Private Work: How to Secure a Fair Contract + Get Paid

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There can be many differences between private and public construction projects, especially when it comes to securing a fair contract and collecting your money. Knowing these differences and approaching them correctly from the start will save money, time and headache down the road.

Don Gregory presented "Private Work: How to Secure a Fair Contract + Get Paid" on May 1, 2014, and examined contract provision, contingent payments, lien rights, change orders and prompt payment acts. The briefing, held in the offices of Kegler Brown, was essential for anyone who provides labor, material or equipment to privately owned construction projects.

Published in: Law, Economy & Finance, Business
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Private Work: How to Secure a Fair Contract + Get Paid

  1. 1. z
  2. 2. z THE PROBLEM - TOO LITTLE WORK FOR TOO MANY CONTRACTORS CREATES DESPERATE CONDITIONS RIPE FOR: 1. Bid Shopping 2. Killer Contract Clauses
  3. 3. z THE CONTRACT IS THE BIBLE that establishes RISK – and RISK must be managed and priced appropriately.
  4. 4. z PRIVATE WORK V. PUBLIC WORK Private Work – Can Present or Negotiate a Fair Contract Public Work – Bid Must Be Responsive and Cannot Change Contract
  5. 5. z WOULD A CONTRACTOR PRICE RISK THE SAME IF - + No differing site condition clause? + No extensions for weather delays?
  6. 6. z WOULD A SUBCONTRACTOR OR SUPPLIER PRICE RISK THE SAME IF - + No lien rights? + No bond rights?
  7. 7. z CONDITION YOUR BID 1. Suppliers – Control Risk by Purchase Order 2. Subcontractors – Condition Your Bid. “This bid is conditioned upon the use of the ConsensusDOCS 750 or other subcontract form acceptable to Subcontractor.” 3. Contractors – Provide contract in advance and say “bid this.”
  8. 8. z CONTRACTORS HAVE A FRIEND IN: Fairness in Construction Contracting Act – R.C. § 4113.62
  9. 9. z WHAT TYPE OF CONTRACT PROVISIONS ARE UNENFORCEABLE? + No Damage for Delay Clauses + Waiver of Bond Rights + Subject to Foreign State Law + Forced to Arbitrate or Litigate Out of State + Final Payment as Waiver If Prior Notice
  10. 10. z FAIRNESS IN CONSTRUCTION CONTRACTING ACT PROVIDES: Nothing in a contract or change order can waive responsibility for the – “Owner’s acts or failure to act” (and Contractor’s acts or failure to act if you are a sub)
  11. 11. z PAYMENT THE LIFEBLOOD OF ANY SUBCONTRACTOR WHO PAYS LABOR EVERY FRIDAY AND SUPPLIERS IN 30 DAYS.
  12. 12. z YET SUBS ARE ASKED TO TAKE CREDIT RISKS NOT ACCEPTED BY GCs AND SUPPLIERS.
  13. 13. z AND IF SUBS ARE NOT PAID THERE IS OFTEN THE PRACTICAL EFFECT OF NOT PAYING SUPPLIERS! So Suppliers Should Care About “Pay-if-Paid” too.
  14. 14. z TWO TYPES OF CONTINGENT PAYMENT 1. Pay-when-Paid 2. Pay-if-Paid
  15. 15. z PAY-IF-PAID Shifts 1. Credit Risk of Owner Non-Payment 2. Risk of Contractor (or other Sub) Non-Performance
  16. 16. z PAY-WHEN-PAID + In most states, an implied duty to pay in a REASONABLE PERIOD OF TIME.
  17. 17. z 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.
  18. 18. z WHAT WORDS SHOULD BE AVOIDED? + IF + CONDITION PRECEDENT
  19. 19. z HOW TO SPOT A PAY-IF-PAID CLAUSE? Condition Precedent
  20. 20. z 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
  21. 21. z WATCH OUT FOR PAY-IF-PAID IN CLAUSES GOVERNING: 1. Change Orders 2. Claims or Requests or Equitable Adjustment
  22. 22. z WHAT ABOUT LIEN OR BOND CLAIMS? Generally cannot recover on payment bond or foreclosure lien (“no money yet due”). Unless your state statute provides otherwise.
