Construction Contracting Business and Legal Principles

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ISBN: 9780130910554 | 0130910554
Cover: Paperback
Copyright: 5/16/2001

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Exceptionally practical and authoritative, this introduction to construction contracting as it applies to typical, every-day situations explains "theoretical" ideas in terms of whatreallyhappens in practice. It emphasizes the more common case law holdings and industry customs that help avoid troublesome legal issues during the completion of a project.Chapter topics cover the law and the construction industry; contract formation, privity of contract, and other contract relationships; an overview of the prime contractits format and major components; owner-construction contractor prime contract "red flag" clauses; labor agreements; purchase order and subcontract agreements; insurance contracts; surety bonds; joint-venture agreements; bid and proposals; mistakes in bids; breach of contract; contract changes; differing site conditions; delays, suspensions, and terminations; liquidated damages,force majeure, and time extensions; allocating responsibility for delays; constructive acceleration; common rules of contract interpretation; documentation and records; construction contract claims; and dispute resolution.For construction managers and other industry professional concerned with legal and business aspects of construction and construction contracting.

Interface of the Law with the Construction Industry

(12)

The Typical Parties

(2)

Construction Contractors and Subcontractors

(1)

Architect/Engineers

(1)

Construction Owners

(1)

Service and Supply Organizations

(1)

Labor Force

(1)

Local, State, and Federal Governments

(1)

General Public

(1)

Rules for Participants

(3)

Contracts

(1)

Law, Statutes, and Regulations of Governmental Agencies

(3)

Tort Law

(1)

Liability in the Construction Process

(2)

Contract Liability

(1)

Tort Liability

(1)

Statutory Liability

(1)

Strict Liability

(1)

Conclusion

(1)

Questions and Problems

(3)

Contract Formation, Privity of Contract, and Other Contract Relationships

(12)

What Constitutes a Contract?

(4)

Offer

(2)

Acceptance

(1)

Consideration

(1)

Contract Must Not Be Contrary to Law---Nonenforceable Contracts

(1)

Privity of Contract and Other Contract Relationships

(4)

Privity of Contract

(1)

Third-Party Beneficiary Relationship

(1)

Thrid-Party Beneficiary Intent

(1)

Multiple Prime Contracts

(2)

Conclusion

(1)

Questions and Problems

(3)

The Prime Contract---An Overview

(14)

The Parties to Construction-Related Prime Contracts

(1)

Owner-Architect Contracts and Owner-Engineer Contracts

(1)

Owner-Construction Manager Contracts

(1)

Owner-Contractor Contracts

(1)

The Nature of the Contractual Services Provided

(3)

Design Only Services

(1)

Construct Only Services

(1)

Design-Construct Services

(1)

Turnkey and Fast-Track Design-Construct Services

(1)

Construction Management Services

(1)

Commercial Terms

(5)

Cost Plus Percentage Fee Terms

(1)

Cost Plus Fixed Fee Terms

(1)

Target Estimate (Cost Plus Incentive Fee) Terms

(1)

Guaranteed Maximum Price Terms

(1)

Fixed-Price Contracts

(2)

Conclusion

(1)

Questions and Problems

(4)

Prime Contract---Format and Major Components

(12)

Standard Forms-of-Contract

(2)

Federal Government Construction Contract

(1)

American Institute of Architects Contracts

(1)

Associated General Contractors Contracts

(1)

Engineers Joint Contract Documents Committee Contract

(1)

State Highway Department Contracts

(1)

Other Agency Contracts

(1)

One-of-a-Kind Contracts

(1)

Typical Documents Comprising the Contract

(5)

Bidding Documents

(2)

General Conditions of Contract

(1)

Supplementary Conditions of Contract

(1)

Specifications

(1)

Drawings

(1)

Reports of Investigations of Physical Conditions

(1)

Conclusion

(1)

Questions and Problems

(4)

Owner-Construction Contractor Prime Contract ``Red Flag'' Clauses

(20)

Threshold ``Red Flag'' Clauses

(4)

Dispute Resolution and Governing Law Clause

(1)

Changes Clause

(1)

Differing Site Conditions Clause

(1)

Delays and Suspensions of Work

(1)

Terminations and Partial Terminations

(1)

Other Important ``Red Flag'' Clauses

Time Provisions

(1)

Liquidated or Actual Damages for Late Completion

(1)

Site Availability and Access to the Site

(2)

Payment and Retention Provisions

(2)

Reports of Physical Site Conditions

(3)

