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Understanding Construction Contracts




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Construction contracts can contain terms that impact your company’s bottom line. Reviewing them carefully prior to signing is indispensable, and can save your company time and money. This contract review guide is meant to be a starting point for reviewing contracts in general. It highlights some common contract terms and their potential impact. You can begin to understand which terms are most often negotiated in contracts generally. Then, with the help of licensed inside or outside counsel, analyze the commercial risks associated with construction contracts in depth and understand terms and conditions to protect your company’s assets.


Scope of the Agreement

Terms of Payment

Warranties

Damages, Limits of Liability and Indemnification

Insurance

Terms and Conditions

Standard Form Contracts



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Scope of the Agreement and Terms of Payment


        Understanding Construction Contracts

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     Scope of the Agreement

Examine the definition of services to be provided to ensure the language is clear enough for an unrelated third party to understand the scope. The contract should include a time frame for completion of services. The rights and obligations of both parties should be clearly outlined. Any mechanism for changing the scope of the contract, as well as any of the terms, if allowed, should also be outlined within the contract.

     Terms of Payment

Terms of payment should be clearly listed within the contract so that the expectations of both parties are clear. The contract should specify the agreed payment schedule for goods received.

Construction contracts can contain terms that impact your company’s bottom line. Reviewing them carefully prior to signing is indispensable, and can save your company time and money. This contract review guide is meant to be a starting point for reviewing contracts in general. It highlights some common contract terms and their potential impact. You can begin to understand which terms are most often negotiated in contracts generally. Then, with the help of licensed inside or outside counsel, analyze the commercial risks associated with construction contracts in depth and understand terms and conditions to protect your company’s assets.

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Warranties


        Understanding Construction Contracts

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There are two types of warranties: express and implied. Both types are assurances regarding particular issues, such as performance.

     Express warranties are those that are defined specifically in the contract.

     Implied warranties are based in statutory and/or common law, depending
     upon your jurisdiction.

They are two-fold: a warranty of merchantability, which requires that goods/services must reasonably conform to an ordinary buyer’s standards, and a warranty of fitness for a particular purpose, which states that if a seller knows the intended purpose for the product or service, the act of selling the product to that customer implies that it is fit for that purpose.

Be aware of warranty disclaimers and understand how the disclaimer limits your statutory rights. If it disclaims all warranties, express and implied, then you will likely be limited to the remedies in the contract for issues related to things like performance. You should also examine any disclaimer in the context of the contract. While it may require you to disclaim your statutory rights, other contract language may give you adequate rights and remedies regarding the points about which you are most concerned.

Construction contracts can contain terms that impact your company’s bottom line. Reviewing them carefully prior to signing is indispensable, and can save your company time and money. This contract review guide is meant to be a starting point for reviewing contracts in general. It highlights some common contract terms and their potential impact. You can begin to understand which terms are most often negotiated in contracts generally. Then, with the help of licensed inside or outside counsel, analyze the commercial risks associated with construction contracts in depth and understand terms and conditions to protect your company’s assets.

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Damages, Limits of Liability and Indemnification


        Understanding Construction Contracts

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These three items are often in close proximity to one another in a contract, as they are interrelated. Damages may be defined as certain types of losses that could create liability under the contract. A limit on liability would restrict the amount of damages that a party would be required to pay if found liable for such damages. Sometimes this may also include a limit for indemnification.

Indemnification provisions allocate risk and cost between the parties. It is important to examine whether the party assuming the risk is the party with the most control over that risk. For instance, when a company’s employees are required to work at a customer’s location, the company is often asked to release the customer from all liability relating to the employees presence at the customer’s location.

In some cases, indemnification is limited to negligence or to a specific dollar amount, under a heading of “limits of liability.”

Construction contracts can contain terms that impact your company’s bottom line. Reviewing them carefully prior to signing is indispensable, and can save your company time and money. This contract review guide is meant to be a starting point for reviewing contracts in general. It highlights some common contract terms and their potential impact. You can begin to understand which terms are most often negotiated in contracts generally. Then, with the help of licensed inside or outside counsel, analyze the commercial risks associated with construction contracts in depth and understand terms and conditions to protect your company’s assets.

