Archive for the ‘Delays’ Category

What is a Construction Change Directive (CCD)?

construction change directive

The construction industry, just as any other industry has its own terminology or lingo. There are many examples such as “punch-list,” “lien” and “substantial completion” to name a few. No words are more dreaded than change order. Construction change orders are some of the most litigated and disputed documents in all of construction law.

A cousin of the change order, is the construction change directive. Although the names are similar the legal implications are significantly different. The construction change directive may be even more disputed than the construction change order but it is not as widely used. This post will help to familiarize readers with what exactly a construction change directive entails.

Definition of Construction Change Directive

I found a quick definition of construction change directive:

An alternate mechanism for directing the contractor to perform additional work to the contract when time and/or cost of the work is not in agreement between the owner and contractor performing the work.

at DictionaryOfConstruction.com.

To break down this definition, one must look to its parts. First, its an alternative mechanism, meaning that there are other way  to accomplish the goal of the owner/architect. Second, it directs the “contractor” to perform additional work. Its not a request but rather a directive. Lastly, its a directive given by the owner when time and/or cost are not in agreement. This is vastly different from the change order, which has to be agreed to by the contractor and owner.

Basically this is an order to do something even though there is no agreement as to timing and/or price. This type of authoritarian mechanism is prone for heavy dispute.

Application of the Construction Change Directive

The application of the construction change directive is less complicated than its definition. The AIA G714 is a single page document that basically has four sections.

  1. A section containing all of the project information which is standard on any contract document which includes a brief description of the change that is being directed;
  2. The proposed adjustment with regards to price;
  3. The proposed adjustment with regards to time; and
  4. The signature blocks for the Architect, Owner (required) and Contractor (no signature required for contractor).

Once this document is filled out and signed by the owner and architect,  it needs delivery to the contractor for effectiveness. This is a bold and powerful document.

Construction Change Directive: Risks and Rewards

As with any document, whether it be an agreed upon change order or a construction change directive, there are inherent risks involved with taking on new work. The owner has to weigh the risks and rewards with taking such bold move in order to get what it wants. This move could backfire and be costly for the owner and/or negate any damages for delay that the owner may have against the general contractor because of the forced additional work.

Its important to speak with an experienced attorney when dealing with complex procedures on a construction project. Click here or call 504-894-9653 for more information.

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Posted in:     Change Orders, Construction Contracts, Construction News, Damages, Delays  /  Tags: , , ,   /   Leave a comment

Sports and Construction – Lessons Learned

Growing up in South Louisiana, originally from Baton Rouge and now residing in New Orleans, I’ve had a really rough week being a sports fan. After LSU laid an egg in the BCS Championship game and the Saints came up seconds short in the NFL playoffs, I began to ponder, what can we learn from this? Being a construction law attorney, I wanted my clients and readers to learn form the mistakes and shortcomings of my favorite teams.

Some general themes we can take away from both losses are that the teams who are most prepared and execute the game plan the best will be the most successful. In both instances, LSU and the Saints did not execute and were not as prepared as their oppoinent. In the construciton world owners, general contractors, subcontractors and suppliers succeed when they are fully prepared for the project at hand and fully execute the company’s specific game plan for success.

IF LSU’s BCS PERFORMANCE WERE A CONTRACTOR IT WOULD NEVER GET PAID

LSU worked very hard all season to get into the big game. This paralles a budding company doing all it can to land that very promising bid for a substantial project. A contractor prepares for months and years to get that big once-in-a-lifetime project. When the big stage rolls around, the contractor needs to make sure, he/she does everything correctly so that they get paid and produce quality.

In LSU’s case this contractor would have not been successful in negotiating a quality contract that is mutually beneficial to each contracting party. They would not have filed all of the preliminary documents such as a notice of contract. This is a company that would have had numerous delays along the way, many of its own doing. During the course of the project this company would have not made any adjustments as the project went along continuing to further bury itself with no chance for success. When then end of the project rolled around, there would be no substantial competion filed, no adequate demand for payment, no lien filed or any other tool used to secure payment. This company would be last in line to get paid, and when its all said and done, the dream project would have been a disater, possibly putting this company in financial ruin. I encounter this type of company all the time and unfortunately, by time it gets to my desk, there is little or no hope of securing full and final payment.