  23. 23. z SOME STATES PERMIT “PAY-IF-PAID” BUT STILL ALLOW LIEN RIGHTS TO BE PRESERVED + Indiana + Ohio + Missouri
  24. 24. z TRANSTAR ELECTRIC There is a case now pending in the Ohio Supreme Court that will determine if Pay-if-Paid remains enforceable in Ohio.
  25. 25. z LIEN RIGHTS ON PRIVATE COMMERCIAL PROJECT
  26. 26. z STEP ONE: REQUEST A NOTICE OF COMMENCEMENT −Provides information about an improvement −Filed with the county recorder where the improvement is located + Not so for Public Projects −The recording of the Notice of Commencement triggers the obligation to provide a Notice of Furnishing −Owner should record
  27. 27. z REQUEST FOR NOTICE OF COMMENCEMENT Private Commercial Project
  28. 28. z NOTICE OF COMMENCEMENT Private Commercial Project
  29. 29. z WHO DO YOU REQUEST IT FROM? Private Commercial Project
  30. 30. z STEP TWO: SERVE A NOTICE OF FURNISHING − Puts the Owner and Original Contractor on notice − Send by Return Receipt (certified mail)
  31. 31. z NOTICE OF FURNISHING Private Commercial Project
  32. 32. z WHO DO YOU SEND IT TO? 1. The Designee listed on the Notice of Commencement + If no Designee, send it to the Owner as listed on the Notice of Commencement 2. The Original Contractor Send By Certified Mail Obtain Return Receipt
  33. 33. z WHEN DO YOU DO ALL OF THIS? + Simple Answer + Right When You Start Work /Furnish Material + 21-Day Window + “Better late than never”
  34. 34. z 21-DAY WINDOW
  35. 35. z PHASE 2 – PERFECT YOUR LIEN RIGHTS + Rumors + You Have Payments Overdue
  36. 36. z MECHANIC’S LIEN AFFIDAVIT
  37. 37. z TIMING MATTERS Private Commercial Project
  38. 38. z OHIO PROMPT PAYMENT ACT Provides that when the Contractor Receives Money from Owner CONTRACTOR MUST PAY SUB OR SUPPLIER WITHIN TEN (10) CALENDAR DAYS.
  39. 39. z APPLIES TO SUBS TOO AND SUB MUST PAY ITS SUB-SUBS AND SUPPLIERS WITHIN TEN (10) CALENDAR DAYS.
  40. 40. z WHAT IF PAYMENT NOT MADE TIMELY? OFFENDING PARTY MUST PAY 18% interest and attorney’s fees!
  41. 41. z CHANGE ORDERS Why wait? Big wait = Big Disappointment NOTICE, NOTICE, NOTICE “Early and Often” In Writing Price estimates before the work is done. Signed time tickets help, but are not everything. [Beware of “hidden” all encompassing release language in pay request, change orders and lien waivers.] Benefits: + Avoids legal pitfalls of late notice. + Minimizes excuse that “if only we had known sooner …” + Allows a problem to be solved before it grows.
  42. 42. z “WHY I CAN’T WAIT FOR A CHANGE ORDER” Or If I insisted on a change order for everything, nothing would get built. ONCE WORK PERFORMED WITHOUT A WRITTEN CHANGE ORDER OR DIRECTIVE – You are at risk and lose your leverage. Use the contract language (must be in writing prior) against the customer … “will hold up the work!”
  43. 43. z COLLECTION STRATEGIES To Wait is Wishful Thinking. Solutions: 1. Collection letters. 2. Mechanic’ liens 3. Payment bond claims Benefits: + Focus collection activities on the sources of the payment problem. + Utilize your true leverage.
  44. 44. z IT’S ‘THE PRINCIPLE OF THE THING’ aka PRINCIPLE COSTS! MAKE A BUSINESS DECISION: Attorneys fees are generally not recoverable so compromise earlier rather than later. (95% of cases ultimately settle). “A sign of a fair settlement is one in which both sides are equally displeased.” You have got to give if you want to get.
  45. 45. z Thank You! Don Gregory Kegler Brown Hill + Ritter dgregory@keglerbrown.com keglerbrown.com/gregory 614-462-5416

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