As discussed in Part 1 of this series, this blog post discusses considerations that should be given in drafting and negotiating certain key provisions in construction contracts to avoid potential issues during construction and future legal disputes. In addition to those provisions discussed in Part I, the following construction contract provisions should also be considered:
1. Payment Provisions – This provision should define the process by which the owner pays the contractor and the procedures for withholding payment should a dispute arise. Payment provisions typically include a “schedule of values” (SOV), which assigns a value for each line item of work for the project. In its application for payment, a contractor certifies the percentage of work completed for each item in the SOV. Disputes commonly arise where a poorly drafted payment provision fails to specify how contractors should determine the percentage of work completed. This essentially gives the contractor great liberty in assigning percentages of completion as it deems appropriate, leaving the owner with little room to challenge the percentage and withhold payment without the contractor declaring default and threatening to walk off the job mid-project and sue unless paid. To avoid such potential issues, the provision should include specific procedures for payment disputes. This may include having an independent or agreed-upon party review the work for completeness and inspect the work for conformity or defects before payment is required. The provision may provide a method or objective measures that a contractor is to use in determining percentages of completion. The provision should also clearly address the circumstances in which an owner can withhold payment (nonconforming work, delays, potential defects, liens, failure to meet substantial completion, etc.). A carefully worded retainage provision may protect owners by allowing them to withhold a percentage of the contract price until project completion. However, contractors may seek language that restricts the owner’s right to withhold payment to limited circumstances specified in the contract.
2. Change Orders – Change orders can add work to or deduct work from a project, and therefore, impact contract price. It is critical that the contract require all changes to the scope of work, price, and project deadlines be made in writing to avoid potential disputes. The provision should further make clear that no course of conduct, dealing, or implied acceptance will result in change order approval. A well-drafted provision should detail the procedure for submitting and approving change orders to avoid potential disputes.
3. Notice Provisions – Notice provision should specify who should be given notice, where the notice may be sent, the type of notice that may be given, the timing for giving notice after a triggering event, the nature/substance of the notice, and amount of time before the noticing party can take action. A clearly drafted waiver provision should be included to address the consequence of untimely notices or failure to comply with notice procedures. The failure to follow the notice obligations before termination can lead to potential claims of wrongful termination, breach, or waiver defenses.
Our experience in negotiating, drafting and litigating construction contracts enables us to provide a 360 degree view of potential issues that may arise based on the language of key contract provisions. Experienced Miami construction lawyers like us should be consulted to review and negotiate these contract provisions to protect your interests to the extent possible.
Lauren Fallick is a partner with Haber Law with over 10 years of practicing complex business and civil litigation. She also has extensive experience in construction defect litigation, insurance coverage litigation, business and partnership disputes, real estate disputes, and professional liability litigation.