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Speaker: Karen Palecek of Palecek & Palecek, PLLC 
6263 N. Scottsdale Road, Ste 310 
Scottsdale, AZ 85250 
Phone: (602) 522-2454 
1 
E-mail: karen@paleceklaw.com 
www.constructionlawyersaz.com
KAREN A. PALECEK is a co-managing member of Palecek & Palecek PLLC where she has 
more than 26 years of experience in the areas of construction law and litigation. Her 
clientele includes specialty trade contractors, suppliers, general contractors and owners. 
Her practice and experience is focused on every aspect of the construction industry 
including but not limited to contract review and negotiation, mechanics liens, bond claims, 
arbitration, mediation, bench trials, jury trials, payment and performance issues, claim 
evaluations, litigation from complaint through to collection on judgments and appeals. 
She also makes frequent appearances at the Office of Administrative Hearings for matters 
involving the Registrar of Contractors. Karen obtained her Juris Doctorate degree from 
Arizona State College of Law in December 1987 and was licensed to practice in the State of 
Arizona in 1988. She received her undergraduate degree in Political Science Cum Laude 
from the University of Dayton in 1983. 
Reported cases include the following: 
In re Mortgages Ltd, 482 B. R. 298 (Bankr. Ariz. 2012) 
Fagerlie v. Markham Contracting Co. Inc. 227 Ariz. 367, 258 P. 3d 185 (Ariz. App. 2011) 
Western Insulated Glass v. Mckay 174 Ariz. 597, 852 p.2d 412 (App. 1993) 
Memorandum decision: 
Markham Contracting Co., Inc. vs First American Title Insurance Company , 2013 WL3838690 
(Ariz. App. Div 1) 
Associations: 
American Subcontractor’s Association State Bar of Arizona Construction Law section 
Features: 
Karen was featured in Attorney at Law magazine “Women in Law Issue” 
Palecek & Palecek PLLC 
6263 N. Scottsdale Road, Ste 310 
Scottsdale, AZ 85250 
Phone: (602) 522-2454 
E-mail: karen@paleceklaw.com 
www.constructionlawyersaz.com 
2
I. BID PROPOSAL 
II. CONTRACT 
III. DURING PROJECT 
IV. CLAIMS 
3
Do your bid terms and conditions address 
important terms such as price, scope, claims, 
delays, scheduling issues, termination, 
indemnity, and attorneys’ fees? 
4
Clauses to include in your bid to protect you 
• Sample Bid Form 
• Scope of Work 
• Inclusions 
• Exclusions 
• Time for Performance (2) 
• Consequential Damages 
• Termination of Contract 
• Indemnity, especially if you are a subcontractor 
5
SAMPLE BID FORM 
6
What terms in the contract address delays, 
scheduling, termination, and indemnity? 
Contract Clauses to Watch Out For 
7
Time for Performance – Sample Clause #1 
to use 
Contractor shall be given a reasonable time in which to make delivery of materials 
and/or commence and complete the performance of the contract. Contractor shall 
not be responsible for delays or default where occasioned by any causes beyond its 
control including but not limited to delays caused by the owner, architect and/or 
engineers, delays in transportation, shortages of raw material, civil disorders, labor 
difficulties, vendor allocations, fires, floods, accidents, hazardous waste or controlled 
substances and acts of God. Contractor shall be entitled to equitable adjustment in 
the contract amount for additional costs due to unanticipated project delays or 
accelerations. Contractor shall not be obligated to provide any labor or materials 
outside the scope of work unless Contractor shall first agree in writing, to equitably 
adjust the contract amount to be paid to Contractor. 
8
Time for Performance – Sample Clause #2 
to use 
If Contractor’s work is delayed, disrupted and/or accelerated as a result of 
events and/or occurrences outside Contractor’s control that cause it to incur 
additional cost or expense in performing the Work (for, among other things, 
but not limited to: overtime, weekend, or shift work), Contractor shall be 
entitled to an adjustment in the time for performance equivalent to the time 
lost, as well as reimbursement for the additional costs or expenses incurred. 
9
Termination of Contract – Sample Clause 
to use 
In the event of any termination by the Customer or Contractor which is not 
justified by a material default of Contractor, Contractor shall be entitled to 
payment from the Customer for all costs incurred by Contractor for which 
Contractor has not received payment, including, but not limited to, reasonable 
overhead, profit, expenses and damages, including attorneys’ fees and 
interest, and profit on unperformed work. 