Exculpatory Clauses in General

(1)

Insurance and Bond Provisions

(1)

Indemnification Requirements

(1)

Measurement and Payment Provisions

(1)

Variation in Quantities Clause

(1)

Equal Employment Opportunity and Disadvantaged/Women-Owned Business Requirements

(1)

Escalation Provisions

Conclusion

(1)

Questions and Problems

(24)

Labor Agreements

(16)

The Parties

(1)

Common Types of Labor Agreements

(3)

Labor Agreement Threshold ``Red Flag'' Provisions

(2)

Union Security Provisions

(1)

Hiring Hall Provisions

(1)

Grievance Procedures

(1)

Work Stoppage/Lockout Provisions

(1)

Subcontracting Clause

(1)

Other ``Red Flag'' Provisions

(5)

Wage/Benefits Hourly Rates

(1)

Normal Workday and Workweek

(1)

Overtime Definition and Pay Premium

(1)

Shift Work and Pay Premium

(1)

Work Rules and Manning Provisions

(1)

Steward Provisions

(1)

Me Too/Most Favored Nation Provisions

(1)

Conclusion

(1)

Questions and Problems

(4)

Purchase Order and Subcontract Agreements

(20)

Purchase Orders

(3)

Goods or Provision of Services?

(1)

Use of Purchase Orders for Certain Jobsite Services

(1)

Purchase Order Quantity Limitations

(1)

Conflicts with Seller's Sales Quotations

(1)

Flow-Down Language from Prime Contracts

(1)

``Red Flag'' Purchase Order Provisions

(6)

Necessary Identifying Information

(1)

Description of the Goods Purchased

(1)

Shipping Instructions

(1)

Pricing and Basis of Quantity Measurement

(1)

Payment and Retention Provisions

(2)

Specified Delivery Schedule

(1)

Required Delivery Point

(1)

Sales Taxes

(1)

Purchase Order General Conditions

(1)

Special or Supplementary Provisions

(1)

AGCC Forms of Purchase Order Agreements

(1)

Subcontract Agreements

(1)

Subcontract ``Red Flag'' Provisions

(5)

Necessary Identifying Information

(1)

Description of the Subcontract Work

(1)

Pricing and Basis of Quantity Measurement

(1)

Payment and Retention Provisions

(1)

Contractor Control of Performance Time Requirements

(1)

Damages in the Event of Late Completion

100

(1)

Subcontract Changes Clause

101

(1)

Insurance and Bond Requirements

101

(1)

Indemnification

101

(1)

48-Hour and 72-Hour Clauses

102

(1)

Union Labor Only Clause

102

(1)

AGCC Forms of Subcontract

103

(1)

Conclusion

103

(1)

Questions and Problems

103

(4)

Insurance Contracts

107

(20)

Worker's Compensation and Employer's Liability Policies

108

(3)

Worker's Compensation Section

109

(1)

Employer's Liability Section

109

(1)

USL&HW Act and the Jones Act

109

(1)

Premium Structure

110

(1)

Premium Modifiers

110

(1)

Public Liability Policies

111

(3)

Normal Liabilities That Are Covered

112

(1)

Exclusions, Endorsements, and Deductibles

113

(1)

Monetary Limits---Primary and Umbrella Policies

113

(1)

Premium Structure

113

(1)

Definition of Occurrence

114

(1)

P & I Polices

114

(1)

Builder's Risk Policies

114

(4)

Limitation on Policy Coverage

115

(1)

Named Peril v. All Risk Policies

115

(1)

Exclusion and Deductibles

115

(2)

Temporary Structures

117

(1)

Premium Structure

117

(1)

Monetary Limits of Policy

117

(1)

Reasons for Carrying Builder's Risk Insurance

118

(1)

Equipment Floater Policies

118

(1)

Method of Determining Loss

118

(1)

Premium Structure

119

(1)

Equipment Floater Insurance for Marine Equipment Operations

119

(1)

Evaluating the Need for Equipment Floater Insurance

119

(1)

Miscellaneous Policies for Special Situations

119

(1)

Owner-Provided Insurance Programs

120

(1)

``Red Flag'' Insurance Provisions

120

(2)

Named Exclusions

120

(1)

Additional Named Insureds

121

(1)

Deductibles

121

(1)

Policy Term

121

(1)

Subrogation

122

(1)

Policy Cancellations

122

(1)

Recent Trends in the Construction Insurance Industry

122

(1)

Claims-Made v. Occurrence Policies

122

(1)

Premium Escalation and Diminished Coverage

123

(1)

Conclusion

123

(1)

Questions and Problems

123

(4)

Surety Bonds

127

(14)

Relevant Parties and Surety Bond Terms

128

(2)

Surety

128

(1)

Principal

128

(1)

Obligee

128

(1)

Guarantee

129

(1)

Penal Sum

129

(1)

Premium

129

(1)

Indemnitor

129

(1)

How Do Surety Bonds Work?