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Insurance


        Understanding Construction Contracts

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Some contracts will contain minimum bodily injury and property damage liability coverage amounts that the party must possess and also may require that the customer is added as an additional insured on those coverages.

Prior to consenting to any contract, it is prudent to examine insurance coverage against the amount of liability exposure in a particular contract.

Construction contracts can contain terms that impact your company’s bottom line. Reviewing them carefully prior to signing is indispensable, and can save your company time and money. This contract review guide is meant to be a starting point for reviewing contracts in general. It highlights some common contract terms and their potential impact. You can begin to understand which terms are most often negotiated in contracts generally. Then, with the help of licensed inside or outside counsel, analyze the commercial risks associated with construction contracts in depth and understand terms and conditions to protect your company’s assets.

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Terms and Conditions


        Understanding Construction Contracts

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     • Governing Law & Jurisdiction – Look at the governing law provision to make
     sure that you are comfortable with the implications of the state law chosen by the
     drafter. This can impact the interpretation of the contract from warranties to
     indemnification.

     Additionally, when specific statutes or regulations are referenced in the body of a
     contract, it is as though that statute or regulation is wholly contained within the
     contract itself. It is vital to read and understand that language prior to giving your
     consent. This happens regularly in government contracting situations.

     • Dispute Resolution – This is another clause with which you must be comfortable
     with the laws of the state or forum chosen by the drafter. The rules chosen to
     govern dispute resolution can impact the outcome. Additionally, you should
     consider whether dispute resolution is right for your situation.

     • Intellectual Property – When you are disclosing and/or licensing your company’s
     intellectual property, be it trademarks, copyrights or patents, it is important to
     include a clause that recognizes the owner of such intellectual property and
     affirmatively states that the agreement does not transfer any rights.

     • Standard of Care – A standard of care clause may appear in certain types of
     contracts. The standard of care that is provided by the law should provide the
     minimum standard of care for the provision of services under the contract.

     • Term/Termination – The contract should provide both parties with the right to
     terminate the contract. The situations in which termination is allowed will vary from
     contract to contract. Some contracts will allow the right to terminate in cases of
     dissatisfaction; others will allow it with a specific notice, for no cause. It is
     important that you contemplate in what cases you would want the right to
     terminate the contract. There should also be language defining the term of the
     contract. Does it have a finite term? Does it automatically renew each period?

     • Right to Cure – Related to termination, some contracts will contain a right to cure
     clause. This would give the defaulting party notice of a breach and a finite period of
     time in which to remedy such breach.

Construction contracts can contain terms that impact your company’s bottom line. Reviewing them carefully prior to signing is indispensable, and can save your company time and money. This contract review guide is meant to be a starting point for reviewing contracts in general. It highlights some common contract terms and their potential impact. You can begin to understand which terms are most often negotiated in contracts generally. Then, with the help of licensed inside or outside counsel, analyze the commercial risks associated with construction contracts in depth and understand terms and conditions to protect your company’s assets.

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Standard Form Contracts


        Understanding Construction Contracts

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Unlike other industries, construction lacks a consistent set of laws like the Uniform Commercial Code or a federal statutory scheme. Contracts produced by professional and trade associations for architects (American Institute of Architects), engineers (Engineers Joint Contract Documents Committee) and commercial contractors (Associated General Contractors of America) can serve as important references and benchmarks when drafting a new contract. They are a good source of industry best practices, and using them can greatly reduce drafting and review time, meaning lower overall transaction costs for your company.

For all of their advantages, there are several things that you should be cautious about when using standard form contracts. Note the following cautions about standard forms before using them.

     • Standard forms, which are written broadly to encompass many different
     contexts, require transaction-specific and jurisdiction-specific modifications.
     For example, certain states require that indemnities be written in a certain way.

