Construction Law From Contract to Closeout

Construction Law From Contract to Closeout Construction Law From Contract to Closeout Prepared by: Alexander E. Barthet, Esq. The Barthet Firm Elis...
Author: Charity Doyle
14 downloads 0 Views 5MB Size
Construction Law From Contract to Closeout

Construction Law From Contract to Closeout

Prepared by: Alexander E. Barthet, Esq. The Barthet Firm Elissa Gainsburg, Esq. Pardo & Gainsburg, LLP Michael J. Kurzman, Esq. Siegfried, Rivera, Lerner, De La Torre & Sobel, P.A.

© 2008 Lorman Education Services. All Rights Reserved. All Rights Reserved. Lorman seminars are copyrighted and may not be recorded or transcribed in whole or part without its express prior written permission. Your attendance at a Lorman seminar constitutes your agreement not to record or transcribe all or any part of it. This publication is designed to provide general information on the seminar topic presented. It is sold with the understanding that the publisher is not engaged in rendering any legal or professional services. Although this manual is prepared by professionals, it should not be used as a substitute for professional services. If legal or other professional advice is required, the services of a professional should be sought. This disclosure may be required by the Circular 230 regulations of the United States Treasury and the Internal Revenue Service. We inform you that any federal tax advice contained in this written communication (including any attachments) is not intended to be used, and cannot be used, for the purpose of (i) avoiding federal tax penalties imposed by the federal government or (ii) promoting, marketing or recommending to another party any tax related matters addressed herein. These materials were prepared by the faculty members who are solely responsible for their correctness and appropriateness. Lorman Education Services, P.O. Box 509, Eau Claire, WI 54702-0509 • Phone: 866/352-9539 • Fax: 715/833-3944 E-mail address: [email protected] • Web site: www.lorman.com • Seminar ID: 377008 Miami, FL • January 15, 2008

CONSTRUCTION LAW FROM CONTRACT TO CLOSEOUT I.

GENERAL CONTRACT LAW AND CONSTRUCTION RELATED VARIATIONS...................... 3 A. Contract and Tort Distinctions and the Implications for the Contractor, Designer and Owner’s Rights, Duties and Performance Obligations .................................................................................................................................... 3 B. Contract Interpretation ............................................................................................................. 3 C. Requisite Terms of a Binding Contract ................................................................................. 4 D. Changes and the Right to Make Them/Duty to Perform Them .................................. 6 E. Discussion of Contract Forms and Clauses ........................................................................ 6

II.

DRAFTING AND NEGOTIATING THE CONTRACT.......................................................................25 A. Forms of Project Delivery Methods.....................................................................................25 B. The Subcontract and Flow Through Relationships ......................................................26 C. The Key Clauses ..........................................................................................................................27

III. DIFFERING SITE CONDITIONS ...........................................................................................................61 A. Contingencies and Risks .........................................................................................................61 B. Defining the Conditions..........................................................................................................61 C. Exculpatory Clauses and Disclaimers .................................................................................62 D. Claims Related to Differing Site Conditions .....................................................................67 IV. CLAIMS AND DISPUTES ........................................................................................................................77 A. Schedule Driven Claims ..........................................................................................................77 B. Delay, Disruption and Acceleration ....................................................................................82 C. Notice Requirements and Waivers ......................................................................................83 D. Documenting the Claim..........................................................................................................84 E. Damages: Owner, Contractor and Subcontractor Damages .....................................89 F. Liquidated and Actual Damages .........................................................................................94 G. Claims and Defense Strategy ................................................................................................95 V.

HIDDEN TRAPS AND TREASURES IN FLORIDA’S CONSTRUCTION LIEN LAW .....................................................................................................................................................99 A. Introduction ................................................................................................................................99 B. Specially Fabricated Materials ..............................................................................................99 C. Substantial Compliance With 713 .................................................................................... 100 D. Laborers vs. Labor Pools....................................................................................................... 101 E. Requests for Information ..................................................................................................... 102 F. Request for List of Subcontractors ................................................................................... 105 G. Notice to Owner/Contractor From a Sub Contractor ............................................... 105 H. Notice to Owner Served Before Final Payment ........................................................... 106 I. Amending a Claim of Lien ................................................................................................... 107 J. Affidavit of Intention to Recommence and Notice of “Re-” Commencement .......................................................................................................... 107

TABLE OF CONTENTS

i

K. L. M. N. O. P. Q. R. S. T. U. V.

Notice of Contest of Lien ..................................................................................................... 109 Twenty Day Summons to Show Cause ........................................................................... 110 Criminal Penalties ................................................................................................................... 111 Extraordinary Relief for the Payment of Undisputed Sums .................................... 112 Single Claims of Lien ............................................................................................................. 114 Work on Leased Property .................................................................................................... 115 Improvement Defined .......................................................................................................... 117 Proper and Improper Payments ........................................................................................ 118 Payments on Account ........................................................................................................... 120 Rights to Repossess Materials ............................................................................................ 120 Levy/Attachment of Construction Materials by Creditors ....................................... 121 Mandatory Contract Provisions and Disclosures ........................................................ 122

VI. BONDS AND INSURANCE .................................................................................................................131 A. Distinguishing Between Bonds and Insurance............................................................ 131 B. The Bid Bond ............................................................................................................................ 131 C. The Payment Bond ................................................................................................................. 132 D. The Performance Bond ......................................................................................................... 133 E. Insurance ................................................................................................................................... 135 F. Comprehensive General Liability Insurance ................................................................. 136 G. The Builder’s Risk Policy ....................................................................................................... 138 VII. LIENS ..........................................................................................................................................................143 A. The Theory Behind the Right.............................................................................................. 143 B. The Statutory Requirements .............................................................................................. 145

ii

TABLE OF CONTENTS

Lorman Education Services is a registered provider with The American Institute of Architects Continuing Education Systems. Credit earned upon completion of this program will be reported to CES Records for AIA members. Certificates of Completion for non-AIA members are available upon request.

This program is registered with the AIA/CES for continuing professional education. As such, it does not include content that may be deemed or construed to be an approval or endorsement by the AIA of any material of construction or any method or manner of handling, using, distributing, or dealing in any material or product. Questions related to specific materials, methods, and services will be addressed at the conclusion of this presentation.

The learning objectives met in attending this program are:



The attendee will be able to discuss mandatory notice and disclosure requirements.



The attendee will be able to identify the key clauses in a contract.



The attendee will be able to review mechanics’ liens.

General Contract Law and Construction Related Variations

Prepared and Presented by:

Elissa Gainsburg, Esq. Pardo & Gainsburg, LLP

1

2

A. Contract And Tort Distinctions and the Implications For The Contractor, Designer And Owner’s Rights, Duties And Performance Obligations The fundamental difference between contract and tort principals as they affect construction is the control over one’s own destiny. Under contract principals, the parties themselves determine their rights and obligations to each other, providing for such in their contract, including notice requirements and change orders. By addressing issues contractually, the parties are able to control their risks to the other’s negligence, vis a vis contract provisions such as an indemnity clause. They can also ensure protection against unforseen risks with insurance and bonding requirements. In the event the parties do not have a contract, their conduct will govern their relationship, as will common law and other codified provisions, such as the Florida Statutes and applicable building codes. By providing for such responsibilities in the contract, the parties can best ensure compliance with the applicable building codes. Without providing for a party or parties to be responsible for ensuring such compliance, the net result in the event of non-compliance will be a great deal of finger-pointing. B. Contract Interpretation Contracts are interpreted first in reliance upon the plain meaning of the language utilized by the parties. In preparing your contract, clear concise language specifying the requirements placed upon each party will not only help the parties to know what is expected of them and what they can expect from each other, but will also assist any finder of fact in making determination upon that contract, if necessary at a later date.

3

In the event the specific terms of the Contract are unclear, or ambiguous, an independent fact-finder attempting to determine the parties’ intention would then look to other indicia of the parties’ intentions, including any other documents that may have predated the contract, statements made by the parties and the parties’ conduct throughout the contractual relationship. If the parties are utilizing standard form contracts that have been used by others, such as the American Institute of Architects contract forms, there is a substantial likelihood that there will exist a large body of case law wherein the import of the individual terms have already been determined. C. Requisite Terms Of A Binding Contract Construction contracts take many shapes and forms. The prime contract is often a lengthy written document that incorporates and makes reference to the plans, specifications and other written materials, while the contract between a subcontractor and its suppliers may be as simple as a one page purchase order. There is no requirement that a construction contract be reduced to writing, since an oral contract is as enforceable as a written one as long as it complies with the essential elements of contract law. Standard contract requires merely that there be an offer and acceptance of the offer. However, in the case of construction contracts, there are such a plethora of details that must be addressed that the parties must be sure that each understands what is being offered and what is being accepted. The most critical provisions for a construction contract are those specifying the time for performance, the work to be done and the manner payment is to be made. Every

4

construction contract should set forth the specific scope of the work that is to be performed by the contractor. The plans and specifications should be incorporated into the contract, in sufficient detail to ensure that there are as few questions as possible about the work to be performed. This will also enable the parties to ensure that they are agreeing on a price to perform the correct work. If the contractor’s bid is based upon a misunderstanding of the work that is to be performed, it is certain that the bid will be incorrect and may result in litigation at the end of the project. The parties must also be explicit as to the anticipated duration of the project and the ramifications of not complying with the project schedule.

The contract should

specify the duration of the time anticipated for construction, as well as any anticipated damages that the contractor may be liable for in the event the project is not complete on time, as well as any agreed-upon bonus to be paid if the contractor completes the project ahead of schedule. Another element critical to the parties is payment, both progress payments and the final payment. The contract should be clear what is required to be submitted by the contractor in order for each individual payment application to be reviewed and approved for payment. The Owner should be familiar with the requirements of its construction lender in providing for the payment parameters and ensure that the lender’s requirements are taken into consideration when preparing the contract. It is also of great importance to detail the requirements of the final payment on the project; after such payment is made, the parties will, theoretically, part ways. However, in order for the final payment to be made, all the work on the project must be complete and the owner must have in its

5

possession all the necessary documents for the project, including everything from warranties and as-built plans to releases and satisfactions of liens.

Again, these

requirements should be set forth in the contract, taking into account the requirements of the construction lender. D.

Changes And The Right To Make Them/Duty To Perform Them

Another important aspect of all construction contracts is the provision to address changes that will inevitably be made in the project. A proper change order clause will provide for a mechanism by which the parties can agree upon such changes. There are two components to such a clause: the terms by which changes can be made and the manner in which the parties will come to a price for such changes. A change order may permit the Project Architect, or only the Owner to approve changes in the work. E.

Discussion Of Contract Forms And Clauses

The relationships between the parties involved in construction project are governed by the law of contracts. In a typical construction project the project owner enters into a Prime Contract with a general contractor for building the project in accordance with the owner’s desires as expressed in the plans and specifications prepared by the owner’s design professionals. In order to accomplish that goal, the general contractor usually enters into a series of contracts with specialty subcontractors, who enter into their own contracts with suppliers, materialmen and laborers in order to perform the work required. By separate agreement the project owner ordinarily contracts with an architect, who may enter into contracts with engineers and other sub-consultants. The design team,

6

working under the Architect, is responsible for the design documents from which the job is built. Typically the architect administers performance and payment under the Owner/Contractor Agreement and preliminary resolves disputes between the owner and the contractor. Many times the owner will also enter into a contract with a construction manager whose duties typically include a portion of the architect’s administrative responsibilities as well as a portion of the contractor’s supervisory and coordination responsibilities. A

significant

variation

of

the

typical

owner/architect-owner/contractor

arrangement is the design-build agreement where responsibility for both design and construction is lodged with a single firm. A. Standard Form Contracts Parties to a construction contract are generally free to agree as they choose subject only to the ordinary rules of contract law. However, because a construction project usually involves a number of parties whose rights and responsibilities are governed by numerous separate contracts, the construction industry has developed a series of standard form contracts that take into consideration the complexity of a construction project. The most commonly utilized and accepted standard form contracts were developed by the American Institute of Architects (“AIA”) which can be obtained by contacting one of any local AIA chapters. While the AIA and other agencies publish standard form contracts in their entirety, contracting parties should keep in mind that the author of any standard form is

7

likely to include provisions designed for his own self interest. For example, some critics believe the AIA documents are drafted in such a way as to relieve the architect from potential liability arising from functions that are typically within the scope of the architect’s work. When drafting a construction contract, parties would be wise to select only those provisions from the standard forms that suit the particular needs of their construction project, and where appropriate, draft their own provisions to fill in the missing terms or provide additional protections, as necessary. On the flip side however, standard form contracts like those published by the AIA have been developed over years of trial and error and contain certain provisions in each separate construction contract that recognize the complexity of a construction project and the impact of the numerous other contracts governing the rights and responsibilities of all the other players on the same construction job. B.

Implied Contracts

As mentioned earlier, an oral construction contract is generally just as enforceable as a written contract as long as it complies with the essential elements of contract law. In addition, a construction contract that is not expressly agreed to in writing and/or orally may be enforced as an “implied contract” where the parties have expressed a clear intent to be bound to definite and certain terms that include the essential terms necessary for the formation of a contract under ordinary contract principles. Citizens Bank of Perry v. Harlie Lynch Construction Company Inc., 426 So.2d 52 (Fla. 1st DCA 1983). An implied contract will ordinarily be found where one party renders services for another at his

8

request, or with his knowledge, under circumstances which give rise to the presumption of a promise to pay for those services.

C.

Key contract clauses

Due to the complex nature of construction projects and the number of parties and separate contracts typically required to complete a construction project, several types of contract clauses are common to most construction contracts.

A sample of these

construction clauses are discussed below: 1.

Incorporation by Reference.

Incorporation by reference is a procedure whereby a contract refers to and incorporates another document, or portions thereof, into the contract itself.

Prime

construction

plans,

contracts

typically

incorporate

by

reference

construction

specifications, general and supplementary conditions of the contract, and other documents which are as binding upon the parties as those contractual provisions contained within the body of the contract. OBS Company, Inc. v. Pace Construction Company, 558 So.2d 404 (Fla.1990); Henderson Investment Corporation v. International Fidelity Insurance Company, 575 So. 2d 770 (Fla. 5th DCA, 1991); Druhill Construction, Inc. v. RSH Constructors, Inc., 518 So. 2d 951 (Fla. 1st DCA, 1988). Subcontract agreements typically incorporate by reference the prime contract, which includes all of the documents incorporated by reference therein. While the intent of incorporating the prime contract into subcontracts is to provide uniformity throughout the various contracts on a particular job, a possible result of incorporating separate

9

contracts in one another is the creation of ambiguity that may render individual contractual provision unenforceable.

See OBS Company, Inc. v. Pace Construction

Company, supra. (General Contractors’ “pay when paid” clause in its subcontractors conflicted with requirements of the General Conditions of its prime contract and was unenforceable.) The parties to a construction contract would be wise to review and obtain file copies of every document incorporated by reference in their Agreement.

For a

subcontractor, review of the prime contract documents incorporated by reference in the subcontract may be an onerous but essential task. 2.

Scope of Work

The scope of work provisions in a construction contract are intended to identify all of the work that must be performed by the contractor in exchange for the agreed upon contract price. Because it is virtually impossible to list each and every task the contractor must perform, disputes concerning whether or not specific tasks were included in the scope of work of a particular contract are common in the construction industry. Scope of work clauses typically make reference to portions of the project plans and specifications, and summarize the contractors’s work in as much detail as possible. This description is often followed by language such as, “and all work related thereto”. A dispute over whether certain work was included within the contractor’s scope often turns on what is ordinary and/or customary in the particular contractor’s field. In an effort to minimize disputes over the scope of work contemplated by a contract, parties to the contract should carefully review the scope of work provisions

10

prior to executing the contract and attempt to address potential ambiguities before the work commences. If the contract is being awarded on the basis of a bid, the contractor should thoroughly review the scope of work provisions to ensure that the scope set forth in the contract is identical to the work contemplated by its bid. Contractors should also carefully review those portions of the plans and specifications referred to in the scope of work provisions in order to determine whether there are any conflicts within the contract documents, and if any are found, request clarification before executing the contract. Resolution of scope of work disputes can be simplified by including the following general guidelines of contract interpretation within the contract: a.

Contract documents are construed together to determine the meaning that the parties intended as the scope of work under the contract,

b.

A specific provision prevails over a general provision (e.g., the written agreement controls over the specifications, and the specifications control over the plans),

c.

Ambiguities in a scope of work description are interpreted against the party that proposed the ambiguous language,

d.

The owner warrants that the plans and specifications provided are sufficient for their intended purpose and the prime contractor is responsible for coordinating the plans and specifications among the subcontractors and suppliers, and

e.

Terms having a specialized trade meaning will be given that meaning in the scope of work clause.

11

3.

Liquidated damages

The term “liquidated damages” has been defined as “a sum stipulated and agreed upon by the parties, at the time of entering into a contract, as being payable as compensation for injuries in the event of a breach” 17 Fla. Jur.2d, Damages § 98, at 116 (1980).

A liquidated damages clause is generally enforceable in Florida when the

damages that would result from a breach are uncertain at the time the contract is drawn; the amount stated as liquidated damages represents a reasonable forecast of just compensation for the harm caused should a breach occur and the language is clear that the parties intended to provide for liquidated damages and not a penalty. See: Hyman v. Cohen, 73 So.2d 393 (Fla. 1954); Hawk’s Cay Investors, Ltd. v. Brandy Marine of the Keys, Inc., 524 So.2d 681 (Fla. 4th DCA 1988). However, there are no concrete rules as to whether a stipulated sum is a penalty or a valid liquidated damage provision and the courts will always determine the issue on a case-by-case basis, considering the particular facts involved. Moreover, a liquidated damages clause that appears enforceable at the time of contracting may later be declared invalid when circumstances at the time of breach render enforcement of the provision unconscionable. Multitech Corp. v. St. Johns Bluff Investment Corp., 518 So. 2d 427 (Fla.1st DCA 1988). Contracting parties may impose liquidated damages for the breach of certain contractual provisions while providing actual damages for the breach of others. As a result, construction contracts often award liquidated damages for the failure to complete performance under the contract on or before an agreed upon completion date while providing for the recovery of actual damages for failure to build in strict accordance with

12

the plans and specifications. This provision, if reasonable, is ordinarily enforceable as liquidated damages as opposed to a penalty since the parties can be expected to rely upon the completion date set forth in the contract, and any failure to meet the completion date will most certainly result in damages, the actual amount of which would have been difficult to ascertain at the time the contract was executed. However, where the acts or omissions of the non-breaching party contribute to the breach activating the liquidated damages provision, a liquidated damages provision will generally not be enforced. Midstate Hauling Company v. Watson, 172 So.2d 262 (Fla. 2nd DCA 1965) citing United States v. United Engineering & Contracting Company, 234 U.S. 236,(1914). 4.

Right to Stop Work.

