3

Ten Things You Need To Know About Construction Contract Provisions 2012 Peter T. Martin March 30, 2012 Crest Expo Dallas, Texas

4

1.

Indemnity

5

Types of Indemnity Broad Form Indemnitor indemnifies Indemnitee for claims arising out of Indemnitee’s own negligence and breach of contract  Intermediate Form Indemnitor indemnifies Indemnitee for claims arising out of Indemnitee’s own negligence unless it is found to be Indemnitee’s SOLE FAULT  Simple Form Indemnitor only indemnifies for its own negligence or fault. 

6

Law Has Changed! Legislature has outlawed all broad form indemnity provisions except for limited statutory exceptions All construction contracts containing broad form indemnity for claims other than these (2) exceptions below MUST BE REWRITTEN Law applies to all Owner contracts effective after January 1, 2012

7

Indemnity after New Tex. Ins. Code 151- Effective January 1, 2012 An Agreement requiring an Indemnitor to defend and indemnify for Indemnitee’s own negligence is now unenforceable EXCEPT for: 1. Claims for personal injury of a contractor’s or Party’s own employee, or subcontractor of any tier. 2. Claims of copyright infringement 3.

8

Chapter 151-Other exceptions Old Broad Form indemnities may also be used in narrowly defined cases:  On a project with OCIP or CCIP  In a contract for construction for a municipality or  a single family house, townhouse, duplex, or land development directly related thereto 

9

Fair Notice Still applies Texas Supreme Court has required for over 20 years that broad form indemnity be: 1. Expressed in clear language Must say for indemnitee’s own negligence

1

2. “Conspicuous” Must be in bold, all caps conspicuous language Ethyl Corp. v. Daniel Constr. Co., 725 S.W.2d 705 (Tex. 1987)

Ethyl still applies 10

What does this Mean? All contracts containing broad form indemnity for claims other than those expressly permitted by Chapter 151 must be rewritten, and must still comply with Ethyl. •

11

Note on Agreement to “Defend” Obligation to defend begins at the outset of litigation or arbitration when claims of negligence are made against you arising out of the work of your subcontractor or supplier. Obligation to indemnify only arises when you or other party is determined to be negligent in adjudication or you pay settlement of claims. Duty to step in and defend you at the outset of litigation can save you attorneys fees and other expense of litigation from the beginning.

12

Suggested Contract Provision Two Part Provision • Part One: limited broad form to the full extent still permitted by law • Part Two: simple indemnity for Party’s own negligence

13

Summary of Indemnity If yours is not a construction contract “collaterally” relating to “a single family house, townhouse, duplex, or land development directly related thereto; or a public works project of a municipality” your construction contract should: Contain broad form indemnity for claims for personal injury by a “contractor’s own employee or subcontractor of any tier” and for “copyright infringement”. Make sure the limited broad form indemnify still complies with express and conspicuous requirements. Include a full indemnity for the indemnitor’s own negligence (as opposed to indemnity for your negligence) for any and all claims “to the fullest extent provided by law”. Require the downstream party to defend you, as well as indemnify and hold you harmless.

14

2. Insurance

15

Additional Insured – New Legislation Chapter 151 also prohibits requiring additional insured coverage for one’s own negligence. Endorsements have not caught up with legislative changes. Until endorsements change, contract should require current additional insured endorsement to the fullest extent allowed by law. New additional insured endorsements will be promulgated shortly (ask your agent).

16

Sample Provision-Primary and Non-Contributory

2

“Party insurance policies shall be endorsed to provide that the coverage shall be primary and noncontributory over any other insurance maintained by [Your Company]” 17

Certificate of Insurance New law makes clear that Certificates are not policies of insurance and may not “amend, extend or alter coverage.” In other words, you cannot rely on a certificate of insurance as proof and evidence of actual coverage.

18

How to insure downstream Party has desired Coverage? 1. Have Contract specify coverage, endorsements and exclusions. 2. Have Contract require production of policy upon request. [Certificate is not policy] 3. Request policy, or at least the parts of the policy that evidence the desired coverage, endorsements and exclusions, at the outset of project.