     • Changes made to one part of the document, such as definitions of
     words or terms, may affect other parts that make reference to it.

     • Custom-drafted and industry-drafted forms are often incompatible.
     Even industry-drafted forms from different publishers can be incompatible.

     • Standard forms always contain the bias of the drafter. Use this bias;
     know when to use various standard forms published by different
     industry organizations.

Construction contracts can contain terms that impact your company’s bottom line. Reviewing them carefully prior to signing is indispensable, and can save your company time and money. This contract review guide is meant to be a starting point for reviewing contracts in general. It highlights some common contract terms and their potential impact. You can begin to understand which terms are most often negotiated in contracts generally. Then, with the help of licensed inside or outside counsel, analyze the commercial risks associated with construction contracts in depth and understand terms and conditions to protect your company’s assets.

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Top 10 OSHA Violations of 2014




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The 2014 top 10 list of most frequently cited standards did not change significantly from 2013, with fall protection violations remaining at the top of the list. In fact, the top four most cited violations remained the same. The 2014 top 10 most frequently cited standards are as follows.

     1. Fall Protection (29 CFR 1926.501)

Falls from ladders and roofs still account for the majority of injuries at height. Identifying fall hazards and deciding how to best protect workers is the first step in eliminating (or at least reducing) fall hazards. This includes—but is not limited to—guardrail systems, safety net systems and personal fall protection systems in conjunction with safe work practices and training.

     2. Hazard Communication (29 CFR 1910.1200)

In order to ensure chemical safety in the workplace, information must be available about the identities and hazards of all chemicals in use. OSHA standard 1910.1200 governs hazard communication to workers about chemicals that are both produced or imported into the workplace. Both the failure to develop and maintain a written and proper training program for employees, as well as the failure to provide a Safety Data Sheet (SDS) for each hazardous chemical, top the citation list.

     3. Scaffolding (29 CFR 1926.501)

According to the Bureau of Labor and Statistics (BLS), the vast majority of scaffold accidents can be attributed to the planking or support of the scaffold giving way, or to employees slipping or being struck by falling objects. A heavily cited violation year after year, the dangers associated with scaffold use can be controlled if employers strictly enforce OSHA standards.

     4. Respiratory Protection (29 CFR 1910.134)

Standard 1910.134 provides employers with guidance in establishing and maintaining a respiratory inspection program for program administration, worksite-specific procedures and respirator use. Respirators protect workers against oxygen-deficient environments, harmful dusts, fogs, smokes, mists, gases, vapors and sprays. These hazards can cause cancer, lung impairment and other diseases or death.

     5. Lockout/Tag out (29 CFR 1910.147)

Lockout/tag out (LOTO) refers to specific practices and procedures that safeguard employees from the unexpected startup of machinery and equipment, or the release of hazardous energy during service and maintenance activities. Workers who service mechanical and electrical equipment face the greatest risk of injury if LOTO is not properly implemented. Workers injured on the job from exposure to hazardous energy can lose an average of 24 workdays for recuperation.

     6. Powered Industrial Trucks (29 CFR 1910.178)

Each year, tens of thousands of injuries related to powered industrial trucks, particularly forklifts, occur. Many employees are injured when lift trucks are driven off loading docks or when they fall between docks and unsecured trailers. Other common injuries involve employees being struck by lift trucks or falling from elevated pallets and tines. Most incidents also involve property damage, including damage to overhead sprinklers, racking, pipes, walls and machinery.

     7. Electrical – Wiring Methods (29 CFR 1910.305)

Electricity has long been recognized as a serious workplace hazard. OSHA’s electrical standards are designed to protect employees exposed to dangers such as electric shock, electrocution, fires and explosions. Electrical wiring violations that top the electrical citation list include the failure to install and use electrical equipment according to the manufacturer’s instructions, failure to guard electrical equipment, failure to identify disconnecting means or circuits, and not keeping workspaces clear.