130

(1)

Indemnity Agreement

130

(1)

Surety Bonds v. Insurance Contracts

130

(1)

How Good Is the Guarantee?

130

(1)

Surety's Belief in Contractor's Ability to Perform

131

(1)

Bid Bonds

131

(1)

Bid Bond Guarantee

131

(1)

Bid Bond Penal Sum

131

(1)

Performance Bonds

132

(3)

Performance Bond Guarantee

132

(1)

Surety's Options to Make Good the Guarantee

132

(1)

Penal Sum---How Much Does the Surety Pay?

133

(1)

Owner's Misconception About Performance Bonds

133

(1)

Excess Early Contract Payments

134

(1)

Contractor Protection of Bonding Capacity

135

(1)

Labor and Material Payment Bonds

135

(2)

Labor and Material Payment Bond Guarantee and Claimants

135

(2)

Other First Tier Bonds

137

(1)

Work Guarantee Bonds

137

(1)

Lien Discharge Bonds

138

(1)

Subcontract Bonds and Material Supplier Bonds

138

(1)

Conclusion

138

(1)

Questions and Problems

138

(3)

Joint-Venture Agreements

141

(12)

Joint and Several Liability

142

(1)

Conventional v. Item Joint-Venture

142

(1)

Conventional Joint-Venture

143

(7)

Formation and Termination Matters

143

(1)

Participation Percentages

143

(2)

General Management Matters

145

(1)

Working Capital Matters

146

(1)

Accounting Matters

147

(1)

Bond and Indemnification Matters

147

(1)

Insurance Matters

148

(1)

Partner Bankruptcy Provisions

149

(1)

Construction Equipment Acquisition and Disposal

149

(1)

Item Joint Ventures

150

(1)

Comparisons with Conventional Joint-Venture Agreements

150

(1)

Conclusion

151

(1)

Questions and Problems

151

(2)

BID and Proposals

153

(16)

Public and Private Sector Bidding

154

(1)

Public Bidding Statues

154

(2)

The Federal Construction Contract Procurement Policy

155

(1)

Public Owner's Actions After Bids Received

156

(5)

Material Improprieties

156

(1)

Factual Determination of the Low Bid

156

(2)

Responsive and Responsible Bidders

158

(2)

Rejection of Late Bids

160

(1)

Rejection of All Bids

161

(1)

Bid Irregularities/Informalities

161

(2)

Major and Minor Irregularities/Informalities

162

(1)

Rule for Determining Major or Minor Irregularities

162

(1)

Bidder's Property Right to the Contract

163

(1)

Bid Protests

163

(2)

Status to File Bid Protests

164

(1)

Timeliness

164

(1)

Protest to Whom?

164

(1)

What Can be Gained by a Bid Protest?

164

(1)

Rejection of All Bids in the Public Interest

165

(1)

Conclusion

166

(1)

Questions and Problems

167

(2)

Mistakes in BIDS

169

(14)

Firm Bid Rule and Doctrine of Mistake

170

(1)

Generalized Rules for Withdrawal

0171

(2)

Timeliness in Reporting Mistakes

173

(1)

Proof of the Mistake

173

(1)

Duty to Verify to a Low Bid

173

(4)

Possible Outcomes on Mistake Verification

176

(1)

Promissory Estoppel

177

(3)

Concept of Promissory Estoppel

178

(1)

Elements Necessary to Establish Liability

178

(2)

Conclusion

180

(1)

Questions and Problems

180

(3)

Breach of Contract

183

(16)

Breach of Contract and Materiality of Breach

184

(3)

Breach of Contract

184

(1)

Materiality of the Breach

184

(2)

Written Notice of Protest

186

(1)

Effect of Disclaimers or Exculpatory Clauses

187

(1)

Anticipatory Breaches of Contract

187

(1)

Express Obligations and Implied Warranties

188

(1)

Express Obligations

188

(1)

Implied Obligations (Implied Warranties)

188

(1)

Frequent Breach of Contract Situations

188

(7)

Failure to Make Payment for Completed Work

188

(2)

Interference with Contractual Performance

190

(1)

The Spearin Doctrine

191

(1)

Misrepresentation

192

(1)

Nondisclosure of Superior Knowledge

193

(1)

Improper Termination of Contract

194

(1)

Conclusion

195

(1)

Questions and Problems

195

(4)

Contract Changes

199

(20)

Contract Change Procedure

200

(1)

Federal Contract Changes Clause

200

(2)

Specifics in Changes Clauses

202

(6)

Distinctions Between Contract Change Terms

202

(1)

Who Is Empowered to Make Changes?