19

Standard Endorsements Additional Insured Commercial General Liability ISO Form CG 20 10 07 4 for ongoing operations or equivalent

AND ISO Form CG 20 37 0704 for completed operations or equivalent Auto Liability ISO TX Form CA 04 03 06 04 or equivalent Workers Compensation 20

Make Failure of Coverage an Immediate Material Breach Have the Contract permit you to consider a failure to provide evidence of, and failure to prevent lapses in, coverage a material breach of the contract. Permit your company to immediately step in and renew required insurance if Party lets it lapse, at Party’s expense. This prevents a potential lapse in coverage from the time you discover a lack of insurance, but are unsure of your rights under the contract to take immediate action to continue coverage.

21

Other Recommended Insurance Contract Requirements Require Downstream contractors to include in your contract with them all insurance provisions in the Prime contract. ( Review limits also) Require notice of cancellation of insurance. Make insurance an independent obligation: completed operations survive the construction contract. “Party’s obligation to provide insurance pursuant to this section shall be independent of all

3

other obligations under this Contract.” 22

Waiver of Subrogation

23

Waiver of Subrogation "Subrogation" is a doctrine of equity and is the substitution of all insurance carriers in the place of the contractor, so that the person in whose favor it is applied succeeds to the rights of the contractor in relation to the debt. Generally, an insurer paying a claim under a policy becomes equitably subrogated “steps into the shoes” of the insured for any cause of action the insured may have against a third party responsible for the injury. The purpose of a waiver of subrogation clause in construction contracts is to avoid disruptions and disputes between the parties working on a project. The clause is also key to a builder’s risk policy to provide one property insurance policy for all the parties.

24

Effect of Waiver of Subrogation If Owner, Contractor, Subcontractor and all sub-subcontractors and suppliers waive subrogation as to each other, then their insurance carriers who have paid under their policies cannot sue each other.

25

Endorsements Waiver of Subrogation Requirement Commercial General Liability ISO Form CG 24 04 10 93 or equivalent Auto Liability ISO TX Form CA 20 89 06 04 or equivalent Workers Compensation ISO TX Form WC 42 03 04A or equivalent

26

3.

27

New Lien Waiver Law

New Lien Waiver Law

All Conditional and Unconditional Lien Waiver forms for use on Projects with Prime Contracts dated after January 1, 2012, must be rewritten to comply with Chapter 53, Subchapter L, Texas Property Code § § 53.281-53.287. 28

New Lien Waiver Law: Purpose • New Law is designed to prevent the injustice of a Party giving up its lien rights and receiving a bad check or otherwise never getting paid. • It also address the problem of swearing under oath that you have paid your subcontractors, when you cannot and have not paid them until you receive the funds. 1.

29

Statutory Forms The legislature includes in the Statute mandatory Unconditional and Conditional Waiver

4

Forms for Progress and Final Payment.  Lien Waiver Forms must “substantially comply” with statutory forms. ”Attempted compliance” ends August 2012. 30

New Lien Waiver Law Requirements • Conditional Lien Waiver and Release becomes effective only when check clears the bank. • Unconditional Final and Progress Waivers must contain bold, all-caps notice at top of front page. • Unconditional Lien Waiver may not be signed until payment has been received. • Party must swear under oath it will use the funds to pay its subcontractors and suppliers. • Violation renders release/waiver void--party may still file a lien. • You can still require a list of persons unpaid at the time of signing.

31

Are Final Unconditional Lien Waivers Still Necessary? • New Law effectively does away with the need for a Final Unconditional Lien Waiver. • The Conditional Lien Waiver is signed in advance of payment, and becomes effective when payment is actually received. At this point, an enforceable lien waiver is in place.

32

Problem with Unconditional Waiver Contractors who need an Unconditional Final Lien Waiver for an Owner have no way to make sure the Subcontractor signs the Unconditional Lien Waiver, unless a face-to-face exchange is made, which is often impractical. A contract provision may solve this problem making failure to sign final unconditional release an immediate breach.