     8. Ladders (29 CFR 1926.1053)

These types of violations typically occur when ladders are used for purposes other than those designated by the manufacturer—when the top step of a stepladder is used as a step, when ladders are not used on stable and level surfaces, or when defective ladders are not withdrawn from service. Most employee injuries can be attributed to inadequate training and a disregard for safe operating procedures.

     9. Machine Guarding (29 CFR 1910.212)

When left exposed, moving machine parts have the potential to cause serious workplace injuries, such as crushed fingers or hands, amputation, burns or blindness. Employers need to take the time to institute the proper safeguards to protect workers. The risk of employee injury is substantially reduced by installing and maintaining the proper machine guarding.

     10. Electrical – General Requirements (29 CFR 1910.303)

This standard contains many guidelines to ensure that all electrical components at a worksite are installed and maintained safely. The standard also outlines the working space needed around electrical equipment.

The Occupational Safety and Health Administration (OSHA) recently unveiled its top 10 most frequently cited violations at the annual National Safety Council Congress and Expo. The agency reports the leading causes of workplace injuries during its fiscal year (October through September).

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What Exactly Does CPLI Cover?


        Contractors Professional Liability Insurance

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It is a common belief that an error or omission made during the design-build process is covered under a typical commercial general liability (CGL) policy. Although professional liability is not excluded on the basic CGL policy, insurers often add an endorsement to exclude it. A CGL policy covers contractors against bodily injury or tangible property damage due to their professional service, but not economic damages (financial losses). And because the majority of all claims against design professionals are for economic damages, CGL coverage would not apply.

CPLI fills that coverage gap by protecting contractors from claims made due to an error or omission that occurred while they were performing a professional service. Examples of situations in which a CPLI claim may arise include:

     • Improper design of a concrete floor that cracks under the weight
     of a company’s equipment

     • Installation of a heating and cooling system found to be incapable
     of properly ventilating a building

     • A design defect that prohibits a building from being certified

     • A flaw in a building’s structure that causes a business interruption
     in order to have the flaw repaired

Even if a contractor subcontracts the design work and indemnifies the contractor from any liability, CPLI is still a good coverage to have. There are several reasons for this:

     1. The indemnification, also known as a hold harmless clause
     (or provision), may not be enforceable.

     2.If the design company went out of business or no longer carries
     professional liability coverage when the claim is made, the contractor may
     be out of luck and held responsible for the damages.

     3.If the design professional’s policy limits are low or exhausted,
     the contractor may be found liable.

Normally reserved for design professionals, such as architects, engineers or web designers, contractors professional liability insurance (CPLI) protects contractors from claims arising from negligent errors or omissions that occur while they are performing a professional service. This coverage has become increasingly necessary for contractors who have taken on the responsibility of both designing and building.

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CPLI Specifics


        Contractors Professional Liability Insurance

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CPLI is usually written on a claims-made basis, meaning the policy must be active when a professional liability claim is made in order for coverage to apply. Because of this, CPLI should be carried for a long-term period to ensure there is no possibility of an excluded claim in the future.

The policy may be tailored to include specific types of work done by the design professional. Alternatively, the policy can be made broader by including a list of covered activities.

As an “all-risk” coverage, there are certain things that are excluded under a typical CPLI policy. Typical exclusions include:

     • Failure to complete a project on time

     • Deliberate noncompliance with laws and regulations

     • Performance guarantees (warranties)

     • Fraud

     • Ownership, use or maintenance of mobile vehicles, such as
     automobiles, watercraft or aircraft

     • Products made by the insured

     • Faulty workmanship (this is considered a construction risk
     rather than a design risk)

     • Pollution

     • Governmental actions/war

     • Contractual liability

Normally reserved for design professionals, such as architects, engineers or web designers, contractors professional liability insurance (CPLI) protects contractors from claims arising from negligent errors or omissions that occur while they are performing a professional service. This coverage has become increasingly necessary for contractors who have taken on the responsibility of both designing and building.

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