203

(1)

Who Is Empowered to Make Formal Changes to the Contract?

204

(1)

How are Price and Time Adjustments Determined?

205

(1)

``No Pay Without Signed Change Order'' Language

205

(1)

Constructive Changes

206

(2)

Constructive Change Notice Requirements

208

(1)

Cardinal Changes

208

(2)

Price and Time Adjustments for Contract Changes

210

(6)

Forward Pricing

210

(1)

Retrospective Pricing

210

(1)

Force Account

210

(1)

Application of Force Account Provisions to Extended Performance Situations

211

(1)

Use of Force Account Records in Determining Breach of Contract Damages

211

(1)

Impact Costs

211

(1)

Change Order Payment Disputes

212

(1)

Judicial Attitude to Payment Disputes

213

(2)

Orders for Payment of Disputed Changes

215

(1)

Proper Contractor Reaction to Oral or Written Directives

215

(1)

Conclusion

216

(1)

Questions and Problems

216

(3)

Differing Site Conditions

219

(16)

The Federal Differing Site Conditions Clause

220

(4)

Type I Differing Site Conditions

221

(1)

Type II Differing Site Conditions

221

(1)

Duty of Contractor to Give Notice

222

(1)

Duty of Government to Promptly Investigate

223

(1)

Equitable Adjustment Provided

223

(1)

Differing Site Conditions and Government Liability

224

(1)

Other Differing Site Conditions Clauses

224

(4)

Does the Clause Cover Both Type I and Type II Conditions?

224

(1)

Does the Contract Contain Conflicting Exculpatory Clauses?

224

(3)

What are the Notice Requirements?

227

(1)

What are the Owner's Responsibilities Under the Clause?

227

(1)

Reasons for Denying Differing Site Condition Claims

228

(4)

Lack of Notice

228

(1)

Difference Not Material

229

(1)

Failure to Conduct an Adequate Pre-Bid Site Inspection

230

(2)

Dealing With Differing Site Conditions

232

(1)

Prompt Written Notice

232

(1)

Request Owner's Instructions

232

(1)

Failure to Receive Determination or Receipt of Adverse Determination

232

(1)

Determination of the Equitable Adjustment

233

(1)

Conclusion

233

(1)

Questions and Problems

234

(1)

Delays, Suspensions, and Terminations

235

(18)

Delays and Suspensions of Work

236

(2)

Time is of the Essence

236

(1)

Delays v. Suspensions of Work

236

(1)

Compensable v. Excusable Delay

237

(1)

Contractual Provisions for Compensable Delay

238

(1)

The Federal Suspension of Work Clause

238

(1)

Delays and Suspensions in Other Contracts

239

(3)

No-Damages-For-Delay Clauses

239

(1)

Judicial Attitudes on No-Damages-For-Delay Clauses

239

(3)

Contracts with No Provisions for Delays

242

(1)

Delay in Early Completion Situations

242

(3)

Causes for Delays and Suspensions of Work

245

(1)

Defective Specifications

245

(1)

Site Availability Problems

245

(1)

Changes and Differing Site Conditions

246

(1)

Owner's Failure to Act Administratively

246

(1)

Notice Requirements

246

(2)

Purpose of the Notice Requirements

246

(1)

Constructive Notice

247

(1)

Terminations

248

(3)

Requirement for an Enabling Clause

248

(1)

Default Terminations

248

(1)

Convenience Terminations

249

(2)

Conclusion

251

(1)

Questions and Problems

251

(2)

Liquidated Damages, Force Majeure, and Time Extensions

253

(10)

Liquidated Damages

254

(3)

Conceptual Basis of Liquidated Damages

254

(1)

Liquidated Damages Provisions Are a Contract Remedy

254

(1)

Liquidated Damages Not a Penalty

255

(1)

Judicial Attitude Toward Liquidated Damages Provisions

256

(1)