10
Indemnity 
• Sample Proposed Clause: 
“To the fullest extent permitted by law, Contractor agrees to indemnify and hold harmless, the Owner, the 
Architect, Engineer, and all of their parents, subsidiaries, affiliates, agents, officers and employees from and 
against all claims, damages, losses penalties, …, including but not limited to attorneys’ fees and court costs, 
arising out of or resulting from the performance of Contractor’s work…regardless of whether it is caused in 
part by the acts, omissions or negligence of a party indemnified hereunder.” 
• Response: 
The Contractor will not indemnify anyone for anyone else’s negligence. Contractor agrees only to 
indemnify for this Contractor’s negligence. 
11
No Damage for Delay 
• Sample Proposed Clause: 
Extensions of Time: If for any reasons beyond its control Contractor shall be materially delayed 
at any time in the progress of Work under such circumstances as would entitle Contractor to an 
extension of time for completion of Work hereunder or other relief, provided that Contractor 
shall have filed with Contractor a written claim for such extension or relief that complies with 
the requisites for making a claim under the Contract and in sufficient time to permit a claim 
against the Owner for an extension or other relief under the Contract. In the event the 
Contractor's performance of this Contract is delayed or interfered with by acts or omissions of 
the Owner, or other agents of Owner, Contractor may request an extension of time for the 
performance of this Contract as provided above, but shall NOT be entitled to any increase in 
the Contract Price or to damages or additional compensation as a consequence of such delays 
or interference. 
Response: 
Contractor is entitled to reasonable compensation associated with delays caused by 
Owner, Architect, Engineer, or other agents of Owner. 12
How can you help protect your firm during a project 
when you have scheduling issues and delays? 
13
Things you can do during a project to help 
protect yourself during a project 
Daily Job Logs 
Meeting Minutes 
/ Weekly 
Meetings 
Correspondence 
(including e-mails 
and text 
messages) 
Time Tickets / Sign 
off 
Don’t waive 
claims by signing 
waivers 
Notice of Claim 
Change Orders 
14
Daily Job Logs 
15
Meeting Minutes / Weekly Meetings 
16
Correspondence (including e-mails and 
text messages) 
• Make sure you document any breaches or delays in writing, even if it is just 
in e-mail or text messages* 
17
Time Tickets / Sign off 
18
Suspending Work under the Prompt Payment Act and Common Law 
19
Tools to Collect Payment 
• Use the Prompt Payment statute’s Stop Work Provision as a tool to get paid 
progress payments, change orders, retention or final payment 
• Can send letter to owner to confirm payment 
• See the multiple ways under A.R.S. § 32-1129.04 
• Payment Cycle is 21 days for General Contractors and 28 days for 
Subcontractors 
20
Prompt Payment and Common Law 
• You can stop work under the PPS no matter how much is owed as long as it 
has been deemed “certified” and “approved” 
• (GC’s Pay App AND Sub’s Pay App) 
• Common law requires a material breach 
• What is a material breach? 
• The breach goes to the essence of the contract-significant amount must be owed to be able 
to stop work 
21
What is a Material Breach? 
• Material Breach by Owner if they do not pay an entire Pay Application 
• Material Breach by General Contractor, if it doesn’t bill timely for sub’s work 
22
Prompt Payment Act Procedure 
Failure to Pay by Owner 
A.R.S. § 32-1129.04(B) 
Stop Work 
Notice letter 
3 days 
Notice of 
Suspension 
23
Prompt Payment Act Procedure 
Failure to Pay by General Contractor 
A.R.S. § 32-1129.04(C) 
Stop Work 
Notice 
letter 
7 days 
Notice of 
Suspension 
24
25
26
Claim Process 
1. Know your contract deadlines 
• Watch for 24-48 hour deadlines 
• Don’t waive claims for delays on change orders and waivers 
2. Stop Notice / Payment Bond / Mechanics Lien? 
• Stop Notice – Stops the flow of Money 
• Record Lien on Private Work 
• Payment Bond Claim – Possible on Public or Private Projects 
27
Mechanics’ and Materialmen’s Liens 
Governed by the definition of “Completion” A.R.S. 
§33-993(D) 
The earlier of either: 
30 days after C of O 
(or final inspection) 
Cessation of Labor 
for 60 days 
If neither, then: 
120 days after last date any labor, materials, 
or work provided to project 28
Using Payment Bonds to get Paid 
29
Little Miller Act v. Federal Miller Act 
Little 
Miller 
Act 
City 
County 
State 
A.R.S. § 34-221 et seq. 
30
Little Miller Act v. Federal Miller Act 
Federal 
Miller 
Act 
Federal/US 
Government 
40 U.S.C. §§ 3131-3134 
31
The Name is Bond, Payment Bond. 