IF THE SAINT’S PLAYOFF GAME WITH THE 49′ERS WERE A SUPPLIER IT WOULD FALL SHORT OF SUCCESS

The Saints on the otherhand had a game that played out just a bit differently. Had it not been for mistakes early on and poor late game defense, they too would have advanced and been in the NFC Championship game. This is analogous to many issues that suppliers have when trying to successfully obtain full payment at the conclusion of a job.

By the time I get a call from a supplier who is not being paid on a job, many of the typical right protection devices are no longer present due to the mistakes that suppliers have made early on. When supplies are delivered to a job, notice to the general contractor, hiring party and property owner need to be given to preserve lien rights. Also, suppliers need to make good practice of obtaining a personal guarantee from the contracting party. Further, suppliers need to set up an “open account” in the supply contract, which will statutorily preserve rights for attorney fees and costs. All of these precursor items can be set up in the begining and save a supplier lots of time, money, and stress at the end of a project.

When I finally get the call from the supplier to aid in collection efforts, we make a strong last minute charge to file a lien, send a demand letter asserting rights under open account, and file suit to protect these causes of action. Depending on the set of facts at that juncutre will determine our chances of success. In the case of the Saints, too many early mistakes and a shoddy prevent defense, led to their downfall. If this were a supplier then they would have gotten pennies on the dollar at best on this project, no matter the last minute heroic efforts.

WRAP UP

We need to look at the success and failures of others and learn from mistakes and good calls. There are lessons to be learned here. My teams will live to fight another day, but many companies do not. In these economic times an ounce of prevention is worth a pound of cure, to steal a medical analogy. Set up your game plan to do it right from the start and you will end up with success, unlike the teams noted above.

Posted in:     Collections, Construction Contracts, Construction News, Delays, Filing Requirements, Litigation, Louisiana  /  Tags: , , , , , , , , , ,   /   3 Comments

Litigation Topics for Prime / Subcontractor Contracts

I had a speaking engagement today here in Kenner, Louisiana (a suburb of New Orleans) whereby I had the pleasure of speaking to a group of contractors and architects regarding construction contracts. The bulk of the discussion focused on the most contested provisions within construction contracts.

The information is very helpful to contractors and can be used a resource when a contractor begins the contracting phase of a construction project to help get a better understanding of what is going on within the contract documents.

Prime/Subcontractors Contracts

Contracts between prime/general contractors and their subcontractors make up a vital link in the construction project chain. Here both parties need to negotiate terms to better protect when a dispute arises. A well crafted contract can better protect a prime and/or a sub when default arises. Typically subcontractors are at the mercy of the prime. A good subcontractor will have his attorney review any agreement to make sure that the deal is an even one.

AIA – American Institute of Architects is the most common standard form contracts in the construction industry. AIA contracts are a good starting point and offer contracts for Prime/sub relationships, Architect/owner, Owner/Prime, and any other design professional/contractor relationship that may exist.

• Commonly litigated subcontract provisions

There are a number of provisions which could be contained in a prime/subcontractor contract that need to raise a red flag when present and should be negotiated by either party so as to keep the contract from becoming one-sided.

1. Incorporation by Reference Clauses: (flow-up & flow-down provisions)

  • a Flow-down provision in a prime/sub contract will incorporate by reference terms and provisions of the owner/prime contract;
  • conversely, a Flow-up provision incorporates the duties owed by the owner to the prime into the prime/sub contract;
  • Many times parties enter into these agreements with out ever seeing the referenced document making them susceptible to unknown provisions;
  • Enforcement depends on the reciprocality of the provisions and lack of ambiguity

2. Scope of Work Provisions

  • Prime contractors want a broad scope of work provision with subs so that they can pin other work to them later on if needed;
  • Subs should demand very specific scope of work provisions so as to know exactly what work is expected and what exactly they have bid on;
  • This provision can incorporate other documents such as plans and specifications;
  • Provision needed for extra work or change order if work called for is outside of the scope;