33

4. Dispute Resolution

34

Arbitration: Joinder  If you choose arbitration, which is a decision in itself, or are pulled into an arbitration not of your choosing, you will want all necessary parties to participate.   Problems occur if, for example, the Prime Contract requires arbitration, but the Subcontracts do not.  Your Contracts need a provision that, should arbitration be ordered as to you, that the downstream Party contracting with you agrees to be joined for claims arising out of its work. •

35

Other DR Provisions Arbitration vs. Litigation Choice of Forum Waiver of Jury Trial Prevailing party gets attorneys fees (pros and cons)

5

36

5. Payment

37

Pay-when-paid provisions are legal in Texas. Don’t Promise to Pay until you are Paid: Make payment to you a “condition precedent” of your duty to pay the downstream party. Make clear that there is no right to payment until you receive your payment. Use clear unequivocal language. Recite that the payment provision shall not be construed merely as a “time of payment” clause. Beware: Provisions in statute by which contingent payee can render clause unenforceable if owner or contingent payor does not timely and properly respond to proper request for information.

38

Right of Setoff The law is unclear on whether you can withhold payment on one project due to problems on another, without an express contractual provision. If you have multiple projects with a party, without a clear provision in your contracts, you could find yourself paying large sums to a person defaulting on another job.

39

6. Bankruptcy

40

Bankruptcy Bankruptcy of Party can eliminate contractual remedies and tie up the contract for an extended period and require you to jump through many hoops in the Bankruptcy Court—the all powerful Federal court that takes over all debts, obligations and even contracts of the Party. Stay of Contractual Rights and Remedies: When a Party files bankruptcy (which you may often be the last to know), the contract and all remedies are frozen until: The debtor (trustee) decides to accept or reject the contract; and The Court has granted a lift of stay granting you the right to take legal action under the contract; such as the right to assert setoffs readily available in case of breach outside the bankruptcy court.

41

Bankruptcy Cumbersome Procedures: You must enter the Bankruptcy with Notice of Appearance; Proofs of Claims; motions to lift stay; motion to accept or reject contract; hearings, negotiations with Trustee and Debtor’s counsel just to get the Court’s permission to cure the default. Recovery against Party is uncertain and delayed at best. Proposed Provision: The proposed subcontract provision does not cure all ills but requires the Party to immediately notify you and to the fullest extent allowed by law, agree to motions, orders, and acceptance of contract to expedite the process.

42

Bankruptcy – Take Early Action If a person contracting with you on a project goes bankrupt, call a lawyer. There are actions which can be taken within a short time of the filing by which you can reclaim items

6

delivered and unpaid for; move for disbursement of cash to you for immediate debts, and get notice of and file claims within the bankruptcy. 43

7. Mechanics’ Liens

44

Mechanics’ Liens – Provisions to Negotiate for in Your Downstream Contracts Express requirement that Party shall pay for all labor and material. Payments conditional on the release, discharge and settlement of lien, lien notices or related claims. Make filing of lien (other than Party’s own lien), issuance of stop notice, failure to pay Party’s debts, or permitting Party’s debtors to assert claims for payment a material breach. Require immediate discharge of all claims, liens or obligations in the event of filing or notice of lien; issuance of stop notice or fundtrapping notice by Party. If release is not procured, consider requiring statutory bond to discharge lien to be procured by Party (bond-around the lien).

45

More Provisions to Negotiate for in Your Downstream Contracts If not discharged within 48 hours, you may take steps necessary to release, discharge, or settle lien claim at Party’s expense. Require Party to assume defense and pay costs and attorneys fees in case of lien action (contained in indemnity provision). Express right of Your Company to pay unpaid persons directly and deduct amount from Party payment. Express liability of Party for damages, costs and attorneys fees in the event Party files an improper, overstated lien or stop notice.

46

8. Damages

47

Damages for Delay You will want to try to limit the other Party’s ability to claim and recover damages for delay. Limit $$ to amounts actually received by your upstream party as a consequence of such delays.

48

Liquidated Damages •Specify date. Use a liquidated damage date which is a certain number of days (to be agreed upon) after the “scheduled substantial completion date.” • •Specify that no other damages apply: “The liquidated damages are “in lieu of any and all costs, losses, expenses claimed, penalties or other damages, special or consequential incurred by the Owner which are occasioned by delay.” • •Early Bonus. Try to negotiate a bonus for each day that substantial completion is obtained earlier than the scheduled substantial completion date.