Construction contracts ordinarily contain clauses describing circumstances under which the parties may stop the work. Typically, an owner may stop the work when the contractor fails to carry or correct its work in accordance with the contract documents, fails to make payments due subcontractors for materials or labor furnished to the project, persistently disregards laws, ordinances or rules and regulations affecting the project or is otherwise guilty of a substantial breach of a material provision of the contract. Under these circumstances, the contractor is generally not entitled to receive further payment unless, and until, the work is finished or the default is otherwise cured. In addition, construction contracts typically allow an owner to suspend and/or terminate the work without cause or for its own convenience. However, such a clause should provide for an appropriate adjustment in the contract price to accommodate the contractor for the

13

increased costs involved in stopping and restarting the work, or the profits lost due to termination. Construction contracts also generally include provisions defining circumstances under which the contractor may stop the work. A contractor can typically stop the work due to non-payment of amounts due under the contract, when it encounters unforeseen site conditions materially affecting the work, in an emergency affecting safety of persons or property, or when the work has otherwise been stopped for a substantial period of time through no act or fault of the contractor or any of its subcontractors. Under these circumstances, the contractor is ordinarily entitled to recover its increased costs incurred as a result of the work stoppage, and may terminate the contract in the event the underlying cause for the work stoppage is not cured within a reasonable time period. Absent specific language in the contract setting forth the circumstances under which the parties may stop and/or terminate the work, general contract law provides that a party may not unilaterally terminate a contract unless the other party commits a “material” breach thereof. To constitute a “material” breach of a contract, the breach must “go to the essence of the contract” and cannot simply be a party’s failure to perform some minor contractual duty. Beefy Trail Inc. v. Beefy King International, Inc., 267 So.2d 853 (Fla. 4th DCA 1972) Marshall Construction Ltd. v. Coastal Sheet Metal & Roofing, Inc., 569 So.2d 845 (Fla. 1st DCA 1990).

Since materiality is ordinarily

determined on a case-by-case basis, a party choosing to stop or terminate the work due to another party’s alleged breach of a contractual provision assumes the significant risk that the alleged breach will be found to have been immaterial, resulting in the opposite result

14

whereby the stoppage or termination of the work is determined to be a breach of the contract by the party stopping the work.

5.

Payment

One of the essential elements necessary to create an enforceable contract is the exchange of consideration between the parties. The most common consideration given in a construction contract is the exchange of labor, services and/or materials for pay. Absent an agreement or understanding concerning payment to be made to the contractor in exchange for its work, no binding contract could exist. Typical construction contracts contain separate and distinct provisions regulating progress and final payments for the work performed. Progress payments are payments made to the Contractor on specified dates for the work completed as of specified times or at designated stages of the project.

Construction contracts ordinarily require the

contractor to submit an application for progress payment to the owner indicating the amount of work completed by the end of each payment period, together with supporting documentation that substantiates the contractor’s right to payment. When an architect provides contract administration, the contractor’s application for payment is typically required to be submitted to the architect for review and approval prior to the time payment becomes due. If the architect is satisfied that the percentage of work set forth in the application for payment has in fact been satisfactorily completed, the architect certifies the application for payment, and payment is required to be made

15

within the time set forth in the contract. Since the time involved in performing a detailed inspection of all the work would significantly delay payment of each application, construction contracts ordinarily provide that an architect’s certification of payment does not constitute acceptance of the work, but merely represents that the work appeared in the application and the quality of work appears to conform to the intent of the contract documents. Several methods are commonly used to determine what percentage of the contract price must be paid in accordance with each separate application for payment. Under a lump sum contract, the owner and contractor ordinarily agree upon a “schedule of values” prior to commencement of the work that reflects the cost of completing each separate portion of the work. On each application for payment the contractor indicates the percentage of each portion of the work completed, which is multiplied by the total cost of that work reflected on the “schedule of values” and added together to arrive at the progress payment due. Under a “cost plus contract”, the contractor is required to submit satisfactory proof of actual costs incurred, such as time slips, paid invoices, delivery tickets, etc. Under the “unit price contract”, the number of units completed is simply multiplied by the agreed upon unit price to establish the amount due. It is common in the construction industry to subject progress payments to “retainage”, which is an agreed upon percent, (ordinarily 10%, which can be reduced as the project progresses), of the amount due that is withheld from each progress payment to provide security until completion of the contract work. Construction contracts typically

16

include provisions allowing the owner under a Prime Contract, and the contractor under a subcontract, to pay for the correction of deficient work and/or to withhold damages incurred under the contract from payments otherwise due, and retainage provides a fund from which these costs can be paid. Earned retainage is ordinarily paid at the time of final payment. Construction contracts ordinarily require payment of the entire unpaid balance of the contract sum, including retainage (final payment) within a specified time period after the contract has been fully performed. In order to obtain final payment the contractor is ordinarily required to correct any work that was not performed in accordance with the contract documents, provide sufficient evidence that the necessary insurance and warranties are in effect, provide consent of the surety, if any, to final payment and provide an affidavit or other sufficient evidence that any indebtedness connected with the work for which the owner or his property might be liable has been satisfied, including releases and waivers of liens or bonds. Although acceptance of final payment by the contractor ordinarily constitutes a waiver of claims for additional compensation except those previously made in writing and identified as unsettled at the tie a final application for payment is submitted, the contractor generally remains responsible for liens, claims, security interests and encumbrances arising out of its work, failure of the work to comply with the contract documents that was not apparent upon final inspection, and the performance of warranty work. An interesting clause commonly found in subcontract agreements that has been the subject of much litigation is the “pay when paid” clause. This clause ordinarily

17

provides that final payment shall not be due the subcontractor until final payment has bee received by the contractor from the owner. In what appeared to be an effort by the judiciary to protect subcontractors form bearing the financial burden of irresponsible owners, the Florida Supreme Court declared that “pay when paid” clauses are unenforceable unless they clearly shift the risk of non-payment by the owner to the subcontractor, and do not conflict with any other terms in the contract documents. OBS Company, Inc. v. Pace Construction Corporation, 558 So. 2d 404 (Fla.1990); Peacock Construction Company, Inc. v. Modern Air Conditioning, Inc., 353 So. 2d 840 (Fla.1977). If the language in a “pay when paid” clause is ambiguous, the clause will be interpreted as fixing a reasonable time within which the contractor must pay its subcontractor.

DEC Electric, Inc. v. Raphael Construction Corp., 558 So.2d 427

(Fla.1990). Bentley Construction Development & Engineering, Inc. v. All Phase Electric & Maintenance, Inc., 562 So.2d 800 (Fla. 2nd DCA 1990). The following “pay when paid” clause was found to shift the burden of nonpayment by the owner to the subcontractor: “Final payment, inclusive of retention, shall be made within 30 days of completion of the construction project, acceptance of the same by the owner, and as a condition precedent, receipt of final payment of [contractor] from the owner or prime contractor, as the case may be.” Dyser Plumbing Company v. Ross Plumbing & Heating Inc., 515 So.2d 250 (Fla. 2nd DCA 1987)

18

The Court in OBS v. Pace also declared that even a valid “pay when paid” clause will not provide a defense to claims against the contractor’s surety under a payment bond. 6.

Indemnification.

Construction contracts often contain indemnification clauses requiring the parties to indemnify and hold each other harmless from claims and liabilities arising out of their performance, and the performance of others over whom they maintain control on the project. In light of the numerous parties and separate contracts ordinarily involved in a construction project, these indemnification provisions often provided an important chain of contractual responsibility between a party who is damaged and a wrongdoer with whom he may not otherwise be in privity. Under Florida law a party to a construction contract may obtain indemnification for his own negligence from another party, although in order to do so the contract must contain a specific “monetary limitation” on the extent of indemnification, or the person indemnified must have given “specific consideration” to the indemnitor.

Fla. Stat.

§725.06. The monetary limitation and/or specific consideration given to the indemnitor should appear within the indemnification clause in the contract. 7.

Notice

Most construction contracts contain provisions requiring the parties to provide written notice to each of their intentions or events that may occur in accordance with the contract documents. Compliance with the notice provisions may become extremely important in litigation involving contract performance and failure to comply with notice

19

requirements could provide a defense to certain claims. As a result, it is generally a good idea to provide all required notices in writing, keep copies of all notices and obtain receipts or other proof of delivery to verify actual receipt thereof. Although contract provisions requiring prior written notice will ordinarily be of help, a common response to a “lack of notice” defense is that the notice provisions were somehow waived. Since numerous important decisions are often required and made on a daily basis on a typical construction project, it is not unusual for minor changes to the contract documents to take place on the job site without any consideration being given to whether notice of an intention to make the change was required and/or given pursuant to the contract. As a result, parties involved in a “notice” dispute are often in a position to cite examples of other situations where notice provisions in the same contract had been waived in an effort to establish a course of dealings between the parties that eliminated any requirement to give the notice under dispute. As a result, it is a good idea for parties to a construction contract to be familiar with all notices required under the contract documents, and to comply with the notice provisions as strictly and as often as possible. 8.

No Damage for Delay

Construction contracts generally classify three types of delays that may occur on a construction project: non-excusable, excusable and compensable delay. Non-excusable delay is caused by factors within the contractor’s reasonable control, and the contractor is not entitled to a time extension or additional compensation due to the delay.

20

Excusable delay is caused by factors beyond the contractor’s reasonable control, but is not caused by the owner’s actions or inactions. The contractor may generally obtain an extension of time due to an excusable delay, but is ordinarily not entitled to compensation for costs incurred due to the delay. Compensable delay is ordinarily attributed to the owner or other parties over whom the owner has control, and such a delay should entitle the contractor to a time extension and reimbursement for increased costs caused by the delay. To avoid potential liability for additional costs incurred as a result of a delay, parties often attempt to include a “no damage for delay” clause in construction contracts. This clause ordinarily states that a party to the contract waives its rights to seek additional compensation due to an unreasonable delay caused by the other party to the contract. These clauses generally have been held to be valid. C.A. Davis, Inc. v. City of Miami, Fla.App., 400 So.2d 536; McIntire v. Green-Tree Communities Inc., 318 So.2d 197 (Fla. 2nd DCA 1975). “No damage for delay” clauses will not be enforced however if the delay is caused by active interference, concealment or fraud by the party seeking the benefit of the provision.

Active interference ordinarily includes willful, wrongful,

deliberate, arbitrary or capricious conduct, but does not include simple mistakes, errors in judgment or lack of diligence. Metropolitan Dade County v. Frank J. Rooney, Inc., 578 So.2d 750 (Fla. 1st DCA 1991). 9.

Arbitration

21

Many construction contracts now contain arbitration clauses requiring the parties to submit disputes arising under the contract to arbitration, as opposed to a court of law. Arbitration in the state of Florida is governed by Chapter 682 of the Florida Statues. Arbitration has become a popular method of resolving construction disputes because it is generally a quicker and less formal process than civil litigation. In addition, the arbitrators appointed to resolve the construction dispute, who are often selected by agreement of the parties themselves, have specialized knowledge in the field of construction whereas a judge or jury may have no independent prior knowledge of what is customary in the construction field. Finally, arbitration offers the parties privacy as opposed to proceedings in a court of law which are generally a matter of public record. On the other hand, arbitration proceedings do not follow specific rules of civil procedure or evidence and therefore do not afford the parties the same procedural safeguards intended to exclude prejudicial and unreliable evidence that are provided in a court of law. By agreeing to arbitration, parties to a construction contract waive their right to a trial by jury and are often bound by laymen’s decisions regarding issues of law that are ordinarily decided by a judge. In addition, absent clear mistake of law that appears on the face of an arbitration award, fraud, corruption or misconduct by the parties or the arbitrator, a party who is dissatisfied with the results of arbitration will likely have no basis to appeal the arbitration award. Arbitration clauses in contracts are generally enforceable and unless both sides waive arbitration, parties can be compelled to attend arbitration in accordance with the contract.

22

II. Drafting and Negotiating the Contract

Prepared and Presented by:

Elissa Gainsburg, Esq. Pardo & Gainsburg, LLP

23

24

A.

Forms Of Project Delivery Methods

The most common types of construction contracts entered into between owners and general contractors, and general contractors and subcontractors, are “lump sum contracts”, “cost plus contracts” and “unit price contacts”. A lump sum, or “stipulated sum” contract sets forth a specific sum to be paid to the contractor in exchange for performing all the work within the scope of the contract. Under this type of contract, the contractor assumes the risk that its performance of the work within the scope of the contract will cost more than it had anticipated, since it will not be reimbursed for any additional costs incurred while performing the work required by the Contract. A cost plus contract provides that the contractor will be reimbursed for all costs actually incurred while performing the work within the scope of the contract, plus an agreed upon percentage or fixed amount for profit and overhead. This type of contract often includes a “guaranteed maximum” or “cap” which fixes the maximum sum to be paid the contractor for the cost of performing the work. In addition, the cost plus contract often includes incentive clauses that allow the contractor to share in any savings realized by the agreed upon maximum contract price. Although the cost plus contract generally does not include the contractor’s off site overhead and administrative expenses as a cost of the work for which reimbursement is required, parties to a cost plus contract must be careful to spell out which costs are included, and which are excluded, before the contract is executed to avoid a potential dispute over which costs will be included in the final contract price.

25

Finally, a unit price contract sets forth a price to be paid the contractor for completing each of several identical or similar “units” of work. This type of contract is often used on jobs where the contractor is required to perform a series of similar tasks, although the total number of tasks to be performed has not yet been determined at the time the contract is signed. Other types of construction contracts being used more frequently on public jobs include the “design/build” contract and the “construction management” contract. The design/build contract is usually a phased agreement under which the design-builder and the owner first develop a design concept and a budget and then the design-builder develops construction drawings and finally builds the project. The design-build contract is intended to vest responsibility for both the design and construction of the project in a single entity. Under the “construction management” contract a contractor or construction manager is typically employed to administer and manage the project, either instead of or in conjunction with the project architect. In many cases the construction manager acts as the owner’s agent for the purpose of “subcontracting” the work. In other instances the construction manager is a consultant to the owner and oversees the work of a general contractor who subcontracts the work. B. The Subcontract And Flow-Through Relationships The purpose of a “flow-through” clause is to assure that the general contractor’s subcontractors are bound to the prime contractor in the same manner that the prime contractor is bound to the owner. It essentially requires the subcontractor to stand in the

26

shoes of the prime contractor with regard to the rights and obligations encompassed in the prime contract to he extent they arise within the purview of the subcontract. The primary clauses for which a flow-through clause is important are the following: - Payment Clause, including required documentation for payment; - The Scheduling Clause; - The Changes Clause; - Damages Clause (Actual, Liquidated, Consequential) - Indemnification requirements; and - Claims and Disputes provisions. C. The Key Clauses 1. Payment Clause And The Pay-If Or When-Paid Scenarios One of the essential elements necessary to create an enforceable contract is the exchange of consideration between the parties. The most common consideration given in a construction contract is the exchange of labor, services and/or materials for pay. Absent an agreement or understanding concerning payment to be made to the contractor in exchange for its work, no binding contract could exist. Typical construction contracts contain separate and distinct provisions regulating progress and final payments for the work performed. Progress payments are payments made to the Contractor on specified dates for the work completed as of specified times or at designated stages of the project.

Construction contracts ordinarily require the

contractor to submit an application for progress payment to the owner indicating the

27

amount of work completed by the end of each payment period, together with supporting documentation that substantiates the contractor’s right to payment. When an architect provides contract administration, the contractor’s application for payment is typically required to be submitted to the architect for review and approval prior to the time payment becomes due. If the architect is satisfied that the percentage of work set forth in the application for payment has in fact been satisfactorily completed, the architect certifies the application for payment, and payment is required to be made within the time set forth in the contract. Since the time involved in performing a detailed inspection of all the work would significantly delay payment of each application, construction contracts ordinarily provide that an architect’s certification of payment does not constitute acceptance of the work, but merely represents that the work appeared in the application and the quality of work appears to conform to the intent of the contract documents. Several methods are commonly used to determine what percentage of the contract price must be paid in accordance with each separate application for payment. Under a lump sum contract, the owner and contractor ordinarily agree upon a “schedule of values” prior to commencement of the work that reflects the cost of completing each separate portion of the work. On each application for payment the contractor indicates the percentage of each portion of the work completed, which is multiplied by the total cost of that work reflected on the “schedule of values” and added together to arrive at the progress payment due.

28

Under a “cost plus contract”, the contractor is required to submit satisfactory proof of actual costs incurred, such as time slips, paid invoices, delivery tickets, etc. Under the “unit price contract”, the number of units completed is simply multiplied by the agreed upon unit price to establish the amount due. It is common in the construction industry to subject progress payments to “retainage”, which is an agreed upon percent, (ordinarily 10%), of the amount due that is withheld from each progress payment to provide security until completion of the contract work. Construction contracts typically include provisions allowing the owner under a Prime Contract, and the contractor under a subcontract, to pay for the correction of deficient work and/or to withhold damages incurred under the contract from payments otherwise due, and retainage provides a fund from which these costs can be paid. Earned retainage is ordinarily paid at the time of final payment. Construction contracts ordinarily require payment of the entire unpaid balance of the contract sum, including retainage (final payment) within a specified time period after the contract has been fully performed. In order to obtain final payment the contractor is ordinarily required to correct any work that was not performed in accordance with the contract documents, provide sufficient evidence that the necessary insurance and warranties are in effect, provide consent of the surety, if any, to final payment and provide an affidavit or other sufficient evidence that any indebtedness connected with the work for which the owner or his property might be liable has been satisfied, including releases and waivers of liens or bonds. Although acceptance of final payment by the contractor ordinarily constitutes a waiver of claims for additional compensation except

29

those previously made in writing and identified as unsettled at the tie a final application for payment is submitted, the contractor generally remains responsible for liens, claims, security interests and encumbrances arising out of its work, failure of the work to comply with the contract documents that was not apparent upon final inspection, and the performance of warranty work. An interesting clause commonly found in subcontract agreements that has been the subject of much litigation is the “pay when paid” clause. This clause ordinarily provides that final payment shall not be due the subcontractor until final payment has bee received by the contractor from the owner. In what appeared to be an effort by the judiciary to protect subcontractors form bearing the financial burden of irresponsible owners, the Florida Supreme Court declared that “pay when paid” clauses are unenforceable unless they clearly shift the risk of non-payment by the owner to the subcontractor, and do not conflict with any other terms in the contract documents. OBS Company, Inc. v. Pace Construction Corporation, 558 So. 2d 404 (Fla.1990); Peacock Construction Company, Inc. v. Modern Air Conditioning, Inc., 353 So. 2d 840 (Fla.1977). If the language in a “pay when paid” clause is ambiguous, the clause will be interpreted as fixing a reasonable time within which the contractor must pay its subcontractor.