3. Change Order and Extra Work Provisions

  • Very popular area for dispute in construction contracts – changes are always happening
  • There should be a clear provision in the contract outlining the process whereby CO’s are made and approved;
  • Define change order – modification to work already contemplated by the agreement; (ie different materials)
  • Define extra – item of work beyond the original scope of work that is added during construction;
  • MAKE SURE change orders and/or extras are in writing;

4. Notice Provisions

  • Found in various places within a prime/sub contract
  • Very important risk-shifiting devices – can determine a win or loss regarding a claim

5. Indemnity Clauses

  • Typically these trickle down the line Owner -> Prime -> Sub
  • These are generally enforceable, Subs should be careful and not allow indemnity for negligence of another party
  • Insurance can be purchased by prime or sub to cover the indemnity obligation

6. No Damages for Delay Clauses

  • Owners and Primes try to insert “no damage for delay” provisions in contracts for protection against unforeseen delays
  • Parties want to check all referencing documents to see if this provision is in there

7. LD’s – Liquidated Damages Provisions

  • Very helpful provisions because the pre-determine delay damages, usually on a per day basis;
  • Enforceable unless determined to be a penalty or if they are a “one- size fits all” provision;
  • LD’s are a good way to measure delay damage but can enhance the need for Contractor/Sub to accelerate work to avoid further damage, leading to defects and workmanship issues;
  • For LD’s to apply the contractors work must be a substantial factor in the delay;

8. Lien Waivers

  • reduce the chance for encumbrances to be placed on the title of the property;
  • Usually not enforceable if lien waiver required before work performed;
  • A good tool for Prime and Owner to reduce exposure;
  • Can be used in an incremental fashion as payments are distributed

9. “Pay-when-paid” v. “Pay-if-paid”

  • Pay-if-paid is defined as a subcontractor gets paid by the general contractor only if the owner pays the general contractor for that subcontractor’s work.” Requires a condition precedent.
  • Pay-when-paid in contrast to the pay-if-paid; a pay-when-paid clause does not establish a condition precedent, but merely creates a timing mechanism for the general contractor’s payment to the subcontractor.

10. Retainage

  • Typically 5%-10% of each payment will be withheld by the Owner/Prime until a later date, such as substantial completion
  • Its purpose is to keep a pool of money to remedy any defects in workmanship by that sub

11. Termination provisions

  • Termination for Cause
  • Usually nonpayment, excessive delay, insolvency, or convenience are reasons to terminate the contract

12. ADR Clause (Arbitration/Mediation clauses)

  • Arbitration (most popular) – binding way to avoid litigation;
  • Mediation – non-binding way to avoid litigation;
  • Both can be effective, typically arbitration can be more intimidating due to its binding and no (very limited) ability to appeal

13. Attorney fee provisions

  • Very popular as no one likes to pay an attorney!
  • Many provisions will say that the unsuccessful party must pay attorney fees but others to be careful will put the burden on one party
  • Primes and subs should include an attorney fee provision in all contracts
  • Good to be specific on the provision and include for litigation and ADR

14. Forum selection & choice of law

  • If working out of state, make sure you know which venue a dispute will be held in;
  • This can be a very costly provision

(list partially obtained from the ABA’s Fundamentals of Construction Law)

 

Posted in:     Arbitration & ADR, Change Orders, Construction Contracts, Construction News, Damages, Delays, Dispute A Lien, Disputes, Insurance, Litigation, Louisiana, Mechanics Lien  /  Tags: , , , , ,   /   2 Comments

For Louisiana Contractors Bidding on Public Works Projects: This Case is for You

For all you Louisiana public works contractors out there bidding for public works projects to expand your private business or bidding for public works projects because that’s what you’ve always done – whatever the case may be – the 4th Circuit Court of Appeals is on your side. For cities and states trying to construct public works projects to improve their turf, take notes please.

We’ve written before about what happens in Louisiana when a bidder on a public project violates time requirements under the Louisiana Public Works Act, but what happens when Louisiana or a city within violates time requirements in failing to execute contracts  and notices to proceed with a winning bidder for a public project?

On April 27th of this year, the 4th Circuit Court of Appeals decided in the Wallance C. Drennan, Inc. v. City of New Orleans case, nuances of certain provisions of the Louisiana Public Works Act (La RS 38:2252 and 38:2212) that ultimately address the question above and render the law more stringent for cities and states advertising for public works bids.

