Tuesday, April 28, 2009

The Arbitration Clause-Points to Include

Here is an arbitration clause that I included in a contract for the construction of a new home:

The Contractor and the Owner(s) hereby mutually agree in advance that in the event that the parties have a conflict concerning this Agreement, either party may demand arbitration of the dispute. The parties will select a mutually agreed-upon arbitrator. If the parties cannot agree on an arbitrator, then each party will select an arbitrator who will then mutually agree upon an arbitrator.

The arbitration will be conducted according the Construction Industry Rules of the American Arbitration Association and will take place in Norfolk or Middlesex Counties in Massachusetts. The Arbitration Award will be binding upon all the parties. Judgment upon the award may be entered in any Court having jurisdiction thereof.

Any controversy or claim arising out of or related to this Agreement involving an amount of less than $2,000 (or the maximum limit of the court) must be heard in the Small Claims Division of the Municipal Court in the county where the Contractor’s office is located.

As long as both parties agree, they may at any time and without consequence opt out of such alternative dispute resolution and seek a remedy for breach of this Agreement in any court of competent jurisdiction.

We, Contractor and Owner(s), have read the above provision and both have signed it as our free act and deed, thereby assenting to the procedure.


Consider the following:

1. How will the arbitrator be chosen?

2. Will you designate an arbitration organization to be used?

3. Are there rules that will be followed (I like the Construction Industry Rules of AAA)?

4. Where will the arbitration take place?

5. How will the arbitrator be paid?

6. Will the arbitration be binding?

7. Should smaller cases go to small claims court?

8. Should the parties have the option of not going to arbitration?

9. Do the parties want to include a mediation clause as a primary step before going to arbitration?

10. Are there any exceptions to the kinds of disputes that will be decided through arbitration as they relate to the project?

Sunday, April 26, 2009

Should Every Construction Contract Have an Arbitration Clause?

I am an arbitrator for a number of arbitration organizations, but I have mixed feelings about arbitration clauses in constuction contracts. The interesting thing is that they are standard in many form contracts, and parties do not give them a second thought. As with all aspects of a contract, participants need to make informed decisions about what they are agreeing to, but I would guess that many contractors sign contracts that are presented to them without carefully reading them.

Arbitration is a terrific process. The arbitrator acts as a private judge and is chosen (usually) by the parties. The rules of evidence do not apply, the process can be scheduled at the parties' convenience, and it can save both money and time.

Here's the down side: arbitration is binding and non-appealable. The bases for overturning an arbitration are incredibly limited. In Massachusetts, an arbitrator's decision can only be overturned for fraud or bias on the part of the arbitrator. In other jurisdictions, "manifest disregard of the law" forms a basis for an appeal, but not in Massachusetts.

So, think carefully about agreeing to a process from which there is no return. Agree to it with your eyes open, and make sure that you pick your arbitrator carefully. That choice will determine the potential for a positive outcome.

The next post will discuss the wording of arbitration clauses.

Sunday, April 19, 2009

Contract Clauses That Every Construction Contract Should Have-Concealed Conditions

Hidden defects can greatly increase the cost of the work and the time for completion. Contractors must protect themselves in the event of hidden defects. I worked on a case involving one of the largest construction companies in the world who sued the state of Missouri because a bridge they were building was signifcantly delayed by underwater conditions that were not detected when the original survey was made. The case was in the millions of dollars.

This Agreement is based solely on the observations Contractor was able to make with the structure in its current condition at the time this Agreement was signed. If additional concealed conditions are discovered once work has commenced that were not visible at the time this contract was signed, Contractor will stop work and point out these unforeseen concealed conditions to Owner(s) so that Owner(s) and Contractor can execute a Change Order for any Additional Work.

Here's another one:

CONCEALED CONDITIONS: This Agreement is based solely on the observations Contractor was able to make with the structure in its current condition at the time this Agreement was signed. If additional concealed conditions are discovered once work has commenced that were not visible at the time this contract was signed, Contractor will stop work and point out these unforeseen concealed conditions to Owner(s) so that Owner(s) and Contractor can execute a Change Order for any Additional Work. Owner(s) agrees to be available within a 24 hour period to respond to Change Order work. Should Owner(s) delay project more than 24 hours by not responding to the Change Order, Owner(s) will be responsible for any costs to the Contractor plus a 33.3% GPM.

