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Minimizing your risk + avoiding legal problems

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On Thursday, January 19, construction law area chair + attorney Don Gregory presented a seminar on minimizing your risk and avoiding legal problems. This seminar discussed contract language, conditional bids, and killer contract clauses such as contingent payment, no damage for delay, waiver of lien + bond rights, and unconditional lien waivers before payment.

Published in: Law
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Minimizing your risk + avoiding legal problems

  1. 1. z MINIMIZING Your Risk + AVOIDING Legal Problems Presented by Don Gregory January 19, 2017
  2. 2. z TOP RISKS in Today’s Construction 1 Labor Shortage 30% 2 Contract Language 22%
  3. 3. z Conditional BIDSYour first – and perhaps last – chance to make the rules.
  4. 4. z 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 “ “
  5. 5. z 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
  6. 6. z 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
  7. 7. z Conditional BIDSCan be incorporated into the Subcontract scope (attach as exhibit A) OR Retain leverage for subcontract revisions
  8. 8. z Securing Equitable CONTRACT TERMS
  9. 9. z Killer Contract Clauses Contingent Payment No Damage for Delay Waiver of Lien + Bond Rights Unconditional Lien Waivers Before Payment
  10. 10. z Killer Contract Clauses Contingent Payment No Damage for Delay Waiver of Lien + Bond Rights Unconditional Lien Waivers Before Payment
  11. 11. z Contingent Payment Pay-If- Paid Pay- When- Paid
  12. 12. z “Condition precedent”
  13. 13. z Progress Payment
  14. 14. z Final Payment
  15. 15. z To be enforceable, must be clear + unambiguous Pay-If- Paid
  16. 16. z If not drafted correctly, “benefit of the doubt” will go to subcontractor Pay-If- Paid
  17. 17. z Unenforceable by statute in: WI SC DE
  18. 18. z Why have a mechanic’s lien statute when it can be defeated with a Pay-If-Paid clause?
  19. 19. z 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
  20. 20. z Paid within a reasonable period of time Pay- When- Paid
  21. 21. z If owner fails to pay, payment on demand Pay- When- Paid
  22. 22. z Practical Pointers Look for contracts with good payment terms (Fixed payment terms, pay-when-paid) Try to Insert Pay-When- Paid Language (Use AIA A401 or ConsensusDOCS 750) Modify Pay-If-Paid Language
  23. 23. z Killer Contract Clauses Contingent Payment No Damage for Delay Waiver of Lien + Bond Rights Unconditional Lien Waivers Before Payment
  24. 24. z Not Enforceable Under Ohio’s Fairness in Construction Contracting Act
  25. 25. z
  26. 26. z Sole remedy is a time extension Generally unenforceable if – statute/case considers it against public policy or extent or nature of delay was not foreseeable
  27. 27. z Killer Contract Clauses Contingent Payment No Damage for Delay Waiver of Lien + Bond Rights Unconditional Lien Waivers Before Payment
  28. 28. z Contrary to popular belief, in many states an “upfront” lien wavier (without independent consideration like payment) is ENFORCEABLE
  29. 29. z Lien Waiver Language
  30. 30. z Killer Contract Clauses Contingent Payment No Damage for Delay Waiver of Lien + Bond Rights Unconditional Lien Waivers Before Payment
  31. 31. z
  32. 32. z Condition your lien waiver … followed by a trailing unconditional lien waiver SOLUTION
  33. 33. z Conditional Waivers Use Conditional Waivers for Progress Payments
  34. 34. z Signing Waivers Be Careful When Signing Waivers for Partial Payment
  35. 35. z Proper NOTICE Nobody likes it Everybody needs it
  36. 36. z Change Orders IN WRITING Avoid provisions that: allow one to direct additional work without agreement on price make payment for additional work contingent upon payment by owner allow “backcharges” without notice (ConsensusDOCS 750)
  37. 37. z Proper Notice Risk of Proceeding Without Change Order or Written Direction
  38. 38. z Would love to perform the work without delay, but YOUR contract makes me stop to get a change order signed in advance!
  39. 39. z 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”
  40. 40. z Don’t get burned by signing a change order with broad waiver language
  41. 41. z 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
  42. 42. z Questions? Donald W. Gregory, Director Kegler Brown Hill + Ritter dgregory@keglerbrown.com keglerbrown.com/gregory 614-462-5416

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