• Things to Remember for Little Miller Act claims: 
THEY ARE EXTREMELY TIME SENSITIVE! A.R.S. § 34-221 et. seq. (payment 
bond provisions) 
 Make every effort to get a copy of the bond early and often! (Preliminary 20-Day 
Notice) 
32
The Name is Bond, Payment Bond. 
•Little Miller Bond claims 
General Timeline 
Preliminary 20-Day Notice 
Get a copy of the bond! 
Lack of 20-day notice jeopardizes 
some bond claims 
90 Day Notice/Bond Claims 
Required if no contract with 
Principal 
Deadline: 90 days from last date of 
File Suit on Payment Bond 
work 
1 year from date last supplied labor and materials to jobsite 
33
The Name is Bond, Payment Bond. 
•Federal Miller Bond claims 
General Timeline 
(EXTREMELY TIME SENSITIVE!) 
Get a Copy of the Bond!! 
This can take some time 
90 Day Notice/Bond Claims 
Deadline: Received 90 days from last date of work 
File Suit on Payment Bond 
1 year from date last supplied labor and materials to jobsite 
34
The Kitchen Sink Approach: 
Bond Claim, Mechanics’ Lien, or Both? 
Is there a 
bond? 
Bond in lieu of 
lien rights? 
Bond Claim 
OR Lien OR 
No 
BOTH Bond 
Claim 
ONLY 
Public 
Project? 
Bond 
Claim 
ONLY. No 
Lien 
Discharge 
of lien 
bond 
Mechanic’s 
Lien ONLY 
Bond 
Claim 
ONLY 
No 
Yes 
Yes 
Yes 
No 
IF 
35
To Waive, or Not to Waive… 
That is the Question 
4 Types of Statutory Waivers 
•Conditional Waiver and Release on Progress Payment 
•A.R.S. § 33-1008(D)(1) 
•Unconditional Waiver and Release on Progress Payment 
•A.R.S. § 33-1008(D)(2) 
•Conditional Waiver and Release on Final Payment 
•A.R.S. § 33-1008(D)(3) 
•Unconditional Waiver and Release on Final Payment 
•A.R.S. § 33-1008(D)(4) 
36
WAIVERS AND RELEASES ON PROGRESS PAYMENTS 
37
WAIVERS AND RELEASES ON FINAL PAYMENT 
38
39
Questions? 
For full-sized handouts of the documents referenced in the PowerPoint please contact 
Palecek & Palecek PLLC 
Palecek & Palecek PLLC 
6263 N. Scottsdale Road, Ste 310 
Scottsdale, AZ 85250 
Phone: (602) 522-2454 
E-mail: karen@paleceklaw.com 
www.constructionlawyersaz.com 
40

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How To Protect Your Construction Business and Legal Interests

  • 1. Speaker: Karen Palecek of Palecek & Palecek, PLLC 6263 N. Scottsdale Road, Ste 310 Scottsdale, AZ 85250 Phone: (602) 522-2454 1 E-mail: karen@paleceklaw.com www.constructionlawyersaz.com
  • 2. KAREN A. PALECEK is a co-managing member of Palecek & Palecek PLLC where she has more than 26 years of experience in the areas of construction law and litigation. Her clientele includes specialty trade contractors, suppliers, general contractors and owners. Her practice and experience is focused on every aspect of the construction industry including but not limited to contract review and negotiation, mechanics liens, bond claims, arbitration, mediation, bench trials, jury trials, payment and performance issues, claim evaluations, litigation from complaint through to collection on judgments and appeals. She also makes frequent appearances at the Office of Administrative Hearings for matters involving the Registrar of Contractors. Karen obtained her Juris Doctorate degree from Arizona State College of Law in December 1987 and was licensed to practice in the State of Arizona in 1988. She received her undergraduate degree in Political Science Cum Laude from the University of Dayton in 1983. Reported cases include the following: In re Mortgages Ltd, 482 B. R. 298 (Bankr. Ariz. 2012) Fagerlie v. Markham Contracting Co. Inc. 227 Ariz. 367, 258 P. 3d 185 (Ariz. App. 2011) Western Insulated Glass v. Mckay 174 Ariz. 597, 852 p.2d 412 (App. 1993) Memorandum decision: Markham Contracting Co., Inc. vs First American Title Insurance Company , 2013 WL3838690 (Ariz. App. Div 1) Associations: American Subcontractor’s Association State Bar of Arizona Construction Law section Features: Karen was featured in Attorney at Law magazine “Women in Law Issue” Palecek & Palecek PLLC 6263 N. Scottsdale Road, Ste 310 Scottsdale, AZ 85250 Phone: (602) 522-2454 E-mail: karen@paleceklaw.com www.constructionlawyersaz.com 2
  • 3. I. BID PROPOSAL II. CONTRACT III. DURING PROJECT IV. CLAIMS 3
  • 4. Do your bid terms and conditions address important terms such as price, scope, claims, delays, scheduling issues, termination, indemnity, and attorneys’ fees? 4
  • 5. Clauses to include in your bid to protect you • Sample Bid Form • Scope of Work • Inclusions • Exclusions • Time for Performance (2) • Consequential Damages • Termination of Contract • Indemnity, especially if you are a subcontractor 5