DEC Electric, Inc. v. Raphael Construction Corp., 558 So.2d 427

(Fla.1990). Bentley Construction Development & Engineering, Inc. v. All Phase Electric & Maintenance, Inc., 562 So.2d 800 (Fla. 2nd DCA 1990). The following “pay when paid” clause was found to shift the burden of nonpayment by the owner to the subcontractor:

30

“Final payment, inclusive of retention, shall be made within 30 days of completion of the construction project, acceptance of the same by the owner, and as a condition precedent, receipt of final payment of [contractor] from the owner or prime contractor, as the case may be.” Dyser Plumbing Company v. Ross Plumbing & Heating Inc., 515 So.2d 250 (Fla. 2nd DCA 1987) The Court in OBS v. Pace also declared that even a valid “pay when paid” clause will not provide a defense to claims against the contractor’s surety under a payment bond. 2. The Scheduling Clause It is important that the parties each acknowledge, understand and agree on the duration of time necessary to perform the agreed-upon work under the contract. The American Institute of Architects contracts typically provide for the parties to agree upon several factors relating to scheduling, such as the following: 8.2.1 The contractor confirms that the time is a reasonable one. 8.1.2 The date specified is the date specified on the agreement. A201 also provides for a blank for a different date. If no agreement is established in a notice to proceed, the contractor must give five days notice before he begins to allow security holders to perfect their liens and establish their priorities. A101/201 does not give specific directions as to whether the contractor must actually commence work when the period for measuring compliance commences. 8.2.3 Substantial Completion; requires a contractor to “proceed expeditiously” 3.10.3 states that the contractor will conform to the most recent schedule.

31

3.10.2 sets up a system of schedules for submittals. 4.3.8.2 limits time extensions for inclement weather 4.3.8.1 requires a notice of intention to claim a time extension to include an estimate of the probable effect of delay on the progress of the work. 8.3.1 and 7.3.8 leave the amount of time extension to the architect. 4.3.3

Claims by either party must be made within 21 days after occurrence of

the event giving rise to such Claim or within 21 days after the claimant first recognizes the condition giving rise to the Claim, whichever is later. Claims must be made by written notice. An additional Claim made after the initial Claim has been implemented by Change Order will not be considered unless submitted in a timely manner. 4.3.8.1

If the Contractor wishes to make Claim for an increase in the Contract

Time, written notice as provided herein shall be given. The contractor’s Claim shall include an estimate of cost and of probable effect of delay on Progress of the Work In the case of a continuing delay only one Claim is necessary. The 21 day time limit applies. 4.3.8.2

If adverse weather conditions are the basis for a Claim for additional

time, such Claim shall be documented by data substantiating that weather conditions were abnormal for the period of time and could not have been reasonably anticipated and that weather conditions had an adverse effect on the scheduled construction.

32

Written documentation is required under this provision. The contractor must prove that the specific weather conditions delayed the work. Alternate provision for owners: 4.3.8.2

Extensions of time will not be granted for delays caused by unfavorable

weather, unsuitable ground conditions, Inadequate construction force, or the failure of the Contractor to place orders for equipment or materials sufficiently in advance to insure delivery when needed. 3. The Changes Clause When an owner and contractor enter into a construction contract, it is anticipated that the project will be built in accordance with plans and specifications prepared by an architect. These plans typically are prepared prior to the execution of the contract, and detail the specific components of the project and the one in which they should be constructed. Although every owner anticipates that there will be no changes and consequent extra cost to the project, this is virtually never the case. As there is no perfect construction, neither are there perfect plans and specifications. In addition, in the great majority of projects, the owner desires to make additions, deletions, or other modifications. If the owner and contractor were required to renegotiate the entire contract every time such a change occurred, the parties would devote most of their time to contract negotiation, rather than construction. As a method to alleviate this potential. problem, as a general rule, construction contracts contain one or more clauses dealing with changes to the work. These clauses attempt to encompass all potential situations in which modifications to the construction

33

process may necessarily be required as a result of a variety of potential causes. While the primary purpose of the changes clause is to permit such changes to the work with a prearranged method of negotiation established, other purposes are of benefit to both sides. The typical change order will allow the parties to: 1.

Fix the cost of the modification.

2.

Fix the adjustment of time to perform the work.

3.

Fix the parameters of the work necessary to be performed.

4.

Fix procedure for resolution of claims if no agreement as to price and time can be immediately negotiated.

5.

Allow the owner to correct errors in the plans and specifications or seek additions to the. scope of work.

6.

Confirm to the contractor that it will be paid for additional work performed.

7.

Permit, the owner to modify the method of construction.

This ability to modify the contract is at variance with most contracts which require consent of the other party before modification can be made. The typical changes clause permits the owner to have a pre-existing consent to make modifications within the scope and character of the project. Examples of changes clauses are as follows: •

A change order is a written order to the contractor signed by the owner and the architect, issued after execution of the contract, authorizing a change in the work or an adjustment in the contract sum or the contract

34

time. The contract sum and the contract time may be changed only by change order. A change order signed by the contractor indicates his agreement therewith, including the adjustment in the contract sum or the contract time. •

The contractor, without invalidating the contract, may order changes in the work within the general scope of the contract consisting of additions, deletions or other revisions, the contract sum and the contract time being adjusted accordingly.

All such changes in the work shall be authorized

by change order and shall be performed under the applicable conditions of the contract documents. •

The owner may make changes in the drawings and specifications or the drawings and specifications or scheduling of he contract within the general scope at any time by written order. If such changes add to or deduct from the contractor’s cost of the work, from the contract shall be adjusted accordingly.

All such work shall be executed under the

conditions of the original contract, except that any claim for extension of time thereby shall be adjusted at the time of ordering such change. •

General provisions of the U.S. Government Standard Form 23-A, Paragraph 3: (A)

The contracting officer may at any time without notice to the

sureties by written order designate as indicated to be a change order, make any change to the work within the general scope of the contract, including

35

but not limited to, changes: (1) In the specifications including drawings and designs),-; or (2), In the method or manner of performance of the work; or (3) In the government finished facilities, equipment, material, services or site; or (4) Directing acceleration in the performance of the work. In addition to the above, the 1987 version of the General Conditions, AIA Document A201, began offering another method of owner directed changes, that being Construction Change Directives (CCDs). The CCD is defined as: 7.3.1: A construction change directive is a written order prepared by the architect and signed by the owner prepared by the architect and signed by the owner and architect, directing a change in the work and stating a proposed basis for adjustment, if any, in the contract sum or contract time, or both. The owner may by construction change directive, without invalidating the contract, order changes in the work within the general scope of the contract consisting of additions, deletions, or other revisions, the contract sum and contract time being adjusting accordingly. 7.3.2: A construction change directive shall be used in the absence of total agreement on the terms of a change order The above provisions allow the owner to direct that the modified work be performed even when there is no agreement by the contractor as to the cost or time adjustment which may be necessary. If no agreement can be reached, the architect determines the adjustment of the contract sum and contract time subject to later

36

modification The CCD provision is an adoption of force account work in private construction. Each of the above provisions is consistent in one respect, that being that the owner can modify the work without the assent of the contractor. However, the changes which may be directed by the owner must be those which are in the scope and character of the project. For example, modification concerning the layout or changes of material or additions to the types of sizes of equipment to be used in a structure, are generally within the scope of the contract. However, where an owner determines that a two story building will become a ten story building, the scope and character of the construction has been changed. Such a revision could be considered a “cardinal change”. A cardinal change requires the consent of the other party Saddler v. United States., 287 F.2d 411, (Ct.Cl. 1961). In Saddler, the contractor on a project for the construction of a levy embankment, contended that it was due additional costs due to the substantial increase in its requirement to provide additional quantities of materials to the project. The contractor alleged that due to a cardinal change which was outside the scope of the specifications, it was entitled to additional compensation for which it would not otherwise have been entitled. The United States insisted that the change order did not alter the quality, character nature or type of work originally contemplated, and therefore, no compensation was due. The Court of Claims stated: The number of changes is not, in and of itself, the test by which it should be determined whether or not alterations are outside if the scope of a contract. ... A

37

single change which is beyond the scope of a contract may be serious enough to constitute an actual breach of that contract. p413. The court went on to discuss a change in a construction contract in another case in which an entire building was eliminated from a hospital complex, and quoted as follows: Certainly the authority vested in the contracting officer by this article'6f the contract to make "changes in the drawings and/or specifications of this contract and within the general scope thereof, did not vest him with the authority to eliminate entirely from the contract building no. 17. If he could eliminate one building from the contract under the guise of making changes in the drawings and specifications, he could likewise eliminate two or any number of buildings and thus entirely change the contract. The elimination of building no. 17 amounted to a cardinal change or alteration of the contract itself, a thing that could only be consummated with the consent of both parties to the contract... The plaintiff believes that the change which resulted in more than doubling the amount of weight to be placed was a cardinal change in the contract into which he had entered. We must agree with this contention. p. 414 As stated in Wunderlich Contracting Co. v. United States, 351 F.2d 1956 (Ct.Cl. 1965): Each case must be analyzed on its facts and in light of its own circumstances, giving just consideration to the magnitude and quality of the changes ordered and their cumulative effect upon the project as a whole... p. 966.

38

From the above discussion, it is clear that major fundamental changes in the construction requested by an owner may be considered cardinal changes, and may not be properly the subject of a change order without the assent of the contractor. In addition to the above categories of changes, many construction projects also have become modified by “field orders” issued by the architect. A field order was long ago defined in AIA General Conditions as: “Minor changes in the work not involving an adjustment in the contract sum or an extension of the contract time and not inconsistent with the intent of the contract documents”. AIA Document A201, General Conditions of the Contract for Construction (1970 Ed). Although field orders have disappeared from the AIA General Conditions after the 1970 Edition, many architects still use this method to make such minor modifications to the contract. Although strictly speaking, such modifications should require no cost adjustments, occasionally field orders do contain some type of modification of the contract time and price. The CCD referred to above is undoubtedly an outgrowth, in part, of this method of change. In addition to contractual changes clauses, occasionally a project will be affected by what is termed a Constructive change” to the project. Constructive change is one in which there is no directive to modify the work, but modification occurs as a result of outside influences or unwillingness of the owner to agree that change in contract time and place is necessary. Constructive changes typically occur in public projects, and examples may be generally categorized as:

39

1.

Additional work or modification to the contract schedule resulting from defects in the plans and specifications.

2.

Work directed to be performed in accordance with an owner's misinterpretation of the requirements of his plans and specifications.

3.

Effects of third parties on the work; and

4.

Constructive acceleration of the contract time.

Authority to Issue Change Orders If change orders were executed in accordance with the terms of the contract provisions, prior to the commencement of work, there would be no question as to the authority to issue change orders. For example, in AIA Document A201, it is clear that the owner and the architect must execute a change orders. In the perfect project, all change orders would therefore be agreed upon before the specific work is commenced and executed by the owner, architect and contractor. Thereupon, the work would be performed, payment would be made, and everyone would move on to the next project. However, as those familiar with the construction industry all know, this situation seldom, if ever, occurs. Even on projects where an attempt is made to execute change orders in conference with the contract documents, there occur instances where either this is not possible or practical, or just not done. Frequently, changes will be requested by the owner, either directly, or through his agents or employees, prices obtained from the contractor, and work performed before the execution of a change order.

Just as

frequently, the price for change orders is not agreed upon before the end of the construction and these unexecuted change orders result in litigation between the parties.

40

The question therefore is who is authorized to issue a change order? Again, there is no question in cases where the contract terms set forth specific persons or entities who may be allowed to originate additional work, that there is authority. It may be the owner, architect, contracting officer, clerk of the works, or others. However, most contracts inevitably involve changes requested by persons who may not be directly authorized by the contract to make such requests, or in a form not accordance with the contract provisions. For example, a contract may provide that a change to the work may only be allowed if directly made by the owner. In such a case, how does a contractor proceed if the architect directs him to perform work immediately, and for which he is promised payment?

The item of work will be generally be performed during the course of the

project. It will be expected that there will be no problem later in the job collecting. A problem may arise, however, when the owner refused to pay for the work and claims that he has not authorized its performance, either through the architect or in accordance with the contract. Other situations may arise in projects where the owner has his own representative on site to generally observe the construction. Most owners will not agree that their representatives are there to supervise the work, or direct its performance, even though in many instances that is exactly what they do.

If changes are requested by the

representative, who typically would also review the requisitions of the contractor in authorizing payment, does the contractor wait to execute a written change order between the parties or proceed with the work? In many instances, the contractor, again, will assume that he will be paid for that work, as authorized by the owner's representative and

41

expect to be paid. When the owner comes back at the end of the job and claims he did not authorize that change, the contractor is again faced with a serious problem. Fortunately, the courts have protected the contractor by applying principles of estoppel and waiver to such situations. Specific cases involving these issues have been determined by Florida Courts. In Bryan & Klefstead, 237 So.2d 236, the issues involved claims by the contractor against the owner which included claims for extra work performed in enlarging two canals on the owner's property. After commencement of the work on the project, the owner's engineers determined that the canals described in the plans and specifications would have to be substantially enlarged, and directed that this work be done. The question of their authority to bind the owner to payment f or this additional work was simply determined by the court: Whether or not the engineers had actual authority to authorize th additional work, clearly they had the apparent authority to do so. Therefore, plaintiff’s (owners) are bound by the engineers’ actions. Stiles v. Gordon Land Co., (Fla. 1950) 44 So. 2d 417; Russell v. Eckert, (Fla. App. 1965), 195 So. 2d 617; O’Neal v. Crumpton Builders, Inc., (Fla. App. 1962), 194 So. 2d 344. The court applied simple principles concerning apparent authority in establishing that the engineers direction to perform the work entitled the contractor to compensation. In the case of Fletcher v. Laqua Vista 275 So.2d 579 (Fla. lst DCA 1973), the court dealt with the question as to whether the total sum payable to the contractor pursuant to a valid written contract be increased without the owner's written consent. In this case, the contract, an AIA form contract, set forth that a change order was valid if executed by both the owner and architect. In Fletcher, only the Architect had executed

42

the change order. The owner claimed that without his signature on the change order, no sums were due. The court in Fletcher, allowed recovery by the contractor and set forth perhaps the most important consideration in dealing with cases of this kind. The court said: As is vividly illustrated by the above review, the printed AIA contract is replete with ambiguities, contradictions, and is an attempt to give all things to both parties. In such situation, the manner in which the parties themselves have interpreted the contract through their course of dealings is of utmost importance. p.580. The important concept, the course of dealings between the parties, can be of tremendous benefit where the contractor has nor fulfilled the requirements of the contract with regard to changes and is faced with an owner who does not thereafter acknowledge that he had previously agreed to make payment. Fletcher went to say: The record in this case is filled with the testimony to the record that both appellants and appellee had relied on architect Frye to make adjustments in the contract sum and have abided by his decision. Appellants knew that there would be at least a slight overage in the sums spent by appellee for overhead, but had never objected. Appellants accepted decreases in the cost of millwork, which were incorporated into a change order signed only by the architect Frye and the contractor. The parties themselves have interpreted the contract to allow an increase and a decrease in the contract sum with only the written signature of

43

architect Frye. Even if the contract does not grant this authority to architect Frye, the parties through their course of dealings have interpreted and modified the document so as to place in the hands of architect Frye the final authority to authorize increases and decreases in the contract sum. This concept of course of dealing is of importance not only with regard to the specific authority of a person or entity to issue a change order, but important to the entire construction process, and particularly with regard tot he next area of this topic, oral change orders. Oral Change Orders Although contractors spend both time and money in preparing, negotiating, and finally executing contracts containing specific requirements with regard to the performance of additional work on a project, it is still common practice to not only commence, but also completely perform items of additional and extra work on a project upon an oral directive. The term "oral change order" frequently becomes synonymous with the term unpaid change order An owner will frequently agree to pay for work orally, especially if it is delaying the course of construction and then at the time when payment is due, not be so agreeable. This can occur due to the very reasons why it is desirable to execute written change orders. The contract price may not be what is expected, the scope of the work may be more th an what was anticipated, or the time requested may be in excess of that reasonable. On the other hand, the owner may just not want to pay for the work and rely upon the contract provisions to avoid payment.

44

Contractor should be aware that provisions requiring the execution of a written change order for extra work have been upheld.

Acquisition Corp. of America v.

American Cast Iron Pipe Companv 543 So.2d 878 (Fla. 4th DCA 1989). In addition, in the execution of a change order anticipated to cover a specific item of extra work, all items of work should be included within the change order or reserved for future determination within the change order. In the absence of such consideration, a claim that the other items should have been included within the change order will likely be denied. Indian River Construction Company vs. City of Jacksonville, 350 So. 2d 1139 (Fla. 1st DCA 1977). Oral agreements to perform construction work are enforceable, and the law implies an obligation on the part of a person requesting that work be performed to pay for it. As stated in Delotto v. Fennell, 56 So. 2d 518 (Fla. 1951): When parties enter into an agreement or contract for construction work and during the progress thereof alterations or changes are requested in the form of extras and otherwise, then the law implies an obligation to pay the reasonable costs thereof in addition to the stipulated sum named by the parties in the original agreement. (p. 520.) See also, Forest Construction, Inc., v. Farrel -Cheech Steel Company, Florida Diversified properties Division, 484 So. 2d 40 (Fla. 2nd DCA 1986); Southern Bell Telephone & Telegraph Company vs. Acme Electrical Contractors, Inc., 418 So. 2d 1187 (Fla. 4th DCA 1982); Davis vs. Department of Health and Rehabilitative Services, 461 So. 2d 210 ( Fla. 1st DCA 1984).

45

In addition, where additional work is required to make the work conform to the contract plans, it has been held that the work does not require a written change order to allow for recovery. See Acquisition Corp. of America, supra; City of Miami v. Nat Harris & Associates, Inc., 313 So. 2d 99 (Fla. 3rd DCA 1976). The problem occurs where there are contractual provision requiring that there are contractual provisions requiring that there be a written change order before there is an entitlement to payment. If the contract requires the owner’s prior written consent before claims for additional compensation will be allowed, such a provision, unless waived, is enforceable in Florida. Shore Drive Apartments v. Frank J. Rooney, Inc., 253 So. 2d 478 (Fla. 4th DCA 1971); Tuttle/White Construction, Inc., v. State, 371 So. 2d 1096 (Fla. 1st DCA 1979). The critical issue, therefore, is waiver, and as with cases cited with regard to the authority to order changes, there has been a line of cases establishing that waiver of such contract terms can occur.