Bonus/Penalty Clauses

256

(1)

Force Majeure

257

(1)

Common Conditions of Force Majeure

257

(1)

Contract Relief for Conditions of Force Majeure

257

(1)

Time Extensions

257

(3)

Importance of Notice of Claim

258

(1)

Contractor Responsibility to Prove Entitlement

259

(1)

Owner's Responsibility and Contractor Time Extension Requests

259

(1)

Granting of Time Extensions

259

(1)

Conclusion

260

(1)

Questions and Problems

260

(3)

Allocating Responsibility for Delays

263

(22)

Preliminary Points and Definitions

264

(9)

As-Planned, As-Built, and Schedule Update Networks

264

(3)

Owner Responsibility Delays

267

(1)

Contractor Responsibility Delays

268

(1)

Excusable Delays

269

(1)

Incorporation of Delays in CPM Network for Delay Impact Analysis

269

(1)

Forward-Looking and Retrospective Impact Analysis

270

(1)

Consecutive and Concurrent Events

270

(1)

Four Principles Governing Delay Impact Analysis

270

(3)

Delay Impact Analysis For Single-Path Projects

273

(2)

Delay Impact Analysis For Multi-path (Concurrent Path) Projects

275

(2)

Delay Impact Analysis For Complex Projects With Several Interconnected Concurrent Paths

277

(4)

Owner Liability for Delay Damages

279

(1)

Has the Contractor Met the Burden of Performance?

279

(1)

Contractor-Caused Delay

280

(1)

Contractor Liability for Liquidated Damages

280

(1)

Contractor Entitlement to Extension of Time

281

(1)

Summary of Delay Impact Analysis

281

(1)

Determining Damages Offset

281

(1)

Conclusion

281

(1)

Questions and Problems

282

(3)

Constructive Acceleration

285

(10)

Voluntary and Directed Acceleration

286

(1)

Acceleration and Voluntary Acceleration

286

(1)

Directed Acceleration

287

(1)

Constructive Acceleration

287

(1)

A Constructive Acceleration Example

288

(2)

Delay with Time Extension

288

(1)

Delay with No Time Extension

289

(1)

Accelerated Performance Without Delay

289

(1)

Proving Constructive Acceleration

290

(2)

Entitlement to Time Extension

290

(1)

Failure of Owner to Issue Extension of Time

291

(1)

Proof of Extra Costs

291

(1)

Completion Before Date to Which Contract Should Have Been Extended

292

(1)

Effect of an Owner's Directive to Accelerate

292

(1)

Contractor's Proper Contractual Procedure

292

(1)

Conclusion

293

(1)

Questions and Problems

293

(2)

Common Rules of Contract Interpretation

295

(12)

Manifestations of Intent

296

(1)

Express Contract Terms

296

(1)

Course of Performance

296

(1)

Course of Dealing

297

(1)

Separately Negotiated Terms

297

(1)

Customs and Trade Practices

297

(1)

Generalized Rules of Contract Interpretation

297

(3)

The Contract Must Be Read As a Whole

298

(1)

Determine the Relative Importance of the Manifestations of Intent

299

(1)

Parole Evidence Rule

300

(1)

The Doctrine of Contra Proferentem

301

(2)

Conclusion

303

(1)

Questions and Problems

304

(3)

Documentation and Records

307

(10)

Documentation

308

(3)

``Put-It-in-Writing'' Rule

308

(1)

What is Documentation?

309

(1)

Value of Good Documentation

309

(1)

Exceptions to the Hearsay Rule

310

(1)

Conditions for Introduction of Job Records

310

(1)

Typical Job Records

311

(3)

Letters of Transmittal and Submittal

312

(1)

Letters of Notice

312

(1)

Letters Requesting or Disputing Instructions or Letters of Protest

313

(1)

Confirmations and Meeting Minutes

313

(1)

Routine Job Records

313

(1)

Contractual Notices, Orders, or Directives

313

(1)

Personal Diaries

314

(1)

Job Document Matrix

314

(1)

Conclusion

314

(1)

Questions and Problems

314

(3)

Construction Contract Claims

317

(4)

Threshold Matters

318

(1)

``Red Flag'' Contract Provisions

319

(2)

Notice Requirements

320

(1)

Claim Processing Procedure

320

(1)

Proscribed Procedure for Determination of Adjustments of Contract Price and Time

321

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Construction Contracting Business and Legal Principles

Summary

Table of Contents

Supplemental Materials