Patrick D. Harder, Esq. Nossaman Guthner Knox

Transcription

THE FUNDAMENTALS OF
CONSTRUCTION CONTRACTS
The Issues in California
Presented by:
Patrick D. Harder, Esq.
Nossaman Guthner Knox & Elliott LLP
© Copyright, 2005 Nossaman Guthner Knox & Elliott, LLP. All Rights Reserved.
The information contained herein does not constitute a legal opinion and should not be relied upon by the
reader as legal advice or be regarded as a substitute for legal advice.
Overview
Construction and Professional Contracts
• Balancing and Managing Risk through Creative
Contracting Practices
Project Delivery Methods
Essential Contract Terms
Indemnification and Insurance Coverage
Payment and Performance Bonds
Public Contracting
2
Project Delivery Methods
• Design-Bid-Build
• Design-Build
• Construction Management/CM at Risk
• Fast Track/“Design Sequencing”
Caltrans
• Public-Private Partnerships
3
Choosing the Delivery Method
• Managing Risk
• Control
• Legal/Regulatory Environment
4
Fast Track
• Incomplete Design
• Time savings
• Coordination
• Efficiencies
• Impact/Changes
• Cost Savings
• Final Cost?
• Maximize Access to
Income Streams/
Revenue
5
Design-Build
• Performance-Based Specification or Conceptual
Design
• Single Point of Responsibility
• Reduces Claims Based on Deficient Design
Exception for Prescriptive Specifications
¾ White v. Edsall Construction, 296 F.3rd. 1081
¾ Donohue Electric, Inc., VABCA No. 6618, 2003-1 B.C.A.
• Selection Criteria
Best Value (Price + Other Factors)
Qualifications-based Shortlist, with Low-Bid Selection
6
Design–Build For Public Works
• Statutory Limitations
• Competitive Procurement or Best Value
Procurement
• Development Agreements
• Applicability of Subcontractor Listing Law
Post-Award Subcontractor Selection Using
Competitive Process
7
Construction Management
• Owner as General Contractor
• CM to Manage the Process
• Primarily an Advisory Role to the Owner
• Authority/Control over Trade Contractors as
Owner’s On-Site Representative
• No Contractual Privity with Trade Contractors
• No Stake in the Outcome
8
CM At Risk
• Participates in Design Development and
Constructability Reviews
• Makes Value Engineering Recommendations
• Buys-in to the Design
• Direct Contract with Subcontractors
• At Risk/Stake In Outcome
9
Design-Bid-Build
• Competitive Procurement, Transparent Process
• No Contractor Risk for Design, Unforeseen
Conditions (Spearin Doctrine)
• Lump Sum Fixed Price or Cost Plus a Fee with a
Guaranteed Maximum
Cost-Plus Contracts Often Involve Sharing in Savings
Below the Guaranteed Maximum
10
Public-Private Partnerships
• A Process for the Realization of Public Works with
the Financial Participation of Private Enterprises
Transportation Projects
Water Supply/Water Treatment
Other Infrastructure
Entertainment/Leisure Facilities
Educational Facilities
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The Bidding Process
• Short-Listing Based on Qualifications, Experience,
Financial Capability
• Bidding Method Dependent Upon Contract Delivery
Method
More Complete Design
¾ Fixed Price, Firm Schedule Contract
Less Complete Design
¾ Price + Other Factors
¾ Cost Plus Fee With or Without a Maximum
Conceptual Design/Performance Specification Only
¾ Fixed Price Turn Key Contract
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Your Project is Unique!
• Remember that Every Project is Unique
Each Project has its own risks
Consider:
¾ Design Risk
¾ Geo-Technical/Environmental Risks
¾ Labor Unrest
¾ Material Price Escalation
¾ Political Risks
¾ Financial Risk, including Bankruptcy of Contractor
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Essential Contract Terms
• Implied Terms
• Scope of Work
• Payment Terms
• Indemnification
• Insurance/Bonds
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Implied Contract Terms
• Owner’s Obligations
• Contractor's Obligations
Site access
Cooperate with owner
Timely review
Work free from defects
Timely decisions
Work will conform to
contract documents
Not interfere
Coordinate consultants
Timely furnish owner
equipment
Inspection delays?
Coordinate subcontractor
work
Field coordination vs. Lack
of design detail
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Scope of Work
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Scope of Work
• Precise Scope Description is Critical
• Reference to Plans and Specifications
• Mandatory vs. Reference Documents
• Performance Specifications
• Prescriptive Specifications
• Substitutions
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Payment Terms
• Invoicing Requirements
Lien Releases
Schedule Updates
• Approvals/Certifications
• Retention
• Final Invoices