Contract Clauses Every General Contractor Should Have-Change Orders

All change orders must be in writing and signed off on by both parties. If all contractors were to follow this rule, my caseload would be reduced by about 80%. I am not joking. Disputes over change orders account for fee disputes and delay claims. Put something in your contract like this NOW!:

Any alterations or modifications initiated by the Owner must be agreed upon and will be executed upon a written Change Order issued by ABC and signed by ABC and Owner(s) with the price and number of days for performance specified before work on any such alteration or modification shall commence. Payment for such alteration or modification shall be made before the order is placed or the work is commenced and the Completion Date shall be extended by the number of days agreed upon for performance.

Any increase in the Scope of Work set forth in these Contract Documents which is required by plan checkers or field inspectors with city or county building/planning departments will be treated as Additional Work to this Agreement for which the Contractor will issue a Change Order.

Saturday, April 18, 2009

Contract Clauses Every General Contractor Should Have-Attorneys' Fees

Many clients are surprised when they find out that they cannot collect their attorney's fees if they have to bring an action to collect payment from a client. In fact, they may end up spending more to collect than the actual dollars owed. Obviously, this is not good business. If your clients owe you money, and they have to pay to try to collect, they should get their legal fees back.

There are various ways to write an attorney's fees clause into a contract. You can state that the prevailing party will collect in the event of a dispute, but that subjects the construction company to potential liability for the other party's fees. Why do that?

Here is an actual clause that I put in one of my client's contracts:

If ABC is required to proceed with any action against the Owner for the breach of any provision of this Agreement, then the Owner agrees to pay all of ABC's reasonable attorneys fees, together with interest and costs.

Put a clause like this in your contract NOW!

The Owner-General Contractor Contract

Today I am going to start on series of posts on the Owner-GC contract. I am going to say something now that I do not normally say to my clients. If you are a contractor and you are undertaking projects, you should have an attorney write and/or review your contracts. I frequently tell my clients that they can proceed on their own with resolving disputes, etc. However, money spent now on a contract review can prevent thousands in legal fees later.

What is a contract? In a contract there is an offer (proposal), acceptance and consideration ($$ changing hands). A contract reflects a "meeting of the minds." A well-written contract addresses the issues that can arise and how they will be handled. As an arbitrator I know and respect stated, "A good contract is negotiated, signed and then sits on the shelf and collects dust."

Friday, April 17, 2009

LEED Accreditation Undergoes Changes

Article about the upcoming changes for LEED Accreditation.

http://www.customhomeonline.com/industry-news.asp?sectionID=204&articleID=942079

How Insurance, Contracts Can Protect General Contractors from Liability Caused by Subs

Great article at: http://www.constructionweblinks.com/Resources/Industry_Reports__Newsletters/20090406/howi.html

on how GCs can protect themselves from liability caused by subcontractors.

(This article first appeared in the spring 2008 edition of The Brief, published by the American Bar Association, and was reprinted in the “Best of ABA Sections” issue of ABA’s GPSolo Magazine in September 2008.)

By Andrew M. Reidy and Seth Lamden Howrey LLP

Sunday, April 12, 2009

Marketing Tool for Selling Green Homes

The Green Building Advisor has a video from Pulte Homes that shows the green features of their houses and how they use them to market their homes.

A video tour shows just what buyers need to see to appreciate sustainability.

http://www.greenbuildingadvisor.com/blogs/dept/green-building-news/how-sell-green-homes#comment-470

Green Advertising

Check out the Wolfe Law Group's latest post on Federal Trade Commission's Guides to Green Advertising: http://lagreenlaw.com/ They also discuss how the American Institute of Architects is committed to being "greener": http://lagreenlaw.com/category/green-contracting/

How to Build a Strong Cathedral Hip Roof

This is an interesting and educational post by
David West , who owns Meadowview Construction
in Haverhill, Mass.

http://www.mvconstruction.com/roof_article.pdf