  • 7. What terms in the contract address delays, scheduling, termination, and indemnity? Contract Clauses to Watch Out For 7
  • 8. Time for Performance – Sample Clause #1 to use Contractor shall be given a reasonable time in which to make delivery of materials and/or commence and complete the performance of the contract. Contractor shall not be responsible for delays or default where occasioned by any causes beyond its control including but not limited to delays caused by the owner, architect and/or engineers, delays in transportation, shortages of raw material, civil disorders, labor difficulties, vendor allocations, fires, floods, accidents, hazardous waste or controlled substances and acts of God. Contractor shall be entitled to equitable adjustment in the contract amount for additional costs due to unanticipated project delays or accelerations. Contractor shall not be obligated to provide any labor or materials outside the scope of work unless Contractor shall first agree in writing, to equitably adjust the contract amount to be paid to Contractor. 8
  • 9. Time for Performance – Sample Clause #2 to use If Contractor’s work is delayed, disrupted and/or accelerated as a result of events and/or occurrences outside Contractor’s control that cause it to incur additional cost or expense in performing the Work (for, among other things, but not limited to: overtime, weekend, or shift work), Contractor shall be entitled to an adjustment in the time for performance equivalent to the time lost, as well as reimbursement for the additional costs or expenses incurred. 9
  • 10. Termination of Contract – Sample Clause to use In the event of any termination by the Customer or Contractor which is not justified by a material default of Contractor, Contractor shall be entitled to payment from the Customer for all costs incurred by Contractor for which Contractor has not received payment, including, but not limited to, reasonable overhead, profit, expenses and damages, including attorneys’ fees and interest, and profit on unperformed work. 10
  • 11. Indemnity • Sample Proposed Clause: “To the fullest extent permitted by law, Contractor agrees to indemnify and hold harmless, the Owner, the Architect, Engineer, and all of their parents, subsidiaries, affiliates, agents, officers and employees from and against all claims, damages, losses penalties, …, including but not limited to attorneys’ fees and court costs, arising out of or resulting from the performance of Contractor’s work…regardless of whether it is caused in part by the acts, omissions or negligence of a party indemnified hereunder.” • Response: The Contractor will not indemnify anyone for anyone else’s negligence. Contractor agrees only to indemnify for this Contractor’s negligence. 11
  • 12. No Damage for Delay • Sample Proposed Clause: Extensions of Time: If for any reasons beyond its control Contractor shall be materially delayed at any time in the progress of Work under such circumstances as would entitle Contractor to an extension of time for completion of Work hereunder or other relief, provided that Contractor shall have filed with Contractor a written claim for such extension or relief that complies with the requisites for making a claim under the Contract and in sufficient time to permit a claim against the Owner for an extension or other relief under the Contract. In the event the Contractor's performance of this Contract is delayed or interfered with by acts or omissions of the Owner, or other agents of Owner, Contractor may request an extension of time for the performance of this Contract as provided above, but shall NOT be entitled to any increase in the Contract Price or to damages or additional compensation as a consequence of such delays or interference. Response: Contractor is entitled to reasonable compensation associated with delays caused by Owner, Architect, Engineer, or other agents of Owner. 12
  • 13. How can you help protect your firm during a project when you have scheduling issues and delays? 13
  • 14. Things you can do during a project to help protect yourself during a project Daily Job Logs Meeting Minutes / Weekly Meetings Correspondence (including e-mails and text messages) Time Tickets / Sign off Don’t waive claims by signing waivers Notice of Claim Change Orders 14
  • 16. Meeting Minutes / Weekly Meetings 16
