|
Avoiding Common
Problems
~The Legal
Landscape of a construction agreement~
The legal landscape faced by the construction industry has
become more challenging over the past few years. Increases in
liability suits against contractors, coupled with the
reinsurance market that is still absorbing losses from 9/11,
have caused several insurers to stop writing policies for
contractors. As a result, many contractors, at the urging of
their insurance companies and brokers, are reexamining their
legal and business practices. Here are five common problems in
construction projects and suggestions for how owners and
contractors can avoid them.
1. Failure to use good written contracts between the owner,
contractor, and subcontractors. Although not legally required,
contractors and owners usually enter into a written contract,
even for small projects. Contractors, however, often will hire
subcontractors and material suppliers with only a phone call.
All of the basic reasons that the contractor enters into a
written contract with the owner also apply to the relationship
between the contractor and its subcontractors and major material
suppliers. A good construction contract specifies price, scope
of work, and start and completion dates. It is important that
the various contracts are consistent and work together. A good
construction contract includes provisions for dealing with
changes to the project and a mechanism to settle disputes, such
as arbitration. For a change to the project to be made smoothly,
the process for the owner to make a change to the project set
forth in the contract between the owner and contractor must be
consistent with the change order process set forth in the
contract between the contractor and its subcontractors.
Inconsistencies between the various contracts can lead to
unintended results. For example, if the contract between the
owner and the contractor requires that disputes be settled by
binding arbitration, but there is no corresponding arbitration
clause in the contract between the contractor and its
subcontractors, the subcontractors cannot be forced to
participate in the arbitration.
2. Failure to document changes to the project. Any change to the
project should be documented by a “change order” that is signed
by all affected parties. Even if the complete nature of the
change is not yet known, the facts that are known should be
promptly documented. A “construction change directive” should be
issued and signed to confirm that the change has been requested
and made, even if the price of the change has not yet been
determined.
3. Failure to document and meet expectations. Even where the
parties have entered into a written contract, expectations are
often created during the initial sales process and negotiations.
While a good contract will disclaim any representations that are
not expressly included in the final written contract, it is
still important that all parties verify that the final written
contract includes all of the agreements between the parties. If
the contractor promised certain start and completion dates,
those dates should be included in the contract. If the owner has
requested specific finishes, those should also be included in
the contract.
4. Failure to understand and comply with the mechanics’ lien
process. Anyone who provides labor or materials for a private
construction project, whether commercial or residential, has a
right to file a mechanics’ lien if they do not receive full
payment. The requirements for obtaining the lien are strictly
construed; an unpaid contractor or subcontractor needs to make
sure that it provides the appropriate notices to maintain its
lien, either in its contract or by separate written notices.
Mechanics’ liens are a powerful collection tool because they
provide a lien against the real estate just like a mortgage,
even though, unlike a mortgage, the owner does not need to sign
anything or even consent to the filing of the lien.
5. Failure to follow the building code. All new construction is
required to meet the building code – if it does not, it will not
be passed by the building inspector and no certificate of
occupancy will be issued. Texas’s statutory warranties that
apply to all new residential construction and remodeling are
also based upon the building code; a violation of the building
code therefore also constitutes a breach of the statutory
warranties.
OUR CONSTRUCTION
SERVICES
TRCC#39176
Architectural and Engineering Design Services
::
Programming · Master Plans and Site Analysis
:: Architectural Design · Structural, Mechanical, Electrical, Civil
Engineering
:: Landscape Design · Space Planning
:: Test Fits · Interior Design & Selection of Furnishings
:: Custom Millwork Design · Cost Estimates
:: Project Management · Historic Preservation
Our Design & Build
Services
:: Residential Services; multifamily dwellings,
custom homes, custom additions and renovations
:: Commercial Services; retail stores, office interiors, show room
and
restaurants
Our Construction
Management
:: Building Permit Process · Bidding · Cost Estimates
:: Value Engineering · Negotiation and Contracting
:: Procurement of Materials · Construction Observation
:: Inspection and Testing · Management of Trade Contractors
:: Progress Payment Process · Punch List
:: Close Out and Release of Claims
|
WE
BUILD EFFICIENTLY ! 
