opportunity to cure (A201 =7 days written notice)

-Take work over- owner completes work and back charges the contractor

-Also termination for convenience clause

-Notice To Proceed- when they can start, where they can work, number of days to complete work

-delayed NTP causes contractor resource allocation problem

-"time is of the essence" - must have these exact words

- no proof of actual damage required

-not enforceable in some states- Enforced in TN if reasonable and not a penalty

-if there is no liquidated damage provision, owner can try to prove actual damages due to late completion

Issue of site availability

-Implied obligations:

-to timely make worksite available w/o restrictions

-not to interfere, hinder, or delay performance

-watch out for limitation on work time or restricted use of work site

-Moore was awarded for delays of no fault of its own- delays were bc co-prime contractor occupied site

-also written change order requirement waived in this case

-contract funds held by owner until satisfactory completion and acceptance of work

-5% of each progress payment in TN

- purpose is to create a fund to fix defective work or contract default

- relieves a party of liability

-Examples: indemnification, no damages for delay, limitation of liability

-many courts are reluctant to enforce them because they are unecessarily harsh

Worker's comp-

- if sub fails to get WC

- required by statute covering the liability of employees getting hurt on the job

-employee cannot sue (tort suit) if company has worker's comp

-required by law no matter how many employees a contractor has

-if a sub fails to get worker's comp, then higher tier contractor will be responsible

Comprehensive General Liability (CGL) Policy

- who obtains, what is it for, what triggers it

-what case?

- the contractor obtains and pays premiums for the CGL

-it protects them from claims for personal injury or property damage by third parties resulting from defective workmanship

-triggered by an "occurrence"- meaning an accident resulting in injury that was not expected

-travelers v. moore - court held that there was an "occurence" and that travelers must defend moore

Builder's risk- Insurance

-who obtains, what is it for, how much is coverage worth

-named peril vs. all risk

-owner will obtain

-protects against loss by an external cause (basically an act of god

-coverage is for value of work lost up to limit of policy

-named peril is specific things like fire, flood, etc

-all risk covers everything (except exclusions- review these exclusions!)

Errors & Omissions (E & O) Insurance

-who obtains, what is it

-designers/engineers obtain this insurance

-Insurance that covers professional negligence of design professionals

Insurance Red Flags:

Endorsements

Deductible

subrogation

waiver of subrogation

endorsement- expand coverage to include more things

deductible- amount insured pays out of pocket before policy kicks in

subrogation- when insurance company pays loss, and then tries to recover that money if they think someone was at fault (subs)

-waiver- prevents insurance company from getting back losses

Performance bond

-what is it for, what triggers coverage, principal & obligee

-to ensure that the work is completed

-triggered by principal's (contractor) default- surety is obligated to make sure the work is completed in this case if the obligee (owner) has not breached contract

Surety

-response to default, options after

-response- perform investigation- determine whether principal is truly in default & obligee breached contract

options- assist to remedy default, take control and hire another contractor, let owner complete the project by hiring another contractor then paying them excess costs

Payment Bonds

-whats it for, who requires,  (Little) Miller Act

-surety of this bond guarantees payment to third parties- which protects private owner from lien claims

-the owner requires

-Miller Act makes payment bond mandatory on Fed gov. projects greater than $100K- little requires a payment bond on any public works project and state highway projects in TN

express- things that are explicitly stated in contract- strong wordings like must, shall

implied- not explicitly stated but implied- things like good faith and fair dealing (subjective) and implied good workmanship- no implications if express term says otherwise

Formal written requirement for change orders?

-cardinal change?

-courts like the written requirement- definite understanding between parties, avoids controversies

-written requirement can be waived by conduct or course of dealing by both parties- once waived, cannot be revoked

-cardinal change is a drastic change in the scope- excessive small changes may be cardinal

-voluntary acceleration- contractor chooses to accelerate- they have the burden of finishing on time, or want to finish early for incentive

-directed by owner- can't direct acceleration unless contract says so- if directed must compensate contractor

impacts- increased labor force, additional equip and material, resequencing, less efficient work, safety issues

- production increased for known documented reason

-measure productivity over non-accel period and then measure productivity over accelerated period

- compare periods and interpolate accel costs - gives low and high estimate of total man hours- productivity loss

other method- total cost method- contractor claims 140% of contract and asks to get paid 40%- some courts do not accept

- short descripition of claim

-contract provisions claim is based off of

-detailed desc. of extra work required and why

-prove claim with detailed documentation

- claim requires written notice that is within time limit