Broderick v. Overhead Door of Fort Lauderdale, 117

So. 2d 240 (Fla. 2d DCA 1959); Doral Country Club v. Curcie Brothers, Inc., 174 So. 2d 749 ( Fla. 3d DCA 1965); Pan American Engineering v. Poncho’s Construction, 387 So. 2d 1052 (Fla. 5th DCA 1980); King Partitions v. Donner Enterprises, 464 So. 2d 715 (Fla. 4th DCA 1985). Perhaps the most well known case involving waiver of the requirements of written change orders is Broderick, supra. In Broderick, the question arose concerning the contract price of the contractor to the owner. There was a question as to whether or not certain items not supported by written change orders should be allowed. While

46

stating that the contract specified that extras must be authorized in writing, and that such a provision is valid and enforceable, the Court of Appeals went on to say: We also recognize, however, that such a provision may be waived; and a waiver of the provision may be established by the subsequent course of dealing between the parties. . . Ordinarily, a written agreement cannot be abrogated nor modified by executory or parol agreement; but if the parol agreement has been accepted And acted upon by the parties, this rule does not apply. . . Extras, by statutory definition, consist of labor or services performed or materials furnished for improvement of real property authorized by the owner 'In addition to labor, services, or materials covered by the previous contract between the same parties. In the case here considered, the testimony, supported in part by the exhibits, amply establishes that during the construction of the building there were many changes in the plans authorized by the owners for extras incorporated in the construction, although these authorizations were not made in writing by the owners. The concept of course of dealing between the parties is many times the method by which contractors, in practice, perform the work.

4.

Damages: Actual, Liquidated and Consequential

Actual

47

Actual damages are, as their implies, the actual damages suffered by the aggrieved party. Typically, a parties actual damages in the event of a breach of a contract will be greater than an agreed-upon liquidated amount. There are a number of categories of damages that a party may not take into consideration when determining the amount of proposed liquidated damages upon executing the contract, but which will be realized as actual damages in the event of a delay in completing the project. For the Owner, these damages include, but are not limited to, the cost to complete and correct and incomplete or deficient work left by the contractor, continued construction loan costs, costs to placate prospective purchasers (in a condominium) or tenants (in a commercial building) pending completion, tax ramifications and lost opportunity costs. For a Contractor, the additional costs may include loss of bonding ability and other costs that may not be recoverable under extended general conditions or otherwise. Liquidated damages. The term “liquidated damages” has been defined as “a sum stipulated and agreed upon by the parties, at the time of entering into a contract, as being payable as compensation for injuries in the event of a breach” 17 Fla. Jur.2d, Damages § 98, at 116 (1980).

A liquidated damages clause is generally enforceable in Florida when the

damages that would result from a breach are uncertain at the time the contract is drawn; the amount stated as liquidated damages represents a reasonable forecast of just compensation for the harm caused should a breach occur and the language is clear that the parties intended to provide for liquidated damages and not a penalty. See: Hyman v. Cohen, 73 So.2d 393 (Fla. 1954); Hawk’s Cay Investors, Ltd. v. Brandy Marine of the

48

Keys, Inc., 524 So.2d 681 (Fla. 4th DCA 1988). However, there are no concrete rules as to whether a stipulated sum is a penalty or a valid liquidated damage provision and the courts will always determine the issue on a case-by-case basis, considering the particular facts involved. Moreover, a liquidated damages clause that appears enforceable at the time of contracting may later be declared invalid when circumstances at the time of breach render enforcement of the provision unconscionable. Multitech Corp. v. St. Johns Bluff Investment Corp., 518 So. 2d 427 (Fla.1st DCA 1988). Contracting parties may impose liquidated damages for the breach of certain contractual provisions while providing actual damages for the breach of others. As a result, construction contracts often award liquidated damages for the failure to complete performance under the contract on or before an agreed upon completion date while providing for the recovery of actual damages for failure to build in strict accordance with the plans and specifications. This provision, if reasonable, is ordinarily enforceable as liquidated damages as opposed to a penalty since the parties can be expected to rely upon the completion date set forth in the contract, and any failure to meet the completion date will most certainly result in damages, the actual amount of which would have been difficult to ascertain at the time the contract was executed. However, where the acts or omissions of the non-breaching party contribute to the breach activating the liquidated damages provision, a liquidated damages provision will generally not be enforced. Midstate Hauling Company v. Watson, 172 So.2d 262 (Fla. 2nd DCA 1965) citing United States v. United Engineering & Contracting Company, 234 U.S. 236,(1914). Consequential Damages

49

Consequential damages are those, as the name implies, consequential to the act or failure giving rise to a claim of breach of the applicable contract; they are not the type of damages one would anticipate in the event of a breach of the contract.

The AIA

specifically excludes consequential damages, citing such damages as rental expenses, loss of use, income, profit, financing, business and reputation and loss of productivity as damages that would be consequential to the owner. The AIA also cites consequential damages for the contractor as principal office expenses, losses of financing, business and reputation and loss of profit other than profit arising from the subject project. 5. Indemnification Requirements Construction contracts often contain indemnification clauses requiring the parties to indemnify and hold each other harmless from claims and liabilities arising out of their performance, and the performance of others over whom they maintain control on the project. In light of the numerous parties and separate contracts ordinarily involved in a construction project, these indemnification provisions often provided an important chain of contractual responsibility between a party who is damaged and a wrongdoer with whom he may not otherwise be in privity. Under Florida law a party to a construction contract may obtain indemnification for his own negligence from another party, although in order to do so the contract must contain a specific “monetary limitation” on the extent of indemnification, or the person indemnified must have given “specific consideration” to the indemnitor.

Fla. Stat.

§725.06. The monetary limitation and/or specific consideration given to the indemnitor should appear within the indemnification clause in the contract.

50

6. Claims And Disputes Provisions Arbitration Many construction contracts now contain arbitration clauses requiring the parties to submit disputes arising under the contract to arbitration, as opposed to a court of law. Arbitration in the state of Florida is governed by Chapter 682 of the Florida Statues. Arbitration has become a more popular method of resolving construction disputes because it is generally a quicker and less formal process than civil litigation. In addition, the arbitrators appointed to resolve the construction dispute, who are often selected by agreement of the parties themselves, have specialized knowledge in the field of construction whereas a judge or jury may have no independent prior knowledge of what is customary in the construction field. While a corporate party is not required to retain counsel in arbitration, as they would be in litigation, a party does have a right to be represented by an attorney in arbitration proceedings. Finally, arbitration offers the parties privacy as opposed to proceedings in a court of law which are generally a matter of public record. On the other hand, because arbitration proceedings do not follow specific rules of civil procedure or evidence, they do not afford the parties the same procedural safeguards intended to exclude prejudicial and unreliable evidence that are provided in a court of law. By agreeing to arbitration, parties to a construction contract waive their right to a trial by jury and are often bound by laymen’s decisions regarding issues of law that are ordinarily decided by a judge. In addition, absent clear mistake of law that appears on the face of an arbitration award, fraud, corruption or misconduct by the parties or the

51

arbitrator, a party who is dissatisfied with the results of arbitration will likely have no basis to appeal the arbitration award. Florida Statute Chapter 682 is referred to as the Florida Arbitration Code; however, since Chapter 682 is limited in its scope, many arbitration agreements utilize the rules and services of the American Arbitration Association (“AAA”). The American Arbitration Association has even established the Construction Industry Rules to govern the procedure for construction disputes. These forms and rules can be obtained from the AAA Arbitration clauses in contracts are generally enforceable and unless both sides waive arbitration, parties can be compelled to attend arbitration in accordance with the contract. Because of this, parties should be cautious as to the breadth of their contractual arbitration clause. An arbitration clause can be as broad as requiring every issue that arises under or in relation to the contract to be arbitrated, or as narrow as to address only certain specific issues. The parties should always understand that everything that could conceivably fall under the ambit of the provision will be arbitrated (unless the parties agree to the contrary at the time of the dispute) and also recall that they can always agree at a later date to arbitrate any dispute. An arbitration agreement must contain the procedures and rules to be used during the arbitration proceedings. Furthermore, the arbitration agreement should be definite as to what issues can be arbitrated. Vague arbitration provisions are not enforced by the Courts. See, Wood Hopkins Contracting Co. v. C.H. Barco Contracting Co., Inc., 301 So.2d 479 ( Fla 1st DCA 1974) However, subcontracts with incorporation clauses containing an arbitration clause are enforceable. See, Marthame Sanders & Co. v. 400

52

West Madison Corp., 401 So. 2d 1145 (Fla. 4th DCA 1981). A party to an agreement or provision for arbitration may move to compel the other party to submit to arbitration. If the Court is satisfied that there exists no issue regarding the making of the provision or agreement, it shall grant the application. Fla. Stat. § 682.03;

See, Collier Land

Corporation v. Royal Palm Beach realty, Inc., 338 So. 2d 859 (Fla. 3d DCA 1976). When a party files a lawsuit for determination of the controversy he waives his right to arbitration. See, Ojus Industries, Inc. v. Mann, 221 So. 2d 789 (Fla. 3d DCA 1969). However, in Collier Land v. Royal Palm Beach Realty, Inc., 338 So.2d 859 (Fla. 3d DCA 1976) the Court held that although the Plaintiff filed a complaint and then a motion to compel arbitration, the motion to compel arbitration did not constitute a waiver as the Plaintiff’s conduct was not so inconsistent with its arbitration demand. In Beverly Hills Development Corp. v. George Wimpey of Florida, Inc., 661 So. 2d 969 (Fla 5th DCA 1995) the Court held that waiver of arbitration may occur by active participation in a lawsuit or by taking action which is inconsistent with the right to arbitrate. Nevertheless, if a contractor is proceeding under the arbitration provisions, it may simultaneously file a lien and a foreclosure complaint to preserve its lien rights. See, Oakdale Park, Ltd. v. Byrd, 648 So. 2d (Fla. 1st DCA 1977); Genstar Southern Development, Corp. v. Troup Bros., Inc., 396 So. 2d 211 (Fla. 3d DCA 1981). While the parties can agree otherwise in their contract, the AAA rules provide for the use of a three member panel of arbitrators if the amount of the claim is greater than $200,000. The parties are provided with a list of arbitrators from which each may strike four without cause. Thereafter, each party numbers the potential arbitrators remaining on

53

its list in the order of preference. The AAA then chooses the three arbitrators from each party’s list. One arbitrator hears the dispute if the amount of the claim is less than $200,000; however the parties may choose to have a three member panel at a charge of approximately $2000. The parties may also establish a mechanism in their contract to choose arbitrators. One option is to allow each party to choose and arbitrator and the have each party’s arbitrator choose the third arbitrator. The arbitrator(s) have the power to administer oaths, issues subpoenas for the attendance of witnesses and for the production of documents, and may apply to the court for orders compelling attendance and compliance. Fla. Stat. § 44.304(7) Within 30 days of the adjournment of the arbitration proceedings, the arbitrator(s) normally notify the parties of their decision. At that time the transcript and decision is sealed and filed with the clerk. F.R.C.P. 1.820(g). If either of the parties is not in agreement with the result, such party has the right to request that the circuit court amend or vacate the arbitration decision. However, a party may apply for vacation of an arbitration award only if the award was obtained by fraud, corruption or undue means, or if the arbitrator was biased in conducting the proceedings. Fla. Stat. § 682.13. There are numerous advantages to arbitration, including but not limited to, speed in resolution of the dispute, the reduced cost versus protracted litigation, and the fact that hearsay evidence may be admissible as an arbitration panel can hear all evidence they consider significant. Also, arbitration may proceed without discovery being conducted and the arbitrator(s) may have expertise in construction, and thereby better able to make a determination on the dispute than a jury panel. However, arbitration may proceed too

54

quickly, preventing a party from obtaining documents and witnesses necessary to present its case. One must keep in mind that arbitration proceedings can also result in erroneous conclusions that may not be subject to reversal since the arbitration panel does not have to justify its reward, which may be based upon error in law or fact. Mediation Mediation is a confidential process and the parties may refuse to disclose and prevent any other individual present at the mediation from disclosing all communications made during these proceedings. Mediation is less costly than proceeding with litigation proceedings, which may involve a lengthy discovery process and trial. Additionally, mediation may be more time effective as opposed to the extended litigation of a case. However, if mediation is enacted before litigation, sufficient discovery (i.e. -depositions, interrogatories, requests for production) may not have been conducted, thus mediation may be premature and unproductive.

Additionally, if the parties are not willing to make any concessions

regarding the claims asserted, this proceeding will not be fruitful. Parties must recall, however, that all actions filed with Florida courts must be mediated prior to proceeding to trial. Consequently, whether such mediation is to take place early on in the process or closer to trial is within the hands of the parties, but whether mediation will occur at all is not. Litigation Litigation is, by far, the most costly and time consuming process for resolving matters between parties. Parties should be represented by counsel and, in the case of a

55

corporate party, must be represented by counsel. Following the filing of a lawsuit, each party is permitted to take discovery of the other side, including, but not limited to, requests to produce documents, respond to interrogatories and admit or deny certain statements. Parties are also permitted to depose individuals with knowledge of the issues between the parties. This may include personnel on behalf of the contractor and the developer, the contractor’s subcontractors and others with knowledge of the project. Even the speediest of litigation often cannot be concluded in less than two years. T h e contractor, particularly, must be aware that, while it may not wish to litigate with the developer, but would prefer to mediate or arbitrate its disputes, there are statutory requirements placed on the contractor for the filing of a lawsuit to foreclose upon a claim of lien. While a contractor may sue a developer for breach of their contract within five years of the date of the breach, the statute of limitations is more severely curtailed for a suit to foreclose on a claim of lien. Pursuant to Fla. Stat. § 713.22(1), a contractor must file its lawsuit to foreclose upon a claim of lien in the circuit court within one (1) year of the recording of the claim of lien. In the event that the property owner files a notice of contest of lien pursuant to Fla. Stat. § 713.22(2), the time to file the subject lawsuit is shortened to sixty (60) days from the date of the service of the owner’s notice. As discussed above, a Court may refer all or any portion of a contested civil action filed to mediation. Fla. Stat. §44.302(2); F.R.C.P. 1.700 Furthermore, the parties may stipulate to mediate any issue between them at any time. F.R.C.P. 1.700. The discovery proceedings in the litigation are not suspended during mediation unless stipulated by the parties or ordered by the Court. F.R.C.P. 1.710©)

56

The mediator is selected by the parties, or if the parties cannot agree then the mediator is appointed by the Court. F.R.C.P 1.710(f). The mediator will report to the Court if the parties are unable to reach an agreement, and will also inform the Court if the parties reached a partial or final agreement. If a partial or final agreement is reached, the report of the agreement or a stipulation of dismissal shall be filed. F.R.C.P. 1.730(a)(b). The Court may also order nonbinding Arbitration, as discussed in Fla. Stat.§ 44.303. Once arbitration proceedings are initiated, whether by order of the court or decision of the parties, the Court is without jurisdiction to make any decisions regarding factual issues other than the making of the agreement. See, Modern Health Care Services, Inc. v. Puglisi, 597 So. 2d 930 (Fla 3d DCA 1992).

57

58

III. Differing Site Conditions

Prepared and Presented by:

Elissa Gainsburg, Esq. Pardo & Gainsburg, LLP

59

60

A. Contingencies And Risks The clearest risk one encounters with differing site conditions is the financial one -who is going to pay for the additional costs necessitated by the condition that none of the parties was aware of. A contract should provide for the contractor to inspect the property and become familiar with what does and does not exist on the subject property. However, there is no way to plan for a situation where one encounters subsurface conditions that are not documented. A contractor should not be required to build into the bid contingency amounts to address far-reaching circumstances that will likely never occur. Instead, the parties must be reasonable in allocating the risks of such conditions. Typically, in the event of a true unforseen condition, that was not known, nor could it have been known under the circumstances, the owner will bear the risk of the expenses attendant to addressing the unforseen condition.

It must be clear in the contract,

however, that, in the event there is a changed or unforseen condition discovered, notice must be given to the owner of such condition within a reasonable period of time, such as 14 or 21 days from the date of discovery. B. Defining The Conditions The owner should avoid assertions as to the character or quality of the site. If either party seeks to disclaim responsibility for changed conditions, such disclaimer should be clear, concise and conspicuous so that there is no doubt about the intention of the provision. Conversely, the Contractor would prefer to have very specific information about the site, in writing, provided by either the owner or the architect. All such information

61

should be retained by the contractor as important to the job. Additionally, the Contractor should request a specific changed conditions clause removing responsibility form the contractor in the event changed or unforseen conditions are discovered. In the event the contractor discovers a condition it believes to be different from that which was represented to him, he should promptly notify the Owner. C. Exculpatory Clauses And Disclaimers "Changed conditions" clauses in construction contracts are typically used to spread the risk between a contractor and owner when differing site conditions are encountered by a contractor and result in increased job costs. "Changed conditions'' clauses in constructions contracts generally protect a contractor's right to be compensated when an unexpected site condition is encountered. Owners may also benefit from the inclusion of such clauses because the contractors will not have to allow for unexpected condition contingencies and thus increase their bid prices. Traditionally, the owner employs architects and engineers to prepare plans and specifications and it is clearly the function and responsibility of these design professionals to prepare plans and specifications that are in accordance with applicable codes and that will produce the results intended. It is not uncommon for soil tests and other data to be provided in plans and specifications. The following are two examples of standardized "changed site condition" clauses found in contracts: American Institute of Architects (AIA), section 12.2 of the A201 Concealed Conditions:

62

BEFORE OR AFTER SUBSTANTIAL COMPLETION The Contractor shall promptly correct Work rejected by the Architect or failing to conform to the requirements of the Contract Documents, whether discovered before or after Substantial Completion and whether or not fabricated, installed or completed. Costs of correcting such rejected Work, including additional testing and inspections and compensation for the Architects’s services and expenses made necessary thereby, shall be at the Contractor’s expense. If prior to the date of Substantial Completion, the Contractor, a Subcontractor or anyone for whom either is responsible uses or damages any portion of the Work, including, without limitation, mechanical, electrical, plumbing and other building systems, machinery, equipment or other mechanical device, the Contractor shall cause such item to be restored to “like new” condition at no expense to the Owner. AFTER SUBSTANTIAL COMPLETION In addition to the Contractor’s obligations under Paragraph 3.5, if, within one year after the date of Substantial Completion of the Work or designated portion thereof or after the date for commencement of warranties established under Subparagraph 9.9.1, or by terms of an applicable special warranty required by the Contract Documents, any of the Work is found to be not in accordance with the requirements of the Contract Documents, the Contractor shall correct it promptly after receipt of written notice from the Owner to do so unless the Owner has previously given the Contractor a written acceptance of such condition. The

63

Owner shall give such notice promptly after discovery of the condition. During the one-year period for correction of Work, if the Owner fails to notify the Contractor and give the Contractor an opportunity to make the correction, the Owner waives the rights to require correction by the Contractor. If the Contractor fails to correct nonconforming Work within a reasonable time during that period after receipt of notice from the Owner or Architect, the Owner may correct it in accordance with Paragraph 2.4. The one-year period for correction of Work shall be extended with respect to portions of Work first performed after Substantial Completion by the period of time between Substantial Completion and the actual performance of the Work. The Contractor shall remove from the site portions of the Work which are not in accordance with the requirements of the Contract Documents. The Contractor shall bear the cost of correcting destroyed or damaged constructions, whether completed or partially completed, of the Owner or separate contractors caused by the Contractor’s correction or removal of Work which is not in accordance with the requirements of the Contract Documents. Nothing contained in this Paragraph shall be construed to establish a period of limitation with respect to other obligations which the Contractor might have under the Contract Documents. Establishment of the one-year period for correction of Work as described elsewhere relates only to the specific obligation of the Contractor to correct the Work, and has no relationship to the time within

64

which proceedings may be commenced to establish the Contractor’s liability with respect to the Contractor’s obligations other than specifically to correct the Work. b.