  • 17. Correspondence (including e-mails and text messages) • Make sure you document any breaches or delays in writing, even if it is just in e-mail or text messages* 17
  • 18. Time Tickets / Sign off 18
  • 19. Suspending Work under the Prompt Payment Act and Common Law 19
  • 20. Tools to Collect Payment • Use the Prompt Payment statute’s Stop Work Provision as a tool to get paid progress payments, change orders, retention or final payment • Can send letter to owner to confirm payment • See the multiple ways under A.R.S. § 32-1129.04 • Payment Cycle is 21 days for General Contractors and 28 days for Subcontractors 20
  • 21. Prompt Payment and Common Law • You can stop work under the PPS no matter how much is owed as long as it has been deemed “certified” and “approved” • (GC’s Pay App AND Sub’s Pay App) • Common law requires a material breach • What is a material breach? • The breach goes to the essence of the contract-significant amount must be owed to be able to stop work 21
  • 22. What is a Material Breach? • Material Breach by Owner if they do not pay an entire Pay Application • Material Breach by General Contractor, if it doesn’t bill timely for sub’s work 22
  • 23. Prompt Payment Act Procedure Failure to Pay by Owner A.R.S. § 32-1129.04(B) Stop Work Notice letter 3 days Notice of Suspension 23
  • 24. Prompt Payment Act Procedure Failure to Pay by General Contractor A.R.S. § 32-1129.04(C) Stop Work Notice letter 7 days Notice of Suspension 24
  • 25. 25
  • 26. 26
  • 27. Claim Process 1. Know your contract deadlines • Watch for 24-48 hour deadlines • Don’t waive claims for delays on change orders and waivers 2. Stop Notice / Payment Bond / Mechanics Lien? • Stop Notice – Stops the flow of Money • Record Lien on Private Work • Payment Bond Claim – Possible on Public or Private Projects 27
  • 28. Mechanics’ and Materialmen’s Liens Governed by the definition of “Completion” A.R.S. §33-993(D) The earlier of either: 30 days after C of O (or final inspection) Cessation of Labor for 60 days If neither, then: 120 days after last date any labor, materials, or work provided to project 28
  • 29. Using Payment Bonds to get Paid 29
  • 30. Little Miller Act v. Federal Miller Act Little Miller Act City County State A.R.S. § 34-221 et seq. 30
  • 31. Little Miller Act v. Federal Miller Act Federal Miller Act Federal/US Government 40 U.S.C. §§ 3131-3134 31
  • 32. The Name is Bond, Payment Bond. • Things to Remember for Little Miller Act claims: THEY ARE EXTREMELY TIME SENSITIVE! A.R.S. § 34-221 et. seq. (payment bond provisions)  Make every effort to get a copy of the bond early and often! (Preliminary 20-Day Notice) 32
  • 33. The Name is Bond, Payment Bond. •Little Miller Bond claims General Timeline Preliminary 20-Day Notice Get a copy of the bond! Lack of 20-day notice jeopardizes some bond claims 90 Day Notice/Bond Claims Required if no contract with Principal Deadline: 90 days from last date of File Suit on Payment Bond work 1 year from date last supplied labor and materials to jobsite 33
  • 34. The Name is Bond, Payment Bond. •Federal Miller Bond claims General Timeline (EXTREMELY TIME SENSITIVE!) Get a Copy of the Bond!! This can take some time 90 Day Notice/Bond Claims Deadline: Received 90 days from last date of work File Suit on Payment Bond 1 year from date last supplied labor and materials to jobsite 34
  • 35. The Kitchen Sink Approach: Bond Claim, Mechanics’ Lien, or Both? Is there a bond? Bond in lieu of lien rights? Bond Claim OR Lien OR No BOTH Bond Claim ONLY Public Project? Bond Claim ONLY. No Lien Discharge of lien bond Mechanic’s Lien ONLY Bond Claim ONLY No Yes Yes Yes No IF 35
  • 36. To Waive, or Not to Waive… That is the Question 4 Types of Statutory Waivers •Conditional Waiver and Release on Progress Payment •A.R.S. § 33-1008(D)(1) •Unconditional Waiver and Release on Progress Payment •A.R.S. § 33-1008(D)(2) •Conditional Waiver and Release on Final Payment •A.R.S. § 33-1008(D)(3) •Unconditional Waiver and Release on Final Payment •A.R.S. § 33-1008(D)(4) 36
  • 37. WAIVERS AND RELEASES ON PROGRESS PAYMENTS 37
  • 38. WAIVERS AND RELEASES ON FINAL PAYMENT 38
  • 39. 39
  • 40. Questions? For full-sized handouts of the documents referenced in the PowerPoint please contact Palecek & Palecek PLLC Palecek & Palecek PLLC 6263 N. Scottsdale Road, Ste 310 Scottsdale, AZ 85250 Phone: (602) 522-2454 E-mail: karen@paleceklaw.com www.constructionlawyersaz.com 40