O & M Manuals
As-Built Drawings
Insurance Certificates
Written Warranties
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Prompt Payment Law
• Prompt Payment Statutes
Progress Payments
¾ Business and Professions Code Section 7108.5
¾ Public Contract Code Sections 10261.5; 10262; 10262.5
Retention Payments
¾ Civil Code Sections 3260; 3260.1
¾ Public Contract Code Sections 7102; 7200
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Prompt Payment Law (cont.)
• 2% per Month for Failure to Pay Amounts not in
Dispute
Business and Professions Code Section 7108.5
Public Contract Code Section 7107;10262; 10262.5
Civil Code Sections 3260; 3260.1
• Owner may Withhold 150% of Amounts in
Dispute
Civil Code § 3260
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Payment Disputes
• Right to suspend for non-payment
Civil Code Section 3260.2
• Right to withhold payments
150% of Amounts in Dispute
Applies to Public and Private Works
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Owner’s Payment Bond
• California Civil Code Section 3110.5
• 25% of the Contract Value for Projects with a completion
Schedule of 6 Months or Less
• 15% of the Contract Value for Longer-term Projects
• Surety bond, Letter of Credit or Escrow Account
• Projects over $5 Million (over $1 Million where Owner has
leasehold or other interest in the Property)
• Does not apply to Single Family Residential Projects
• Exemption for Publicly-traded Companies or Companies
with Net Worth in Excess of $50,000,000
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Indemnification Provisions
• Broad Form Indemnity
• Indemnification against Indemnitee’s own
negligence
Civil Code Section 2782
• Indemnity Based On Comparative Fault
• Inter-relationship With Insurance Coverage
(Contractual Liability Coverage)
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Insurance Coverage
• Commercial General Liability
Completed Operations Coverage
Contractual Liability Coverage
¾ Supports Indemnity Provisions

Work Product (“Business Risk”) Exclusion
Mold
Other Exclusions
Economic Damages
¾ F & H Construction v. ITT Hartford Ins. Co.,
118 Cal.App.4th 364 (2004)
24
Insurance Coverage (cont.)
• Worker’s Compensation/Employer’s Liability
Third Party Over Actions
• Property Insurance/Contractor’s All Risk
• Professional Liability Insurance
• OCIP Wrap Policies
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Insurance Issues
• Certificate of Insurance Form vs. Evidence of
Insurance Form
• Additional Insured Endorsements
ISO Form 2010
Inter-relationship with Contractual Liability Coverage
• Notice of Cancellation
• Tail Coverage for Claims-Made policies
• Defense Costs (“Burning Limits”)
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Payment and
Performance Bonds
• Risk Mitigation
At a Cost (1-2% of Construction Cost)
• Not Insurance
• Surety Entitled to Step into the Shoes of the
Contractor in the Event of a Default
“Green Book” requirement
• Payment Bonds Statutorily Required for Public
Work Projects
27
Payment and
Performance Bonds (Cont.)
• Current Market Conditions for Surety Industry –
Tightened Underwriting Standards
• Large Projects - >$250 million
• Performance Bonds for Design-Build Projects
28
Public Works Contracting
• Competitive Procurement / Subcontractor Listing
Exception in Case of “Emergency” – Public Contract Code
Section 1102
• Stop Notices
• Prevailing Wage Requirements
• MBE/WBE Goals
California Constitution, Art. I, Section 31 - Proposition
209
• Additional Requirements Where Federal Funds are
Involved
29
Licensing Issues
• Ensure Contractor/Design Professional holds the
Correct License
• No Lien Rights for Unlicensed Contractor
• Disgorgement of Revenue if Unlicensed
Business and Professions Code Section 7031
MW Erectors, Inc. v. Niederhauser
• Liability of Owner for Using Unlicensed Contractor
Workers Compensation/General Liability
Future Construction Defect Claims
Building Inspection Issues
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Question/Answer
31
Contact
Patrick D. Harder, Esq.
Nossaman Guthner Knox & Elliott LLP
445 S. Figueroa Street
31st Floor
Los Angeles, CA 90071
Phone: (213) 612-7859 Fax: (213) 612-7801
E-mail: [email protected]
www.nossaman.com