In Wallace, the City of New Orleans advertised bids for two different public works projects under the Louisiana Public Works Act to renovate some streets around town. These two projects were to be partially or fully funded by the Louisiana and Federal governments, but financing was not finalized at the time the bids were received. Wallace C. Drennan, Inc. was the contractor that was the lowest responsive bidder and, thus, won both jobs.

However, because the City delayed executing the contracts for the two jobs within the required 45-day time limit from the day it awarded it to Wallace and because it did not thereafter within 30 days issue “Notices to Proceed,” Wallace sued the City for damages due to delay and tardiness under La. R.S. 38:2215 and 38:2212 of the Louisiana Public Works Act, both provisions cited above.

Wallace won on the issue of liability before trial began. The City appealed to the 4th Circuit, arguing that it gave the requisite notice of delay, but they lost again.

Why? Well, La. R.S. 38:2212(B) states that, “in the event the time limit stipulated herein is not applicable [namely the 45-day and 30-day notice requirements] because of…[an] exception [i.e. delayed financing], this fact shall be mentioned.” Ultimately, the City did not “mention this fact,” according to the 4th Circuit.

If a statutory time limit will not apply, in this case for the reason of tentative financing, that fact must be stated within the project specifications and the official advertisements. A reasonable bidder must be lead to believe that there will be a time delay. Because this was not the case in Wallace and the City did not give requisite notice, it lost the appeal.

The City tried to argue, in what was likely a last ditch effort to save itself from losing, that Wallace waived its right to complain about the imprecise notice. But, as is clearly stated in the statute, the applicable provisions are not subject to waiver by the bidder.

What should cities and states furthering public works projects take away from this case? As the Court itself advises, if a situation like this arises regarding the possibility of delayed financing and time delays in general, rejecting all bids for just cause or extending the deadline by mutual consent with the lowest bidder are both wiser routes to take.

It’s important to remember that public bid law and public works law are founded on the notion of public policy; Courts will almost always refuse to take any action inconsistent with these laws, so all builders take note!

Posted in:     Bidding, Delays, Louisiana, State & Federal Contracting  /  Tags: , , , , , ,   /   1 Comment

No Damages for Delay Clauses

Every state has its own statutes — as well as judicial decisions, or case law — to regulate the construction taking place within its borders. States can, and do, take widely divergent views on how best to deal with a variety of complex construction issues.

For contractors, subcontractors, owners, or lenders intending to do business in Washington, Louisiana, Colorado, Oregon, or elsewhere, it is wise to know the nuances of construction law encountered in that particular state before agreeing to undertake a project. And this is particularly true when dealing with the issue of construction delays.

Transferring Risk through a “No Damages for Delay” Clause

Delays during construction will happen. Savvy professionals recognize this, and plan accordingly. Rain days are estimated, and handoff times are included in the projected schedules. Some cushion is made for unexpected time lags, as well.

Nevertheless, unexpected events do occur — e.g., floods hit the project, or a labor union calls a strike — as well as unethical or negligent actions by one of the parties involved, which cause significant delays that run up costs. Everyone wants to minimize the risk that their bottom line will have to bear the financial responsibility for any of the resulting time delays.

Owners

Owners argue that they need “no damages for delay” clauses in their contracts, because the clauses offer protection from general contractors filing unjustified or extravagantly high delay claims. Owners point to requests they’ve received from contractors that are so filled with spurious, overblown reimbursement requests that they’ve labeled them “kitchen sink claims.”

General contractors

General contractors argue they need “no damages for delay” clauses in their contracts with subcontractors for the same reason — they can’t take the hit for all the subcontractors’ delay costs as they’ve been presented, especially if the owner has required a “no damages for delay” claim in his contract with the contractor. General contractors point to owners who issue defective plans and specifications, or who take unreasonably long amounts of time in responding to requests for clarification, delaying the project for months, costing the contractor significant damage which skyrockets as subcontractor delay claims are tallied.