Associated General-Contractors (AGC) Report of Differing Conditions: If contractor believes that: Any technical data on which contractor is entitled to rely is inaccurate, or Any physical conditions uncovered or revealed at the site differs

materially from the indicated, reflected or referred to in the Contract Documents. Contractor shall promptly after becoming aware thereof and before performing any Work in connection therewith (except in an emergency), notify owner and engineer in writing about the inaccuracy or difference. Engineers Review: Engineer will promptly review the pertinent condition, determine the necessity of obtaining additional explorations or tests with respect thereto and advise owner in writing (with a copy to contractor) of Engineer’s findings and conclusions. Possible Document Change:

If Engineer concludes there is a

material error in the Contract Documents or that because of newly discovered conditions a change in the Contract Documents is required, a Work Directive Change or a Change Order will be issued as provided in Article 10 to reflect and document consequences of the inaccuracy or difference. Possible Price and Time Adjustments: In each such case, in increase or decrease in the Contract Price or an extension or shortening of the Contract Time, or any combination thereof, will be allowable to the extent that they are attributable to any such

65

inaccuracy or difference. If Owner and Contractor are unable to agree as to the amount or length thereof, a claim may be made therefor. Disclaimers Generally, a contractor has the right to rely on the terms of the plans and specifications furnished by the owner. However, this may be modified by disclaimer or exculpatory clauses in the contract. A disclaimer clause essentially disclaims any responsibility for the accuracy of the contract

documents and attempts to place all risks

on the contractor. Florida courts have not been entirely consistent in their interpretation of disclaimer provisions in a contract. In Miami-Dade Sewer and Water Authority v. Inman, Inc., 402 So. 2d 1277 (Fla. 3rd DCA 1981), review denied 412 So. 2d 466 (Fla. 1982), the Court held that a disclaimer clause in a contract between the sewer authority and the contractor was valid and enforceable where there were no misrepresentations or withholding of information by the sewer authority. In Titan Southeast Construction Corp. v. City of Tampa, No. 84 3443 (11th Cir.), the Court held that contractor could not recover unless it proved that the owner “intentionally” or “deliberately” misrepresented the sites’s condition or willfully and in bad faith concealed site information. On the other hand, in Town of Long Boat Key v. Carl E. Widell & Sons, 362 So. 2d 719 (Fla. 2nd DCA 1978), a contractor brought suit against a town to recover the balance due under its

contract for construction of pumping and lift stations as part of a

central waste water system plus its

extra costs when it used the caisson method of

construction when the construction site could not be kept dry by dewatering as had been

66

indicted in the report included in the bid packet. The contract for construction contained a “changed conditions” clause and a “disclaimer clause” which provided that

bidders

were responsible for examining the job site to familiarize themselves with job conditions. The

Second District held that the contractor could reasonably rely upon the report in

the bid package and

had no obligation to make its own test borings.

Federal case law is inconsistent as well. See: Appeal of Bowie and K Enterprises, Inc., IBCA No. 1788 (1986); Morrison-Knudsen Company, Inc. v. The United States, 397 F. 2d 826 (Ct.Cl. , 1968). Under both state and federal law, a contractor will probably be able to avoid a disclaimer clause if the owner has mislead him. This is consistent with case law which allows a contractor to rely D.

upon the plans and specifications provided by the owner.

Claims Related To Differing Site Conditions Notice If a differing site condition is encountered, the contractor mus be sure to take

steps necessary to put the owner on notice. Contracts usually contain clauses requiring the contractor to notify the owner of differing site conditions as a pre-condition to a changed condition claim. Failure to provide timely notice may bar the claim. See: Blankenship Construction Company v. North Carolina State Highway Commission, 222 S.E.2d 452 (N.C. App., 1976). Notice provisions are enforced to varying degrees in different jurisdictions. Certain circumstances, such as actual knowledge by the owner or his representative, may excuse formal notice. See: General Casualty Company of America v. United States, 127

67

F. Supp. 805 (Ct.Cl. 1955).

See also: Town of Long Boat Key v. Carl E. Widell & Sons,

supra, where the Court noted that the burden on the contractor under the changed conditions clause was to call the condition to the attention of the town’s engineer, which it did. The safest way to avoid problems is to carefully comply with notice requirements! Contractual Remedies. Many construction contracts contain language which purport to set forth the rights and obligations of the parties when the conditions encountered during the performance of the work differ from those which were expected. The three most common contractual provisions are the “changed conditions” clause, which creates a right to claim; the “site investigation” clause, which purports to prevent any claims. The changed conditions clause expressly recognizes the possibility of a claim for costs which arise frm the conditions, addresses the question of who bears the extra costs incurred, and, typically, also sets forth procedures for resolution of any disputes. An example of a change condition clause is the American Institute of Architects (AIA) “concealed conditions” clause recited earlier in these materials. Most construction contracts with state and federal authorities and many private construction contracts contain provisions similar to or identical to the AIA contract provision. There are two types of changed conditions claims which may create a right to payment under a standard clause such as that provided by the AIA or in federal

68

government contracts. The first

and most common type of claim is known as a

“category 1" or type 1" claim. The second is know as 1.

a “ category 2" or “type 2" claim.

Type 1 Conditions

A type 1 claim involves the encountering of a condition which differs materially from those indicated in the contract documents. Champagne-Weber, Inc. v. City of Ft. Lauderdale, 519 So.2d 696 (Fla.4th DCA 1988) (subsurface rock where contract documents indicated sand soil); Jacksonville Port Authority v. Park-Hill Goodloe Co., Inc., 362 So. 2d 1009 (Fla. 1st DCA 1978)(boring for dredging projects indicated sand, silt and limestone fragments, rather than rock); Granite-Groves v. Washington Metropolitan Area Transit Authority, 845 F.2d 330 (U.S. App. D.C., 1988)(contract documents indicated clay rather than sand). Proof of this claim essentially raises the question of what the contract documents “indicate” about site conditions. In order to recover under a type 1 claim the contractor must be prepared to prove a) the actual conditions encountered; b) the conditions indicated by the plans, specifications and other contract documents; c) the variance between a) and b); and d) that the notice of variance was provided to the owner or municipal authority. It is important to demonstrate just what the contract documents “indicate” about conditions. The word “indicate” is rather broad and has been interpreted broadly. Contract language

need not be explicit but only enough to lead a reasonable bidder into

not expecting the conditions which are actually encountered. See Stock & Grove, Inc. v. United States, 493 F. 2d 629, (Ct.Cl.1974). “Indications” have been found to be based

69

upon specified design or construction procedures or those which reasonably imply that a certain condition exists, even though nothing in the contract documents expressly states that the condition exists. For example, in Town of Long Boat Key v. Carl E. Widell and Son, supra, the Fourth District Court of Appeals considered a claim by a contractor for extra costs it incurred when the contractor was forced to use the caisson method of excavation on a project because the construction site could not be kept dry by dewatering as had been indicated in reports included in the bid package. The Court held that the contractor was entitled to recover under

the changed conditions clause in the contract.

The Courts will consider the materiality of a representation made in the contract documents. The materiality of a representation can be a function of the quantity or quality of the difference between what was represented and what actually exists. See Kaiser Industries Corporation v. United States, 340 F. 2d 322 (Ct.Cl. 1965) (Contractor reasonably expected 80% rock to be usable in construction but less than 40% was usable.); Appeal of Bick-Com Corp., VACAB No. 1320 (1980)(Contractor had to remove 531 cubic yards of basalt ledge rather than 400 cubic yards indicated in contact documents). 2.

Type 2 Conditions

The type 2 claim, which is generally more difficult to prove, involves conditions which differ materially form those ordinarily encountered and generally recognized as inherent in the work of the character called for in the contract. The difficulty arises because the owner has made no contractual representation to the contractor regarding the job site conditions. This does not involve a comparison between contract language actual

70

conditions. It compares actual conditions with what an experienced contractor could reasonably have anticipated. In such instances, the contractor must demonstrate the conditions which ordinarily would be encountered while performing the type of work called for in the contract documents. United States, 433

Charles T. Parker Construction Company v.

F. 2d 771 (Ct.Cl.1970).

In order to recover under a type 2 claim, the contractor must be prepared to prove a) the actual conditions encountered; b) the conditions ordinarily expected to be encountered; c) a material variance between a) and b); and d) that notice of the variance was provided to the owner or contracting authority. The key is proving that the condition actually encountered was “unexpected and unusual”, and that it “differed materially” from that which would be expected or usual. A contractor must be prepared to prove that a site investigation would not and did not disclose the condition and that it could not reasonably anticipate the condition. The term “unusual” does not mean unique but rather a condition which would not be anticipated by the parties to the contract when entering into their initial agreement. Western Well Drilling Co. v. United States, 96 F.Supp. 377 (U.S. D.C. N.D. Cal. 1951). See also: Leiden Corp. ASBCA No. 26,136, 83-2 BCA (CCH) 16,612 (1983) (Use of expensive, rarely used plastic technique indicates unusual conditions); Flores Drilling & Pump Company AGBCA 82-204-3, 83-1 BCA (CCH) 16,200 (1983) (Unusual drilling procedures used by contractor required because of abnormal subsurface conditions.)

71

3.

Common Law Recovery

Generally, conditions which make a contractor’s performance more difficult, burdensome or more expensive is not an excuse for non-performance or modification of the contract. O’Neill Construction Company v. City of Philadelphia, 6 A. 2d 525 (1939). Since many private construction contracts do not address changed site conditions, a contractor must look to common law for recovery. Three common law theories that may assist a contractor in this situation are 1) misrepresentations; 2) implied warranty of adequacy of plans and specifications and 3) quantum meruit. A misrepresentation claim arises where the contractor sustains extra costs where conditions are different from those stated in the owner’s bid or contract documents. The contractor must show that 1) the contract documents contain representations which were materially different from those actually encountered; 2) the contractor justifiably relied on these representations; and 3) the conditions encountered caused the contractor increased costs in performing the contract. Haggart Construction Company v. State Highway Commission, 427 P. 2d 686 (Mont., 1967). Of course, under these circumstances it may be difficult fo the contractor to prove that the owner knew or should have

known o the misrepresentations and that it justifiably relied upon the information

contained in the contract, especially where the contract contains a site investigations clause. The Courts may examine the issue of pre- investigation to determine whether the contractor’s reliance was justified. The Court will also examine the language of the representation and disclaimers. Clearly, where an owner suppressed information or failed

72

to disclose it and the information was material to the contractor’s performance the contractor is likely to recover from an owner. With regard to an implied warranty claim, a contractor may assert that the owner had impliedly warranted the adequacy of the plans and specifications. Richardson Electrical Company, Inc. v. Peter Francese & Son Inc., 484 N.E. 2d 108 (Mass. App. 1985) (Plans failed to disclose that contractor could not hook up phone service to nearby electrical pole ); State Road Department v. Houdaille Industries Inc., 237 So. 2d 270 (Fla. 1st DCA 1970) (Contractor recovered for inaccurate plans and specifications arising out of construction of Alligator Alley). But also see: Green Construction Company v. Kansas Power & Light Company, 717 F. Supp. 738 (Kan. 1989) (Denying implied warranty claim for excessive subsurface moisture where there were disclaimers in the contract. Another theory of recovery is known as the “Spearin doctrine” which was created by the Court in the United States v. Spearin, 248 U.S. 132, 398 S.Ct. 59, (1918). Under the Spearin doctrine the owner impliedly warrants the adequacy of the plans and specifications. The warranty is limited to representations in the contract documents which go to the method of constructions rather than to its results. Where the owner and contractor are mutually mistaken over the existence of

concealed conditions, the

contractor may recover in quantum meruit his extra costs in performing

the contract.

See: John Burns Constructions Company v. Interlake Inc., 433 N.E. 2d 1126 (1982). This simply means that the owner may recover for the reasonable value of its extra work in performing the contract.

73

74

IX. Claims And Disputes

Prepared and Presented by:

Elissa Gainsburg, Esq. Pardo & Gainsburg, LLP

75

76

A.

Schedule Driven Claims



The contractor’s use of the project schedule to support its claim From the contractor’s perspective, the provision of updated schedules will

document its progress on the project and provide support for any claim by the contractor for delay caused by the owner. For example, if the project was proceeding according to schedule for some time and multiple changes in the plans or the owner’s failure to provide information coincides with a sudden slowdown in the progress of the project, updated schedules can demonstrate the interrelation between the owner’s actions (or inaction) and the delay in the project. If however, there are no updated schedules demonstrating timeliness or even expedition of the work, but rather only an updated schedule suddenly showing delay (which may have occurred at any time prior to the updated schedule), it may be more difficult to prove a causal connection between any action by the owner and the delay, thereby weakening the contractor’s claim. •

Daily progress reports The contractor should require its project superintendent to prepare and maintain

daily progress reports detailing the daily conditions, what work was performed on the project and the reasons for any aberrations.

For instance, there may be torrential

downpours that would prevent the performance of certain work on the project. The contract would want to document the cause for this delay so that it can properly request a time extension. The contract may also wish to document an owners failure to timely respond to RFIs and the delay being caused and other actions or inaction by an owner that may be affecting the contractor’s progress. Requests for acceleration and actual

77

work towards acceleration can be documented on the daily reports, including a count of the number of workers on the project. •

Prepare a timeline A timeline detailing all the critical points in the construction of the project will

help the individual parties make certain determination s to their own claims, as well as assisting in demonstrating to others what occurred on the project. A timeline will be particularly helpful when there are delay or acceleration issues. This task will go hand in hand with the preparation and updating of schedules. In fact, if the project schedules have been properly and timely updated, the preparation of a timeline will be quite simple. In that case, all that will be necessary will be the addition of certain non-construction issues that may be critical to the claims of any party, such as the timing of RFIs and responses thereto. •

Project Scheduling and Use in Claims Another important point to be keenly aware of is the scheduling of the project.

Delays in completion and who bears the ultimate financial responsibility for such delays are often the most hotly contested issues in construction disputes. It behooves both parties to ensure that the schedule is realistic and achievable. The contractor should make every effort to create a schedule that does not just give the owner the completion date it wants, but a schedule that the contractor can maintain so as not to create a situation ripe for delay in completion of the project. From the owner’s perspective, an achievable project schedule is critical to ensure that the owner can plan for the project completion, including timing of repayment for the construction loan and use of the

78

project (i.e: the sale of units in a condominium project.) The schedule should be reviewed by the project professionals. The owner should not simply accept the contractor’s word as sufficient to believe that the schedule is achievable. The owner should not, however, tell the contractor the means and methods of construction to be utilized on the project. Assurances that the schedule is achievable may be the first building block for a delay claim. Each side could use this information to demonstrate that the schedule is reasonable and that any delay in completion of the project was due to a failure of one of the parties to act as required towards the completion. For example, a contractor may claim that the owner or its design team failed to be sufficiently responsive to Requests for Information (“RFIs”) or made excessive changes to the project drawings. Alternatively, the owner may claim that the contractor did not adequately staff the project or did not obtain materials or locate subcontractors in a timely manner.

A subsequent

determination that the scheduled project completion dates were unobtainable may preclude at least certain claims for unanticipated delay. This would more likely work against the contractor insofar as it would have created the schedule and should have known if it was attainable, barring any unforseen circumstances. The owner, on the other hand, has a right to rely upon the schedule provided by the contractor as being attainable.1 It has been said that it is virtually impossible to create a critical path schedule after the construction of the project; such a schedule could be created with the elements

1

As discussed previously, however, the owner should not rely upon the contractor’s representations in the schedule, but rather should independently verify whether the schedule is realistic.

79

of the drafter’s choice being labeled as critical, thereby causing a “battle of the schedules”. If the developer does not receive a critical path schedule at the outset of construction, and litigation ensues over the project, it is almost assured that the contractor will claim that all delays it alleges were caused by the developer were in the “critical path” of the project. The developer’s only defense to this will be a claim that the contractor caused its own delays to the critical path, and that either the developer did not cause any delays, the delays caused by the developer were not in the critical path or that any delays caused by the developer ran concurrently with the contractor’s delays and therefore had no substantive effect of the project. Regardless of the defense, it becomes virtually impossible for either side to prove its claims with any degree of certainty without a critical path schedule. Again, as with the other contractual terms, a developer should require a critical path schedule to be provided upon execution of the contract. Additionally, the schedule should be updated by the contractor on at least a monthly basis in order to set forth the progress that has been made on the project and to ensure that the remaining work can be performed in the time frames set forth in the initial schedule. If the developer does not receive updated schedules from the contractor, it should demand them. Too often, a contractor fails to provide an updated schedule because it does not wish to admit to the owner that the project has fallen behind schedule. However, if the developer does not learn of the delays in sufficient time to address them, it may realize too late that the project will not be completed by the contract completion date.

80

When the developer and the contractor agree upon a schedule, it should be noted in the contract that it is understood and agreed by all parties that the schedule is attainable by the contractor without the need for extraordinary measures. The contractor should regularly provide the owner with updated schedules to document the progress on the project and ensure that the owner is well apprised of any delays that may be accruing throughout construction. When receiving updated schedules from the contractor, the developer should review the schedule, perhaps with the assistance of an independent party, to ensure that the schedule remains realistic and that the work is being performed in a manner that will ensure timely completion of the project. If the schedule is not being met and it appears that the project cannot be timely completed, depending on the contractual provisions, the developer would be within its contractual rights to terminate the contractor. Section 14.2.1.1 of the A201 Standard General Conditions allows the owner to terminate the contractor if the contractor “persistently or repeatedly refuses to supply enough properly skilled workers.” This requirement can also be further defined in an addendum to the contract requiring the contractor to provide sufficient skilled workmen necessary to complete the project by the date specified in the contract. If the contractor fails to provide sufficient labor to the project, upon certification by the project architect that sufficient cause exists and after seven days written notice to the contractor and its surety,2 the developer may take possession of the site and all materials, equipment, etc, accept assignment of the

2

The developer must be conscious of the notice requirements that may exist in any performance bond provided by the contractor’s surety to ensure that additional notice to the surety and an opportunity to cure is not a prerequisite to termination of the contractor.

81

subcontracts and complete the contractors work pursuant to §14.2.2 of the A201 Standard General Conditions. Again, as discussed above, the critical elements to a termination and preservation of the owner’s claim in a situation such as this is documentation of the contractor’s failures and the provision of the proper notices and time to cure the default. Failing to give adequate notice and opportunity to cure under the contract may result in a termination being defined as wrongful and an award of damages to the contractor. From the contractor’s perspective, the provision of updated schedules will document its progress on the project and provide support for any claim by the contractor for delay caused by the owner. For example, if the project was proceeding according to schedule for some time and multiple changes in the plans or the owner’s failure to provide information coincides with a sudden slowdown in the progress of the project, updated schedules can demonstrate the interrelation between the owner’s actions (or inaction) and the delay in the project. If however, there are no updated schedules demonstrating timeliness or even expedition of the work, but rather only an updated schedule suddenly showing delay (which may have occurred at any time prior to the updated schedule), it may be more difficult to prove a causal connection between any action by the owner and the delay, thereby weakening the contractor’s claim. B.

