Construction Contract Review — What is Critical?

October 4, 2024
Critical components of a construction contract include: indemnification, scope of work, warranty, payment terms, pay if paid/pay when paid. schedule of values, liquidated damages, damages waiver(s), financial wherewithal of owner, schedule, construction change directives, and more. The following article details some of the critical contract elements for review.

1. INDEMNIFICATION

  1. Different types of indemnity provisions – Type 1, 2, and 3
    1. Type 1 – no ability to control the risk, not insurable
    2. Type 2 – indemnify against all except the Owner’s sole negligence
    3. Type 3 – limited to contractor’s negligence, applies to personal injury and property damage claims; which are insurable. A201 language
  2. State law regarding enforceability
    1. limitation on ability to agree to indemnify for their own negligence.
    2. In PA, can be done but must be clearly stated
  3. Review the entire contract. There may be indemnity provisions included in other parts of the Contract. Ex. Patent infringement and liens filed against the property.

2. SCOPE OF WORK

  1. Contractor’s
  2. Subcontractor’s

3. WARRANTY

  1. Typical one year warranty
  2. Warranty related to defective construction
  3. Statute of Limitations/Statute of Repose

4. PAYMENT TERMS

  1. Timing and required documentation
  2. Retainage
    1. percentage
    2. alternatives such as escrow procedures
    3. reduction and elimination of retainage
  3. Withholding Payment
    1. for this job
    2. for other jobs
  4. Final Payment
    1. When
    2. Documentation required
    3. Release required for final payment

5. SCHEDULE OF VALUES

  1. Front loading/mobilization
  2. False Claims Act

6. LIQUIDATED DAMAGES

  1. Enforceability
  2. Is it a penalty?
    1. Disproportionate to the anticipated hann?

7. DAMAGES WAIVER(S)

  1. Waiver of Consequential Damages
  2. No Damages for Delay
  3. Enforceability
  4. Public vs. Private projects

8. PAY IF PAID/PAY WHEN PAID

  1. Enforceability
  2. Rationale

9. FINANCIAL WHEREWITHAL OF OWNER

  1. Ability to inquire of Owner’s financial arrangements

10. SCHEDULE

  1. Construction Schedule
  2. Milestones
  3. Delays due to weather, force majeure
  4. Requests for additional time
  5. Revisions/Updates, Need for Approval

11. RFI (REQUEST FOR INFORMATION) PROCESS

  1. Responsibility for responding
  2. Turnaround time

12. CONSTRUCTION CHANGE DIRECTIVES

  1. Force account work, pricing of the work
    1. Contractor financing of the work pending owner approval/payment
    2. Progress billing requirement for “approved” change orders

13. DIFFERING SITE CONDITIONS

  1. Standard provisions/implied by law
  2. Type 1 – Erroneous indications in the Contract Documents
  3. Type 2 – Unknown site conditions and of an unusual nature

14. CLAIMS PROCEDURES

  1. Notice requirements
  2. Documentation requirements
  3. Field changes
  4. Informal deferral process
  5. Finality of change order requests, all inclusiveness

15. DISPUTE RESOLUTION PROCEDURES

  1. Initial Decision Maker/architect
  2. Conditions precedent
  3. Mediation
  4. Binding arbitration
  5. Choice of Venue – State law limitations
  6. Prompt Pay Act Damages
  7. Claims for Attorneys Fees

16. CURE NOTICES/TERMINATION

17. TERMINATION FOR CONVENIENCE

  1. Termination Damages

18. SUSPENSION OF WORK

19. INSPECTIONS/DEFECTIVE WORK

20. INSURANCE REQUIREMENTS

  1. Types and amounts of coverages required
  2. E&O coverage
  3. Environmental coverage
  4. Waiver of subrogation
  5. Additional Insureds

21. PAYMENT AND PERFORMANCE BOND REQUIREMENT

22. SUBMITTALS AND SUBSTITUTIONS

23. PERSONNEL SUBSTITUTIONS

  1. Replacement of subcontractor(s)
  2. Contractor management/personnel

24. GOVERNING LAW

  1. State law limitation

25. COPYRIGHT ISSUES

26. LEED ISSUES

27. BIM (BUILDING INFORMATION MODELING) REQUIREMENTS

About Scotti Law Group

Scotti Law Group is a trusted construction litigation and real estate law firm serving clients in Pittsburgh and nationwide. We deliver expert legal guidance to owners, builders, contractors, materials suppliers, and design professionals across infrastructure, heavy highway, public, and commercial construction projects. Our firm draws on over sixty years of experience to provide strategic support in our work toward the successful resolution of construction disputes.”

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