Subcontractors

Subcontractors complain that they have no choice. They maintain that they are forced to sign contracts containing what may well be a dangerous provision for their business, because they are afraid of losing the job as well as offending their customer. For many subcontractors, the risk of a “no damage for delay” clause is just a part of doing business.

What is A No Damages for Delay Clause?

Simply put, a “no damages for delay” clause is placed into a written contract between an owner and a general contractor (or a general contractor and a subcontractor), stating that the contractor cannot recover monetary damages from the owner for any financial losses the contractor suffers due to construction delays caused by a variety of things, including actions by the owner or the owner’s representatives, e.g., the architects. By agreeing to the contract and its “no damages for delay” clause, the general contractor assumes the full financial risk for any and all delays in construction.

What are Delay Damages?

Delay damages are those financial costs that occur which are over and above the direct costs which must be expended to remedy the cause of the delay — i.e., change orders, defective plans or specifications, or a differing site condition. They are shown through the documentation of the project’s “critical path.”

Critical Path itself is an established method for scheduling the construction of a project, from start to finish. Understandably complicated, the “critical path” involves compiling a list, in sequence, of the construction activities that will take the longest amount of time to complete.

The duration of the Critical Path is found by totaling the various activities’ time needs. The Critical Path becomes the longest possible “path” through a network of activities, and gives project participants the minimum amount of time that will be needed to finish the job. If a delay impacts the project’s Critical Path, then it causes the project to be finished later than the established deadline.

What’s not Delay Damage?

Some events don’t cause delay. Not all delays impact the Critical Path; for example, a tardy delivery of shrubs when the sprinkler system has yet to be installed will not impact the critical path and is therefore, not delay damage. Similarly, an owner’s change of carpet color when construction still involves pouring the foundation isn’t a delay damage.

Some events that cause delay aren’t considered in delay damage calculations, either. Most contracts give special treatment to delays that are caused by Acts of God or bad weather. In the event one of these occurs, the contractor is usually given an extension of time to complete the project. By extending the deadline, these events technically don’t cause a delay in construction.

Why are “No Delay Damage” Clauses Controversial?

Without a “no damages for delay” clause, all project participants would share the same incentive to get the project completed on time. Critics of the clause argue that it prevents wronged parties from suing for breach of contract when a project participant has caused the delay – and thus, their harm. Contractors point to capricious or fraudulent owners who are allowed to escape responsibility for their own bad acts.

States’ Responses

Various states have responded to “no damages for delay” clauses in different ways. For example:

Washington State

Washington’s legislature has passed a law stating that a clause in a construction contract purporting to waive a contractor’s claim for delay damages caused by the owner is “void and unenforceable.” This is true for both public and private contracts, making Washington the frontrunner of all 50 states in barring “no damages for delay” clauses in construction contracts.

California, Colorado, Massachusetts, Oregon

Each of these states has passed laws invalidating “no damages for delay” clauses in public contracts. Private contracts have been left to judicial decision, with courts deciding whether not to analogize to the passed legislation in dealing with “no damages for delay” clauses in contracts between private parties.

Louisiana

Louisiana has not passed legislation that specifically deals with “no damages for delay” clauses in construction contracts, although its Public Works Act does prohibit these clauses in contracts governed by the Act.

Moreover, Louisiana courts continue to uphold these clauses, unless the delay occurred because of something that no party had anticipated, or the delay was caused by a party’s actual bad faith or active interference.

Finally, Louisiana Civil Code article 2769 provides that if a contractor or subcontractor fails to do the work he has contracted to do, or if he does not execute it in the manner or within the time he has agreed to do it, he will be liable in damages for the losses that result.

Should you use a “No Damages for Delay” clause in your contract?

Obviously, the first step in answering this question would be to determine what state law applies to your agreement. As shown above, Washington and Louisiana view “no damages for delay” clauses differently at this point in time.

However, even if state law will respect the contractual clause, perhaps
the more practical determination is how best to prevent its ever being needed. Enforcement of a “no damages for delay” clause can be protracted and extended litigation, and become an exorbitantly high expense in both time and money.

Finding other practical and legal avenues to deal with delay may be the better option.

Posted in:     California, Damages, Delays, Louisiana, Oregon, Washington  /  Tags: , , , , , ,   /   1 Comment