Delay, Disruption And Acceleration In few areas are documents so important as they are when claims relate to

scheduling. It is critical that there be a reasonable, achievable, agreed-upon schedule from the outset of the project. This will be the starting point for all claims, whether for acceleration or delay. Thereafter, the schedule should be updated every time there is a

82

change in the project conditions that alters the schedule. The schedule should be updated regardless no less than once each month to ensure that it is in keeping with the progress of the project. By doing so, all parties will have an accurate picture of the status of the project and be able to determine where the project went awry. Without an updated schedule, it merely becomes a battle of the experts in finger-pointing and guessing when the project went off course and why. C.

Notice Requirements And Waivers Every contract should contain notice requirements, setting forth not only to whom

notice should be sent, but also when notice must be sent. For example, a contract may require a party to provide notice to the other party within 14 days of when they are aware of a situation giving rise to a claim. This may be the case even when the party is uncertain as to the details and extent of the claim. Long before ever making, or needing to make a claim, the parties should have a good grasp on their contract; knowing when notice is required and all individual or entities to whom notice must be sent, including but not limited to sureties. In the event a party misses the deadline for notifying the other party of a claim, the claim may be deemed waived, and therefore, lost. In addition to the notice requirements set forth in the contract documents, parties should also review any bonds applicable to the work because they, too, may have independent notice requirements. A party seeking to make a claim against the surety bond must ensure that all the requirements placed by the surety are also met. Typically, this will require that the surety is copied on all notices of claims to the other party, and also an additional payer of notice to the surety before exercising any self-help options.

83

Finally, the parties, particularly the contractor, must be aware of the statutory notification periods. If a contractor or subcontractor does not provide the statutorily required notices within the periods prescribed by Chapter 713, such contractor or subcontractor will lose its right to a statutory claim of lien against the owner’s property. The lien law in Florida is strictly construed and a failure to abide by it is fatal to a claim of lien. D.

Documenting The Claim While no one wants to enter into a relationship or begin a project assuming that

there will be a dispute at the end of the project, the best way to substantiate one’s claim is to ensure that all necessary documentation is compiled and preserved from the outset of the project. It is very difficult, upon completion of the project, to recreate any problems that developed in the initial stages of the project. If the preparation is done as the project proceeds, all that is needed is to coordinate and present the claim. The most important aspect of a claim is the documentation. (The second and third most important aspects are documentation and documentation.)

Ideally, all

correspondence regarding the project should be preserved and any issues, however small they may appear at the time, should be documented by a letter to the other side expressing any concerns that have arisen. Once you see a problem or pattern clearly developing, the problem may already be out of control and the project may be irretrievably delayed. Nevertheless, even assuming a problem is not documented from the first day it appears, once a determination is made that a problem exists, it is never too late to begin documenting what has and is occurring. You should immediately begin to

84

prepare memos to the project file, and the other party if necessary, documenting what is occurring. If possible, you should also reconstruct, to the best of the abilities of those with knowledge, any previous incidents that may evidence a pattern. •

Document the work performed. From the outset, the contractor should ensure that its scope of work and the limitations

or exclusions are clearly set forth in the Contract Documents.

If the contractor’s

responsibilities are clear, it is easier for the contractor to refer to the contractual scope of work to establish why a particular task was outside that scope of work. •

Document any changes in the work The contractor should timely and clearly notify the owner of any conditions that

may change the work to be performed. §4.3.3 of the A201 Standard General Conditions requires the contractor to notify the owner of any claims for additional monies or time extensions within 21 days after the condition that gives rise to the claim or the recognition of the claim. The contractor should ensure that all its claims are provided within that time frame, or it risks the loss of its claim. The clearer the contractor’s request is, the quicker it is likely to be processed. Along with its request, the contractor should provide all information necessary for the owner and architect to process its request. It will only slow the approval process if the owner or architect is forced to repeatedly come back to the contractor requesting additional support for the contractor’s request or claim. Additionally, it behooves the contractor to insert a clause in the contract that would permit the contractor to identify a potential delay or additional cost to

85

the owner within twenty-one (21) days, but allows the contractor reasonable time to determine the full extent of the damage. •Document draw requests The contractor notifies the owner of the amount of money owed to it by submitting its draw request each month. In addition to the form draw request, the contractor must submit certain back-up documentation. The contractor must carefully review the requirements of the contract documents to determine what information must be submitted with each draw request. Section 9.3.1 of the AIA A201 General Conditions requires the draw requests to be accompanied by all data required by the owner or the architect that substantiates the contractor’s right to payment. However, owners have required contractors to provide additional information, including but not limited to, data establishing payment or satisfaction of the contractor’s obligations to its subcontractors, sworn statements of account and partial releases of lien from the contractor and its subcontractors. If these or any other requirements exist in the contract between the contractor and the owner, the contractor must ensure that it meets these requirements so as to avoid rejection of the pay application for a failure to provide the necessary information. •

Substantiating a claim for final payment In order to be entitled to receive final payment, the project must be fully

completed. However, there are additional requirements placed upon the contractor by the A201 Standard General Conditions before final payment and any retainage are due.

86

Specifically, the contractor must submit to the architect the following items pursuant to §9.10.2 of the A201 Standard General Conditions: (1) An affidavit that all ... indebtedness connected with the project for which the Owner or the Owner’s property might be encumbered (less amounts withheld by the Owner) have been paid or otherwise satisfied; (2) a certificate evidencing that all insurance required by the Contract Documents to remain in force after final payment us currently in effect and will not be canceled or allowed to expire until at least 30 days’ prior written notice has been given to the Owner; (3) a written statement that the contract knows of no substantial reason that the insurance will not be renewable to cover the period required by the Contract Documents; (4) consent of surety, if any, to final payments; and (5) if required by the owner, other data establishing payment of satisfaction of obligations, such as receipts, releases and waivers of liens, claims, security interests or encumbrances arising out of the Contract, to the extent and in such form as may be designated by the Owner. In order to obtain timely payment, the contractor should ensure that all of the above documentation is presented to the owner with the final application for payment. As discussed above, the contractor should also ensure that it presents to the owner any other documentation required by the contract documents. •RFIs The contractor should make its best efforts to submit any Requests for Information (“RFIs”) it deems necessary to clarify design issues before the contract is even executed, wherever possible. Thereafter, any necessary RFIs should be submitted immediately upon discovering any issue that requires clarification. The contractor should contractually allow the owner a short, albeit reasonable, response time from the owner and design professionals so as not to impact the contractor’s schedule. If the schedule is impacted by any delay in response to an RFI, the contractor should immediately notify

87

the owner and reserve its right to make a claim for compensation. The contractor should keep a log tracking its RFIs and documenting any impact on the schedule. (See, Section III below.) Further, the contractor should immediately revise the schedule to reflect changes in circumstances as soon as such changes have been evaluated so that the owner cannot claim that the schedule never changed, and that there is, therefore, no delay. •Substantiating Claims for timely completion/early completion bonuses In contrast to a liquidated damages or late completion penalty clause that would be required by the owner, an early completion bonus clause provides for payment to the contractor of a specified amount per day for each day prior to the contract completion date that the project is actually completed. If the work can be completed prior to the date set forth in the contract, an early completion schedule should be prepared to reflect this. Such a schedule should be provided to the owner in advance of the contract execution, or at least at that time, so the owner can not say it was not aware of such a schedule. Any early completion schedule provided by the contractor must be reasonably attainable and must be consistent with the critical path provided for normal completion. Early completion, achievement of the statutory or contractually required standards for completion, should be documented to the owner. This may be by way of the temporary and/or final certificate of Occupancy, as appropriate, or by approval of the project architect.

• Meeting minutes

88

As all construction professionals know, a project of any substance will likely include a number of scheduled, and unscheduled meetings between the owner, the contractor, subcontractors and others. These meetings may occur on a regular basis, such as weekly on a sizable project, or on an as-needed basis. Regardless of the timing and frequency of the project meetings, accurate minutes detaining what occurred at these meetings must be maintained. At the outset of a project, the parties can agree upon the party responsible for preparing and maintaining the meeting minutes. However, if one party is to prepare the minutes, such minutes should be provided to the other party for review prior to being finalized. If the relationship between the parties deteriorates, each may consider preparing its own minutes from each meeting. Similar to correspondence, the meeting minutes can evidence when issues were raised and discussed with the other party.

Additionally, they can evidence the reaction of the other party and/or any

resolution agreed upon by the parties. •Photographs and videos Each party may utilize photographs and videos to document their claims on the project. The owner may take pictures or video of the work on the project to demonstrate the timing of the work performed or any deficient conditions that may be found on the project for which the contractor is responsible to correct. Alternatively, the contractor may take pictures or videos to demonstrate problems caused by the owner which are delaying the contractor’s progress on the project.

E.

Damages: Owner, Contractor And Subcontractor Damages

89

Generally, regardless of which party you may be talking about there are two categories of concerns from which claims spring: Delays and the quality of the work. Owner - In the event of delays in the completion of the project, depending on the type of project, the owner may incur substantial damages, a great deal of which are costs that will be due to third parties. In the case of a condominium, the owner may be required to, or at least need to for the sake of customer satisfaction, provide additional benefits to purchasers whose closings are delayed. This may include paying for things such as club memberships or waiving additional maintenance or other fees and charges. Certain of these monies would be considered lost income to the owner/developer, but others may be payments that the Owner would have to make to third parties, such as unrelated clubs or health spas, for the use of their facilities. Regardless of what is offered or provided to unit purchasers, there always remains the potential that a buyer may back out of their purchase contract in the event the building is not going to be finished timely. The purchase contract between the developer and the buyer would govern the circumstances under which a buyer could refuse to close on a unit. Another potential cost to the owner is the carrying costs for the project, such as interest on the construction loan and potential tax ramifications if the developer is to be paying taxes on a “completed” project into which he still cannot move any or sufficient number of unit owners. The commercial corollary of this is the building into which no commercial tenants may move. The commercial tenants would generally have an even greater right to refuse to wait for the completion of the building that a condominium unit purchaser would have to refuse to await completion of his unit. Commercial tenants may be lost as

90

a result of the failure to timely complete the project. Again, also, the owner may have provide additional enticements to the commercial tenants to encourage them to await completion. Another type of delay damages that the owner would likely incur is simply the lost investment opportunity on his money. To the extent that the owner’s monies are tied up in a project that is not being completed, that is actually costing that owner additional monies, it can not be invested elsewhere, even if it was in nothing more than a savings account, where it could earn additional monies. The other large component of delay for an owner is deficient or incomplete work. Optimally, the contractor and its subcontractors will complete all the work as required by the plans and specifications and correct any deficiencies in their work and anything damaged during construction. This, however, is not always the case. Consequently, when the contract work is not completed or corrected, the Owner will be left with an obligation to bring in alternate forces to complete and correct the contract work, as necessary, especially if time is running out for the owner to complete the project and bring in the unit purchasers or tenants, as the case may be. While the owner may be left with no choice but to bring in others to complete and correct the work, it is not the most economical solution or the best for anyone involved. If a contractor can have the project subcontractors correct and complete the work, they will be able to do so in the most cost effective manner, whereas new subcontractors will not know the job or what preceded them. Additionally an owner must be aware that bringing in alternate subcontractors may affect warranties on the work performed, and it is unlikely that the subsequent subcontractor will provide any warranty affecting the work that preceded him.

91

Inevitably, the owner will seek recovery of these costs from the contractor and, in the event the owner does recover from the contractor, the cost to the contractor will be greater than it would have been had the original subcontractors performed the corrective and completion work. Therefore, it is in the best interest of all parties to have such work performed by the original subcontractors, wherever possible. General Contractor The contractor’s damages as a result of a delay in completion of the project are the additional costs the contractor must expend in order to maintain its presence on the project site. This would include, but not be limited to the continued payments to the project manager and superintendent, as well as other project personnel. If the project were complete, these individuals could be utilized on other projects where other owners would be paying their salaries. Other costs that would be attendant to the delay in completion of the project are increased costs for items that must be rented and additional bond premiums that may become due to any surety. The contractor’s exposure to additional costs for completion of deficient work can come from either the contractor’s expenditure to correct any deficient work in the event the subcontractors will not correct their deficiencies or trade damage or the contractor’s exposure to the owner as discussed above.

Again, it would be ideal to have the

subcontractors return to the project to correct and complete their work. In the event this is not possible, the contractor, in an effort to minimize the costs, can bring in alternative forces at a lower rate than the owner may be able to, and complete the remaining work.

92

In such a case, the contractor would, of course, pursue reimbursement from the applicable subcontractor(s), either through a backcharge or claim against such entity. Subcontractor A given subcontractor’s exposure for damages is similar to the contractor’s exposure.

The subcontractor’s exposure is, however, limited to the extent of the

subcontractor’s responsibilities on the job.

Clearly a subcontractor’s exposure for

deficient and incomplete work would be limited to his own work and that of any of his sub-subcontractors. Additionally there may be liability for trade damage done by the subcontractor or those beneath him in the chain, in which case the subcontractor would have a claim against the individual or entity responsible. The primary claim that a subcontractor would have on the project is a failure to pay monies due for labor, services, equipment or materials provided to the project. If the subcontractor has taken all the appropriate statutory steps, the subcontractor can assert a claim of lien against the project. Additionally, if the subcontractor has provided the appropriate notices under the payment bond, if any, the subcontractor would also have a claim against the bond. Whether or not the subcontractor has provided such necessary notices, the subcontractor could have a contractual claim against the contractor; dependent upon the existence of a pay-when-paid clause and whether the contractor, in fact, received payment for the subcontractor’s work. Also, in the event that the subcontractor did not provide the necessary notices to permit a lien or bond claim, there remain equitable claims that can be asserted against a property owner for failure to pay for the labor, services, equipment and materials received.

93

F.

Liquidated And Actual Damages As discussed above, liquidated damages are a predetermined formula utilized in

an effort to calculate, at the time of contracting, the estimated amount by which a party will be damaged in the event a project is not completed within the contemplated time. In the event parties are utilizing liquidated damages in their contract, two precautions must be remembered. First, it must be clear that the liquidated damages being contemplated are not a penalty. If the damages are determined by a court to be a penalty, they would be stricken as improper. Second, and more difficult, the parties must make every effort to determine an amount both truly believe will be sufficient and appropriate to address the damages that will result in the project is, in fact, delayed. If the proposed liquidated damage amount is insufficient, the aggrieved party will not be made whole and may have limited, if any, other recourse against the other party. Actual damages are, as stated, the actual damages incurred by the complaining party. These damages would likely not be known until the very end of the project, and possibly some time into litigation. It is helpful to a party claiming its actual damages to have a financial expert assist in determining the sum total of the actual damages; there may be amounts and even entire categories of damages that can be overlooked if one is uncertain of what can and should be claimed. Additionally, a consultant such as this would be available to testify in support of the claimant’s position in an arbitration or lawsuit.

94

G.

Claims And Defense Strategy 1.

Attach all documents necessary to prove your claim (notices, contracts,

invoices, affidavits, etc. Florida Rule of Civil Procedure requires Be aware not to attach documents that are not necessary to your claims as they may be stricken and subject the Complaint to a Motion to Dismiss. Fla.R.Civ.P. 1.130(a). 2.

Plead conditions precedent. If a claimant fails to plead that all conditions

precedent to the action have occurred or been waived, the complaint will likely be subject to a Motion to Dismiss on this basis. If this is plead, the party opposing the claim must specifically assert which conditions have not been met. 3.

Lien foreclosure is governed by Fla. Stat. Chapter 713 - must be followed

to the letter - the statute is strictly construed. 4.

If there is a bond - the action should be filed against the principal and the

5.

Determine whether relief from stay is necessary in the event of a pending

surety.

bankruptcy. In defense of a claim asserted by a contractor, the owner would like to seek immediate removal of the lien: a.

Notice to Show Cause - Filed with the Court. Contractor must

show reason to the court why the lien should not be discharged. b.

Notice of Contest of Lien - recorded with the Clerk of the Court.

Lienor has sixty (60) days from date of the notice within which to initiate an action to foreclose upon the claim of lien or lose its lien rights.

95

c.

Bond to Secure Lien - cash or surety bond placed with the Clerk of

the Court to secure the claim of lien and remove it from the property. Amount of any bond must be the principal amount of the lien, plus three years of statutory interest (now 7% per annum), plus the greater of $1,000 or twenty-five percent (25%) of the principal amount to secure against a judgment for attorney’s fees, as well as a fee to be paid to the Clerk of the Court. In the event the owner posts a cash bond, the Clerk is not required to place the monies in an interest-bearing account. All of the above will remove a claim of lien from the property. In defense of a claim asserted by an Owner, a contractor would want to ensure that all its documentation evidencing reasons for delays and bases for cost increases are in order and substantiated.

96

Hidden Traps and Treasures in Florida’s Construction Lien Law by Alexander E. Barthet, Esq. The Barthet Firm 305-347-5290 (p) 305-377-8695 (f) [email protected] www.barthet.com Copyright © 2007, The Barthet Firm All Rights Reserved.

97

98

1. Introduction a. Like any other statutorily driven area of the law, Florida’s Lien Law poses some serious risks to those who are unaware of its intricacies. On the flipside, a contractor who is cognizant of the ins-and-outs of Fla. Stat. 713 may obtain a wind-fall. 2. Specially Fabricated Materials a. “Specially fabricated materials” are materials which, by their nature, are not generally suited for, or readily adaptable to, use in a similar improvement. b. An example of a specially fabricated material is a roof truss for a uniquely designed roof. Once the wood is cut for that truss, it can not be readily adaptable for use in another type of truss or roof. c. A notice to owner must be served within 45 days from the commencement of construction of those specially manufactured goods, either on or off site. Stunkel v. Gazebo Landscaping Design, Inc., 660 So.2d 623 (Fla. 1995). In contrast, a notice to owner for all other types of construction materials must be served 45 days from the date of first delivery of said materials to the job site. Most importantly, actual delivery of the specially fabricated materials to the job site is not required. Oolite Industries, Inc. v. Millman Const. Co., Inc., 501 So.2d 655 (Fla. 3d DCA 1987). d. A court may disagree with the lienor’s classification that certain goods are in fact “specially fabricated.” As such, a lienor should always comply with the earlier of the notice requirements, be it as a fabricator of specialty

99

materials or as a supplier of standard construction materials. 3. Substantial Compliance with 713 a. If a lienor has substantially complied with the notice to owner and claim of lien requirements, some errors or omissions will not prevent the enforcement of a claim against a person who has not been adversely affected by such omission or error. See Fla. Stat. 713.06 and 713.08. b. The technical fulfillment of all statutory components for a claim, although desirable, is neither required nor can it form the basis for denial of the enforcement of an otherwise valid lien. Such liens are valid unless in the discretion of a trial court some prejudice is shown to the owner or another party. Mid-State Contractors, Inc. v. Halo Development Corp., 342 So.2d 1078 (Fla. 2d DCA 1977). c. The significance of this is quite obvious for both the lienor and the owner. i. From the lienor’s perspective, a slight error or omission will not invalidate its otherwise valid lien. A lienor, however, should not serve its notice to owner or record and serve its claim of lien with the intention of relying on the equity of a court to overlook an error. ii. Similarly, an owner should not expect that a technical oversight on the part of a lienor will always result in an invalid lien. This is especially true if the owner was aware of the error early on and chose to do nothing about it. While there are many cases which have invalidated liens for technical omissions, it is very possible

100

that a court sitting in equity may find that the lien, overall, substantially complies with the Lien Law. 4. Laborers vs. Labor Pools a. A “laborer” is any person other than an architect, landscape architect, engineer, surveyor and mapper, and the like who, under properly authorized contract, personally performs on the site of the improvement labor or services for improving real property and does not furnish materials or labor service of others. See Fla. Stat. 713.01. b. A laborer is generally extended the greatest protection under the Lien Law while having to comply with the least amount of statutory prerequisites to enforce a lien. c. As an example, a laborer need not serve a notice to owner to perfect his or her lien.

The rationale for exempting laborers from certain notice

requirements is that an individual laborer will not work long without pay and consequently will not have a large hidden claim. See Fla. Stat. 713.06(2)(a). d. A labor pool, however, is not a laborer. An employer, on behalf of its employees, can not file and foreclose a mechanic's lien as a “laborer,” where the employer provides the labor services of individuals with whom it contracts. V L Orlando Bldg. Corp. v. Skilled Services Corp., 769 So.2d 526 (Fla. 5th DCA 2000). e. Florida law clearly distinguishes between those who personally perform work and those who merely furnish persons to do the work. Fleitas v.

101

Julson, Inc., 580 So.2d 636 (Fla. 3d DCA 1991), rev. denied, 591 So.2d 182 (Fla.1991).

A business entity does not come within the general

classes included in the definition of laborer. f. For all practical purposes, a labor pool is a subcontractor or a subsubcontractor and as such must comply with all of the notice requirements of that class of lienor. 5. Requests for Information a. A lack of privity between parties to a construction project often results in a lack of information.

This is easily overcome by requesting the

information pursuant to Fla. Stat. 713.16. b. The owner may serve in writing a demand to the lienor for a written statement under oath of his or her account. i. The statement of account will include, if requested, the nature of the labor or services performed and to be performed, if any, the materials furnished, the materials to be furnished, if known, the amount paid on account to date, the amount due, and the amount to become due, if known. ii. The failure or refusal to furnish the statement within 30 days after the demand or the furnishing of a false or fraudulent statement will deprive the lienor of his or her lien. iii. The demand must be served on the lienor at the address and to the attention of any person who is designated in the notice to owner. iv. If the demand is not served upon the designated persons and at the

102

address as set forth in the notice to owner, then the failure or refusal to furnish the statement will deprive the lienor of his or her lien. v. The demand must prominently display the following (or similar) warning: WARNING: YOUR FAILURE TO FURNISH THE REQUESTED STATEMENT, SIGNED UNDER OATH, WITHIN 30 DAYS OR THE FURNISHING OF A FALSE STATEMENT WILL RESULT IN THE LOSS OF YOUR LIEN. vi. The failure to notarize an otherwise accurate and timely statement of account is fatal to a mechanics' lien claim.

Stresscon v.

Madiedo, 581 So.2d 158 (Fla. 1991). This is in light of the strict compliance required within the mechanics' lien statutes, even in absence of any showing of prejudice to the owner. Contra Florida Wood Services, Inc. v. Osprey Links Joint Venture, 720 So.2d 591 (Fla. 5th DCA 1998) (prejudice required). c. This method of gathering information should not be reserved for prelitigation.

It is a very useful tool during litigation to obtain specific

information very quickly. In addition, such a request will usually prompt the opposition to more closely review their position, understanding they may lose their lien right if they fail to file a timely or accurate response. Unfortunately (or fortunately), however, the failure to furnish a response to a demand for statement of account will not affect the validity of a claim

103

of lien being enforced through a foreclosure case which was filed prior to the date the demand for the statement is received by the lienor. d. Privity and non-privity lienors are also afforded a means to obtain information from the owner. i. Any lienor who has filed a claim of lien may make a written demand on the owner for a written statement under oath. ii. The statement, if so requested, shall show the amount of all direct contracts, the amount paid by or on behalf of the owner for all labor, services, and materials furnished pursuant to the direct contracts, the dates and amounts paid or to be paid by or on behalf of the owner for all improvements described in any direct contracts, and the reasonable estimated costs of completing any direct contract under which construction has ceased. If known, the actual cost of completion must be provided by the owner in the statement. iii. The written demand must include the following warning in conspicuous type in substantially the following form: WARNING: YOUR

FAILURE

TO

FURNISH

THE

REQUESTED

STATEMENT WITHIN 30 DAYS OR THE FURNISHING OF A FALSE STATEMENT WILL RESULT IN THE LOSS OF YOUR RIGHT TO RECOVER ATTORNEY FEES IN ANY ACTION TO ENFORCE THE CLAIM OF LIEN OF THE PERSON REQUESTING THIS STATEMENT.

104

iv. An owner who does not provide the statement within 30 days after the demand, or who provides a false or fraudulent statement, will not be the prevailing party for purposes of an award of attorney's fees under Fla. Stat. 713.29. 6. Request for List of Subcontractors a. An owner may request from the contractor a list of all subcontractors and suppliers who have any contract with the contractor to furnish any material or to perform any service for the contractor with respect to the owner’s property. See Fla. Stat. 713.165. b. The request must be in writing and delivered by registered or certified mail to the address of the contractor shown in the contract or on the recorded notice of commencement. c. The contractor must then, within 10 days after receipt, furnish to the property owner or the property owner's agent a list of the subcontractors and suppliers who have a contract with the contractor as of the date or receipt of the request.

If the contractor fails to furnish the list, the

contractor forfeits the contractor's right to assert a lien against the owner's property to the extent the owner is prejudiced by the contractor's failure to furnish the list or by any omissions from the list. 7. Notice to Owner/Contractor from a Sub-subcontractor a. A sub-subcontractor, a materialman to a subcontractor, and a materialman to a sub-subcontractor must serve a copy of the notice to owner on the contractor as a prerequisite to perfecting a lien and recording a claim of

105

lien. See Fla. Stat. 713.06(2)(a). b. If the materialman to a sub-subcontractor knows the name and address of the subcontractor, it must also serve a copy of the notice to owner on the subcontractor as well. c. The failure of a sub-subcontractor, a materialman to a subcontractor, or a materialman to a sub-subcontractor, to serve a copy of the notice to owner on the contractor, bars a potential lienor’s claim. Hardrives Co. v. TriCounty Concrete Products, Inc., 489 So.2d 1211 (Fla. 4th DCA 1986). However, an owner’s failure to record a notice of commencement may obviate the need for a sub-subcontractor, a materialman to a subcontractor, or a materialman to a sub-subcontractor to serve the contractor with such a notice to owner. Roof Structures, Inc. v. Picou, 544 So.2d 1138 (Fla. 4th DCA 1989). See also Suchman v. National Hauling, Inc., 549 So.2d 200 (Fla. 3d DCA 1989). d. Like other sections of the Lien Law, the owner is only entitled to the benefit of the Lien Law if the owner complies with its requirements. An otherwise invalid lien can become “valid” if the owner fails to satisfy its obligations. 8. Notice to Owner Served Before Final Payment a. The notice to owner must be served before commencing work but not later than 45 days after commencing work.

See Fla. Stat. 713.06(2)(a).

However, it must always be served before the date of the owner’s disbursement of the final payment after the contractor has furnished the

106

Contractor’s Final Affidavit. b. While this is typically a rare event, it may be of importance to those lienors who appear very late on the job or for jobs of very short duration. 9. Amending a Claim of Lien a. Any recorded claim of lien may be amended at any time during the original period allowed for recording the claim of lien (See Fla. Stat. 713.08), as long as the amendment shall not cause any person to suffer any detriment by having relied upon the original claim of lien.

Any

amendment of the claim of lien shall be recorded in the same manner as provided for the recording of the original claim of lien. Amending a defective claim of lien may not render it enforceable. In re CJW Ltd., Inc., 172 B.R. 675 (Bankr. M.D. Fla.,1994), O'Brian Associates of Orlando, Inc. v. Tully, 184 So.2d 202 (Fla. 4th DCA 1966). b. More often then not, you will only have one opportunity to record and serve a claim of lien (which is too often filed quickly on the 89th or 90th day). Errors or omissions are permanent and remain with you throughout the litigation. 10. Affidavit of Intention to Recommence and Notice of “Re-”Commencement a. There is typically much confusion during the termination of or abandonment by a contractor. A lawyer’s concern is usually directed at the contract issues surrounding the termination of the old and the engagement of a new contractor.

The service and recording of the

necessary documents are also of paramount importance.

107

b. If construction ceases before completion of the project and the owner desires to recommence construction, he or she may pay all lienors in full or pro rata (per Fla. Stat. 713.06(4)) prior to recommencement. See Fla. Stat. 713.07(4). If this occurs, all liens for the recommenced construction shall take a priority position. c. Alternatively, the owner may record an affidavit in the clerk’s office stating his or her intention to recommence construction as well as serve a copy of the affidavit on each lienor named in the affidavit. See Fla. Stat. 713.07(4). i. The affidavit must state that all lienors who have served a notice to owner have been paid in full. The owner must then list any and all unpaid lienors in the affidavit. ii. Thirty days after recording the affidavit, the rights of any person acquiring any interest, lien or encumbrance on the property (including any lienor on the recommenced construction) will be superior to any lien on the prior construction. iii. This will be the case unless a prior lienor records a claim of lien within the thirty day period. iv. However, before recommencing construction, the owner must also record and post a new notice of commencement for the recommenced construction project. d. The effect of owner's failure to record and serve an affidavit of intention to recommence construction and a new notice of commencement is threefold.

108

i. First, the owner loses his right to set off costs of completing the project from the amount of the initial contract price. ii. Second, the owner is unable to defeat claims of lienors arising from the original construction based on a “proper payments” defense. iii. And third, where the owner's affidavit is not recorded, the thirty day shortened time for filing a claim of lien does not apply. McCurry v. Eppolito, 506 So.2d 1110 (Fla. 1st DCA 1987). e. The effect on the attorney is more severe. An attorney hired to assist in the termination of a general contractor has an obligation to his or her clients to insure that the affidavit of intention to recommence construction and a new notice of commencement are filed. At a minimum, the attorney must specifically advise his or her client of the necessity of these actions. An attorney's failure to see that these requirements of mechanics' lien law are complied with may constitute legal malpractice. 11. Notice of Contest of Lien a. An owner may occasionally benefit from shortening the time in which a lienor may file suit to foreclose its lien. One way to accomplish this is to serve a Notice of Contest of Lien. See Fla. Stat. 713.22. b. Specifically, the lien of any lienor upon whom such notice is served shall be extinguished automatically unless the lienor institutes a suit to enforce his or her lien within 60 days shall be extinguished automatically. c. The clerk shall mail a copy of the notice of contest to the lien claimant at

109

the address shown in the claim of lien. Service shall be deemed complete upon mailing. d. The notice of contest acts by operation of law to discharge a lien on 60th day without any intervention of the court.

Charles Redi-Mix, Inc. v.

Phillips, 580 So.2d 166 (Fla. 4th DCA 1991). Moreover, the filing of a notice of contest of lien should not violate an automatic stay imposed by the Bankruptcy Code. Matter of W. Allen Young & Associates, Inc., 15 B.R. 20 (Bankr. M.D. Fla. 1981). 12. Twenty Day Summons to Show Cause a. A more drastic method for shortening the limitation period of a claim of lien is to file a complaint against the lienor demanding that the lienor show cause why the lien in question should not be vacated. See Fla. Stat. 713.21(4). b. Upon the failure of the lienor to show cause why the lien should not be enforced or the lienor's failure to commence such action before the return date of the summons, the court shall forthwith order cancellation of the lien. c. A lienor's motion for extension of time to respond to the property owners' motion for discharge of lien does not constitute "good cause" as required by the mechanic's lien statute for tolling of the statutory 20-day period. Sturge v. LCS Development Corp., 643 So.2d 53 (Fla. 3d DCA 1994). d. Strict compliance with statutory provisions is required in order to protect a lien. The court has no discretion to extend the 20-day period, even if the

110

lienor requests additional time to obtain counsel. Matrix Const. Corp. v. Mecca Const., Inc., 578 So.2d 388 (Fla. 3d DCA 1991). 13. Criminal Penalties a. It is a felony for a person, firm, or corporation, or an agent, officer, or employee thereof, who receives any payment on account of improving real property to not apply such portion of any payment to the payment of all amounts then due and owing for services and labor which were performed on, or materials which were furnished for, such improvement prior to receipt of the payment. See Fla. Stat. 713.345. b. This does not, however, prevent any person from withholding any payment, or any part of a payment, in accordance with the terms of a contract or pursuant to a bona fide dispute regarding the amount due. c. There is no private right of action for the misappropriation of construction funds. d. Additionally, in the event a lienor is criminally accused of filing a fraudulent lien or misappropriating construction funds, the state attorney is required to provide the Department of Business and Professional Regulation with a copy of the indictment against the lienor or contractor. The Department is then compelled, by law, to immediately investigate the claim and provide the state attorney and the owner with a report of its investigation. e. The law further creates a permissive inference that a contractor knowingly and intentionally misapplied construction funds if the following elements

111

are met: (1) a valid lien has been recorded against the property by a subcontractor or supplier, (2) the contractor has received sufficient funds from the owner to pay the subcontractor or supplier, and (3) the contractor has failed for a period of at least forty-five days from the receipt of such funds to pay the subcontractor or supplier. If found guilty of misappropriating construction funds, the contractor’s sentence will be determined based on the amount of funds misapplied. This law does not, however, prevent the contractor from refusing to pay a subcontractor or supplier in full due to a bona fide dispute regarding the amount due. 14. Extraordinary Relief for the Payment of Undisputed Sums a. Most construction claims are made up of sums that are in dispute and sums which are undisputed. More often then not, the party holding the undisputed sum is holding it for no other reason then to exert leverage. Under Fla. Stat. 713.346, this need not be tolerated. See also Fla. Stat. 255.071 for recovery of undisputed sums on public projects. b. Any person who receives a payment for constructing or altering a permanent improvement to real property must pay, in accordance with the contract terms, the undisputed contract obligation. c. The failure to pay the undisputed obligation within 30 days after the date the labor, services, or materials are furnished, and payment for same became due, shall entitle any person providing such labor, services, or materials to certain extraordinary procedures and remedies. d. The complainant must first file and serve a verified complaint alleging:

112

i. the existence of a contract to improve real property, ii. a description of the labor, services, or materials provided, and allege that the labor, services, or materials were provided in accordance with the contract, the amount of the contract price, iii. the amount, if any, paid pursuant to the contract, iv. the amount that remains unpaid pursuant to the contract, v. the amount thereof that is undisputed, vi. that the undisputed amount has remained due and payable pursuant to the contract for more than 30 days after the date the labor or services were accepted or the materials were received, and vii. that the person against whom the complaint was filed has received payment on account of the labor, services, or materials described in the complaint more than 30 days prior to the date the complaint was filed. e. After service of the complaint, the court will conduct an evidentiary hearing on the complaint, upon not less than 15 days' written notice. The complainant is entitled to the following remedies up to the undisputed amount and upon proof of each allegation in the complaint: i. an accounting of the use of any such payment from the person who received such payment, ii. a temporary injunction against the person who received the payment, subject to the bond requirements specified in the Florida Rules of Civil Procedure,

113

iii. prejudgment attachment against the person who received the payment, in accordance with each of the requirements of Chapter 76, and iv. such other legal or equitable remedies as may be appropriate in accordance with the requirements of the law. f. The remedies above must be granted without regard to any other remedy at law and without regard to whether or not irreparable damage has occurred or will occur. g. The remedies, however, do not apply to the extent a bona fide dispute exists regarding any portion of the contract price or in the event the complainant has committed a material breach of the contract. h. The prevailing party in any proceeding under this section is entitled to recover costs, including a reasonable attorney's fee, at trial and on appeal. 15. Single Claims of Lien a. For every separate contract between the owner and the contractor, there should be a separate Notice of Commencement.

While this may not

always be the case, a lienor is advised to file separate claims of lien for work done under separate contracts. b. As an example, a contractor was required to file two claims of lien against property for construction and for subsequent repair work done on the property even though work was done on the same structure but the construction and repairs were done under two separate contracts. Lee v. All Florida Const. Co., 662 So.2d 365 (Fla. 3d DCA 1995).

114

c. The determination of whether a lien would attach to one or more buildings depended on whether labor was performed or materials were furnished under a single contract embracing several buildings or under separate contracts. Biscayne Trust Co. v. Wolpert Realty & Improvement Co., 130 So. 611 (Fla. 1930). 16. Work on Leased Property a. It is of crucial importance to determine if the party contracting for the work is the owner because a lien can only extend to the right, title, and interest of the person who contracts for the improvement. See Fla. Stat. 713.10. b. When an improvement is made by a lessee in accordance with an agreement between such lessee and her or his lessor, the lien shall extend to the interest of the lessor. c. However, when the lease expressly provides that the interest of the lessor shall not be subject to liens for improvements made by the lessee, the lessee is under an obligation to notify the contractor of said provision in the lease. d. While the willful failure of the lessee to provide such notice to the contractor shall render the contract between the lessee and the contractor voidable at the option of the contractor, it is usually too late for the contractor. e. A contractor almost always learns that the true owner is not the contracting party after some or all of the work is done and payment is not

115

forthcoming. f. The law is very unforgiving. As an example, a lessor does not subject his property to a mechanic's lien for work done by a contractor for the lessee merely because he knows the work is taking place and fails to take action to stop it. Van D. Costas, Inc. v. Rosenberg, 432 So.2d 656 (Fla. 2d DCA 1983). g. In another case, where the parties to a lease contemplated that the lessee would renovate the space, including certain electrical work, the lessor's interest was not subject to a lien by the electrical contractor where the lease did not require such improvements. Budget Elec. Co. v. Strauss, 417 So.2d 1143 (Fla. 5th DCA 1982). The improvements were for the benefit of the lessee and because the lessor did not desire the renovations, as they tended to convert the building from a general use property to a special use property thereby reducing its marketability. h. In order for the contractor to be entitled to a lien on improved realty as against the lessor when work is done for the lessee, the lease must by its terms require the work to be done or by its terms make it obvious that the improvements were the pith of the lease. Davidson Lumber Co. v. Sullivan, 403 So.2d 560 (Fla. 3d DCA 1981). i. Where the terms of the lease contemplated improvements, the lessor's interest is subject to a mechanics' lien unless the lessor records the necessary disclaimer. A.N. Drew, Inc. v. Frenchy's World Famous Cajun Cafe, Inc., 517 So.2d 766 (Fla. 1st DCA 1988).

116

17. Improvement Defined a. "Improve" means build, erect, place, make, alter, remove, repair, or demolish any improvement over, upon, connected with, or beneath the surface of real property, or excavate any land, or furnish materials for any of these purposes, or perform any labor or services upon the improvements, including the furnishing of carpet or rugs or appliances that are permanently affixed to the real property and final construction cleanup to prepare a structure for occupancy; or perform any labor or services or furnish any materials in grading, seeding, sodding, or planting for landscaping purposes, including the furnishing of trees, shrubs, bushes, or plants that are planted on the real property, or in equipping any improvement with fixtures or permanent apparatus or provide any solidwaste collection or disposal on the site of the improvement. See Fla. Stat. 713.01(12). b. Some improvements, however, are not lienable. A lienor was not entitled to lien shopping mall property for a kiosk where the trial court found that such structure was not a permanent benefit to the mall. Palm Beach Mall, Inc. v. Southeast Millwork, Inc., 593 So.2d 1121(Fla. 4th DCA 1992). c. A maintenance landscaping service consisting of mowing a lawn and cutting shrubbery did not bestow a "permanent benefit" upon the land within mechanic's lien statute and thus, did not entitle the laborer to a mechanic's lien. Legault v. Suncoast Lawn Service, Inc., 486 So.2d 72 (Fla. 4th DCA 1986).

117

d. It is not the duty of the court to weigh the relative advantage to the owner of each structure erected on the land to determine whether there has been an improvement of the land sufficient to support a lien. E & E Elec. Co. v. Gold Coast 72nd St. Diner, Inc., 116 So.2d 660 (Fla. 3d DCA 1960). e. Because there is no bright line rule, a lienor is advised to serve a timely Notice to Owner at the outset of any work. Careful consideration can then be given to the validity of any lien that may be recorded and served for the work in question. f. But be careful: the risk of filing a lien on “non-lienable” work may be a judicial finding that the lien was improper and possibly fraudulent, subjecting the lienor to attorneys’ fees under Fla. Stat. 713.29. 18. Proper and Improper Payments a. If an owner fulfills all of its duties under the mechanics' lien law the owner’s liability for all lien claims will not exceed the contract price. Tamarac Village, Inc. v. Bates & Daly Co., 348 So.2d 23 (Fla. 4th DCA 1977). b. While an owner is not required to comply with the notice requirements of the lien law, it does so at the risk of paying twice for portions of improvements where the contractor may not have paid certain lienors. See also Southern Gulf Utilities, Inc. v. United Benefit Fire Insurance Company, 179 So.2d 618 (Fla. 3d DCA 1965). c. An owner should not make a final payment unless it has received the Contractor’s Final Affidavit. Ringling Bros.-Barum & Bailey Combined

118

Shows, Inc. v. Hart, 390 So.2d 367 (Fla. 2d DCA 1980). d. A final payment under a building contract, made by the owner to the general contractor without first securing sworn statements from the contractor, was not "properly made". Renuart Lumber Yards, Inc. v. Stearn, 95 So.2d 517 (Fla. 1957).

As a result, the owner becomes

responsible to the contractor's unpaid subcontractors and materialman in the amount of the final payment. e. In addition, the owner must file a notice of commencement.

A

materialman's lien was enforceable against a homeowner where the homeowner, without knowledge of unpaid materials, paid a contractor in full upon completion of the contract and the homeowner had neither filed a notice of commencement nor obtained a contractor's affidavit. Adams v. McDonald, 356 So.2d 864 (Fla. 1st DCA 1978). This was the case even though the materialman did not serve a notice to owner until after the homeowner had paid the contractor in full. f. An owner must pay careful attention if the contractor abandons the project or is terminated. Specifically, the owner must comply with the “re”commencement procedures so that all future payments to the new contractor are considered “proper”. See Fla. Stat. 713.07(4). Following the abandonment of a construction contract by a general contractor, liability of the owner to subcontractors may be limited to the contract price remaining after deducting therefrom payments properly made. Meredith v. Lowe's of Florida, Inc., 405 So.2d 1061 (Fla. 5th DCA 1981).

119

19. Payments on Account a. The misapplication of a partial payment for materials may result in the invalidity of a lien and the onus is on the party receiving the payment to clarify how the payment is to be applied. Specifically, when a payment for materials is made to a subcontractor, sub-subcontractor, or materialman, the subcontractor, sub-subcontractor, or materialman shall demand from the person making the payment a designation for which account the payment is to apply. See Fla. Stat. 713.14. b. It is a complete defense (up to the amount of the payment) if the owner can prove: i. one, that a payment made by the owner to the contractor for materials has been paid over to the subcontractor, subsubcontractor, or materialman, and ii. two, that when such payment was received by such subcontractor, sub-subcontractor, or materialman, she or he did not demand a designation of the account to which the payment was to be applied (or if she or he did note a designation, she or he failed to apply the payment in accordance therewith). Fla. Stat. 713.14, See also Arlington Lumber & Trim Co., Inc. v. Vaughn, 548 So.2d 727 (Fla. 1st DCA 1989). 20. Right to Repossess Materials a. If for any reason the completion of an improvement is abandoned or though the improvement is completed, materials delivered are not used, a

120

lienor who has delivered materials for the improvement which have not been incorporated therein and for which he or she has not been paid may peaceably repossess such materials. Fla. Stat. 713.15; National Steel Products Co. v. Donald L. Myrick & Associates, Inc., 353 So.2d 657 (Fla. 2d DCA 1977). That lienor however, will then no longer have a lien on the real property or improvements and shall have no right against any person for the price of the materials. b. This right to repossess the materials shall not be affected by their sale, encumbrance, attachment, or transfer from the site, except if the materials have been transferred to a bona fide purchaser. c. The right of repossession and removal shall extend only to materials whose purchase price does not exceed the amount remaining due to the repossessing lienor. d. If the materials have been partly paid for, the person delivering them may repossess the materials as allowed upon refunding the part of the purchase price which has been paid. e. The recovery of materials under Fla. Stat. 713.15 should not be considered a preferential transfer under the Bankruptcy Code and should not be voided. Matter of D.R. Goris Plumbing, Inc., 49 B.R. 146 (Bankr M.D. Fla. 1985). 21. Levy/Attachment of Construction Materials by Creditors a. Materials on a construction site which are about to be incorporated into the realty are immune from levy, execution, or attachment by the material

121

supplier’s creditors. County Nat. Bank of North Miami Beach v. Fierman, 188 So.2d 384 (Fla. 4th DCA 1966). This is true even if the creditor holds a security interest in the payments from the general contractor to the debtor. 22. Mandatory Contract Provisions and Disclosures a. Florida Law requires that certain contractual notices be given.

This

includes, but is not limited to: i. Fla. Stat. 713.015: Any direct contract greater than $2,500 between an owner and a contractor, related to improvements to real property consisting of single or multiple family dwellings up to and including four units, must contain the following notice provision printed in no less than 12-point, capitalized, boldfaced type on the front page of the contract or on a separate page, signed by the owner and dated: ACCORDING TO FLORIDA'S CONSTRUCTION LIEN LAW (SECTIONS 713.001-713.37, FLORIDA STATUTES), THOSE WHO WORK ON YOUR PROPERTY OR PROVIDE MATERIALS AND SERVICES AND ARE NOT PAID IN FULL HAVE A RIGHT TO ENFORCE THEIR CLAIM FOR PAYMENT AGAINST YOUR PROPERTY. THIS CLAIM IS KNOWN AS A CONSTRUCTION LIEN. IF YOUR CONTRACTOR OR A SUBCONTRACTOR FAILS TO PAY SUBCONTRACTORS, SUB-SUBCONTRACTORS, OR MATERIAL SUPPLIERS, THOSE PEOPLE WHO ARE OWED MONEY MAY LOOK TO YOUR PROPERTY FOR PAYMENT, EVEN IF YOU HAVE ALREADY PAID YOUR CONTRACTOR IN FULL. IF YOU FAIL TO PAY YOUR CONTRACTOR, YOUR CONTRACTOR MAY ALSO HAVE A LIEN ON YOUR PROPERTY. THIS MEANS IF A LIEN IS FILED YOUR PROPERTY COULD BE SOLD AGAINST YOUR WILL TO PAY FOR LABOR, MATERIALS, OR OTHER SERVICES THAT YOUR CONTRACTOR OR A SUBCONTRACTOR MAY HAVE FAILED TO PAY. TO PROTECT YOURSELF, YOU SHOULD STIPULATE IN THIS CONTRACT THAT BEFORE ANY PAYMENT IS MADE, YOUR CONTRACTOR IS REQUIRED TO PROVIDE YOU WITH A WRITTEN RELEASE OF LIEN FROM ANY PERSON OR

122

COMPANY THAT HAS PROVIDED TO YOU A "NOTICE TO OWNER." FLORIDA'S CONSTRUCTION LIEN LAW IS COMPLEX, AND IT IS RECOMMENDED THAT YOU CONSULT AN ATTORNEY. ii. If the contract is written, the notice must be in the contract document. If the contract is oral or implied, the notice must be provided in a document referencing the contract. iii. The failure to provide such written notice does not bar the enforcement of a lien against a person who has not been adversely affected. iv. This section may not be construed to adversely affect the lien and bond rights of lienors who are not in privity with the owner. This section does not apply when the owner is a contractor licensed under chapter 489 or is a person who created parcels or offers parcels for sale or lease in the ordinary course of business. b. Chapter 558: The provisions of this chapter shall control every contract for the design, construction, or remodeling of a dwelling entered into on or after July 1, 2004, which contains the notice as set forth below and is conspicuously set forth in capitalized letters. CHAPTER 558 NOTICE OF CLAIM: CHAPTER 558, FLORIDA STATUTES CONTAINS IMPORTANT REQUIREMENTS YOU MUST FOLLOW BEFORE YOU MAY BRING ANY LEGAL ACTION FOR AN ALLEGED CONSTRUCTION DEFECT IN YOUR HOME. SIXTY DAYS BEFORE YOU BRING ANY LEGAL ACTION, YOU MUST DELIVER TO THE OTHER PARTY TO THIS CONTRACT A WRITTEN NOTICE REFERRING TO CHAPTER 558 OF ANY CONSTRUCTION CONDITIONS YOU ALLEGE ARE DEFECTIVE AND PROVIDE SUCH PERSON THE OPPORTUNITY TO INSPECT THE ALLEGED CONSTRUCTION DEFECTS AND TO CONSIDER MAKING AN OFFER TO REPAIR OR PAY FOR THE ALLEGED CONSTRUCTION DEFECTS. YOU ARE NOT OBLIGATED TO ACCEPT ANY OFFER WHICH MAY BE MADE. THERE ARE STRICT

123

DEADLINES AND PROCEDURES UNDER THIS FLORIDA LAW WHICH MUST BE MET AND FOLLOWED TO PROTECT YOUR INTERESTS. c. Fla. Stat. 489.1425: Any agreement or contract for repair, restoration, improvement, or construction to residential real property must contain a written statement explaining the consumer's rights under the recovery fund, except where the value of all labor and materials does not exceed $2,500. The written statement must be substantially in the following form: FLORIDA HOMEOWNERS' CONSTRUCTION RECOVERY FUND: PAYMENT MAY BE AVAILABLE FROM THE FLORIDA HOMEOWNERS' CONSTRUCTION RECOVERY FUND IF YOU LOSE MONEY ON A PROJECT PERFORMED UNDER CONTRACT, WHERE THE LOSS RESULTS FROM SPECIFIED VIOLATIONS OF FLORIDA LAW BY A LICENSED CONTRACTOR. FOR INFORMATION ABOUT THE RECOVERY FUND AND FILING A CLAIM, CONTACT THE FLORIDA CONSTRUCTION INDUSTRY LICENSING BOARD AT THE FOLLOWING TELEPHONE NUMBER AND ADDRESS: (The statement shall be immediately followed by the board's address and telephone number as established by board rule) i. Upon finding a first violation of subsection (1), the board may fine the contractor up to $500, and the moneys must be deposited into the recovery fund. ii. Upon finding a second or subsequent violation of subsection (1), the board shall fine the contractor $1,000 per violation, and the moneys must be deposited into the recovery fund. d. Certain municipalities have their own notice requirements that must be used in addition to the foregoing State notices. Check with your local construction board and your local municipal code (available online at www.municode.com). e. As an example, Miami-Dade County mandates the following: f. Sec. 10-33:

124

i. In all contracts for repair, improvement, reconstruction, or remodeling of any structure of Group I occupancy within MiamiDade County, the contractor shall include in the contract a notice in substantially the following form: WARNING TO OWNER: UNDER FLORIDA LAW, YOUR FAILURE TO MAKE SURE THAT THE FOLLOWING PERSONS ARE PAID MAY RESULT IN A LIEN AGAINST YOUR PROPERTY AND YOUR PAYING TWICE. TO AVOID A LIEN AND PAYING TWICE, YOU MUST OBTAIN A WRITTEN RELEASE FROM THE PERSONS LISTED BELOW EVERY TIME YOU PAY YOUR CONTRACTOR: (Following the above language, the contractor shall list all subcontractors and materialmen known to the contractor to be utilized in the work, any person known to the contractor to have served a Notice to Owner pursuant to the Florida Construction Lien Law, and any other person known to the contractor who, with the passage of time or the serving of notice or both, would be entitled to a construction lien over the property of the owner) ii. By exception, the contractor shall not be obligated to list those persons with subcontracts or rendering services or supplying materials with a value not exceeding two hundred and fifty dollars ($250.00). The required notice shall be printed in not less than ten-point bold-faced type. To the extent known, the notice shall also contain the address and telephone number for each person required to be disclosed. iii. The contractor shall be obligated to update the above list by the issuance of a rider to the construction contract within thirty (30) days of obtaining any information which renders the initial list incomplete or inaccurate, including the engagement of additional subcontractors or materialmen.

125

iv. This section shall be inapplicable to any contract in which the owner is the United States government, the State of Florida, or any county, city or political subdivision thereof, or other public authority. v. The requirements of this section shall be in addition to and not in substitution or derogation of any notices required to be given under the Construction Lien Law of the State of Florida. g. Sec. 10-33.1: Required provisions and disclosures in contracts for residential repair, alteration, addition or remodeling of a residential structure. In all contracts for the repair, alteration, addition or remodeling of a residential structure of Group I occupancy within Miami-Dade County, which contracts exceed the sum of $5,000.00 and which involve work for which permits must be obtained, the contractor shall include in the contract in bold capitalized letters of at least 12-point type the following provisions and disclosures in substantially the form described below: (i) YOU ARE ADVISED THAT THE COUNTY CONSTRUCTION TRADES QUALIFYING BOARD AND THE BUILDING AND ZONING DEPARTMENT OF MIAMI-DADE COUNTY, AND THE STATE OF FLORIDA DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION MAY HAVE INFORMATION ON FILE CONCERNING THE FINANCIAL RESPONSIBILITY AND ANY COMPLAINTS AND INVESTIGATIONS PERTAINING TO THE WORK OF THIS CONTRACTOR. THE PUBLIC RECORDS OF THE COUNTY ARE AVAILABLE FOR INSPECTION AND COPYING. (ii) YOU ARE ALSO ADVISED THAT THIS CONTRACTOR HAS PUBLIC LIABILITY INSURANCE AND WORKERS COMPENSATION INSURANCE THROUGH [INSERT NAME OF INSURERS] UNDER POLICY NUMBERS

126

[INSERT NUMBERS], WITH EXPIRATION DATES OF [INSERT DATES] AND LIMITS OF LIABILITY IN THE AMOUNTS OF [INSERT NUMBERS]. (iii) YOU ARE ADVISED THAT IN ORDER TO PROTECT YOURSELF, YOU MAY REQUEST THAT THIS CONTRACT ALLOW FOR PAYMENTS TO THE CONTRACTOR TO BE CONDITIONED UPON THE CONTRACTOR OBTAINING AND PASSING MANDATORY INSPECTIONS. (iv) YOU ARE ADVISED THAT YOU MAY PAY THE COST OF PURCHASING A CONTRACTOR'S PAYMENT BOND OR OTHER SECURITY, TO COVER PAYMENTS TO SUBCONTRACTORS AND MATERIAL SUPPLIERS, IN THE EVENT THIS CONTRACTOR FAILS TO DO SO, A COPY OF THOSE DOCUMENTS WHICH PROTECT YOU WILL BE FURNISHED UPON REQUEST, IF YOU SO WISH TO PURCHASE SUCH PROTECTION. (v) YOU ARE ADVISED THAT IN ORDER TO PROTECT YOURSELF, YOU MAY REQUEST THAT THIS CONTRACT CONTAIN A WORK COMPLETION DATE, IN THE ABSENCE OF A COMPLETION DATE, YOU MAY REQUEST THAT INTERIM MILESTONES OR TIME PERIODS BE ESTABLISHED FOR COMPLETION OF PORTIONS OF THE WORK. (vi) WITH LIMITED EXCEPTIONS PROVIDED BY LAW, THE WORK YOU ARE CONTRACTING FOR MUST BE PERFORMED BY A STATE OF FLORIDA CERTIFIED CONTRACTOR OR A MIAMI COUNTY CERTIFIED CONTRACTOR WHO IS ALSO REGISTERED WITH THE STATE. (vii) YOU ARE FURTHER ADVISED THAT IF, AFTER OBTAINING A PERMIT FOR THE WORK, YOUR CONTRACTOR TERMINATES THIS PROJECT WITHOUT JUST CAUSE OR FAILS TO PERFORM WORK WITHOUT JUST CAUSE FOR 30 CONSECUTIVE DAYS, THE PROJECT MAY BE CONSIDERED ABANDONED. ABANDONMENT CONSTITUTES A PENALTY FOR WHICH A CONTRACTOR MAY BE DISCIPLINED BY THE STATE OR BY THE COUNTY.

127

128

Bonds and Insurance

Prepared and Presented by:

Michael J. Kurzman, Esq. Siegfried, Rivera, Lerner, De La Torre & Sobel, P.A.

129

130

131

132

133

134

135

136

137

138

139

140

Liens

Prepared and Presented by:

Michael J. Kurzman, Esq. Siegfried, Rivera, Lerner, De La Torre & Sobel, P.A.

141

142

143

144

145

146

147

148

149

150

151

152

153

154

155

156

157

158

159

160

! NOTES ! NOTES ! NOTES ! NOTES !