7

49

Pass Liquidated Damages Downstream Make downstream party responsible for liquidated damages incurred by you as result of that party’s breach.

50

Consequential Damages • Consequential Damages are incidental damages that result naturally but not necessarily from the breach of contract such as lost profits or lost business. •Obtaining a waiver of consequential damages can greatly reduce your exposure in construction litigation.

51

9. Right to Control / Independent Contractor

52

Right to Control / Independent Contractor •Owners often insist that contractors, architects, subcontractors and consultants affirm by contract their right to the independent contractor status to protect Owners from liability. • The upstream party is not responsible for the actions of a downstream Party in the personal injury context, unless actual control is exercised or the upstream party retains the right of control in the contract. •

53

Try to Keep This Language in Your Downstream Contracts Downstream party is an independent contractor. You retain no right of control over downstream party Downstream party has and retains full control over personnel and employees.

54

10. Hazardous Materials and Safety

55

Hazardous Materials Hazardous waste claims, including Asbestos, are present and future liabilities. You can protect your company from claims arising out of hazardous waste by: 1. Identifying what you mean by hazardous waste, including a special section specifically on Asbestos. 2. 2. Defining clearly the responsibilities of the other Party to the Contract as to such hazardous wastes. 3. 3. Requiring the Party to indemnify you for all claims relating to the Party’s handling, storage, use, disposal and removal of hazardous waste. 4.

56

Conclusion

8

57

Disclaimer

9

Ten Things You Need To Know About Construction Contract Provisions 2012 Peter T. Martin March 30, 2012 Crest Expo Dallas, Texas

Martin & Martin Law

1. Indemnity

“Would everyone check to see that they have an attorney. I seem to have ended up with two.”

Martin & Martin Law

1

Types of Indemnity Broad Form  Indemnitor indemnifies Indemnitee for claims arising out of Indemnitee’s own negligence and breach of contract Intermediate Form  Indemnitor indemnifies Indemnitee for claims arising out of Indemnitee’s own negligence unless it is found to be Indemnitee’s SOLE FAULT Simple Form 

Indemnitor only indemnifies for its own negligence or fault. Martin & Martin Law

Law Has Changed! Legislature has outlawed all broad form indemnity provisions except for limited statutory exceptions All construction contracts containing broad form indemnity for claims other than these (2) exceptions below MUST BE REWRITTEN Law applies to all Owner contracts effective after January 1, 2012

2

Indemnity after New Tex. Ins. Code 151- Effective January 1, 2012 An Agreement requiring an Indemnitor to defend and indemnify for Indemnitee’s own negligence is now unenforceable EXCEPT for: 1. Claims for personal injury of a contractor’s or Party’s own employee, or subcontractor of any tier. 2. Claims of copyright infringement Martin & Martin Law

Chapter 151-Other exceptions Old Broad Form indemnities may also be used in narrowly defined cases:  On a project with OCIP or CCIP  In a contract for construction for a municipality or  a single family house, townhouse, duplex, or land development directly related thereto

3

Fair Notice Still applies Texas Supreme Court has required for over 20 years that broad form indemnity be: 

1. Expressed in clear language 



Must say for indemnitee’s own negligence

2. “Conspicuous” 

Must be in bold, all caps conspicuous language

Ethyl Corp. v. Daniel Constr. Co., 725 S.W.2d 705 (Tex. 1987)

Ethyl still applies

What does this Mean? All contracts containing broad form indemnity for claims other than those expressly permitted by Chapter 151 must be rewritten, and must still comply with Ethyl.

Martin & Martin Law

4

Note on Agreement to “Defend” Obligation to defend begins at the outset of litigation or arbitration when claims of negligence are made against you arising out of the work of your subcontractor or supplier. Obligation to indemnify only arises when you or other party is determined to be negligent in adjudication or you pay settlement of claims. Duty to step in and defend you at the outset of litigation can save you attorneys fees and other expense of litigation from the beginning.

Suggested Contract Provision Two Part Provision •

•

Part One: limited broad form to the full extent still permitted by law Part Two: simple indemnity for Party’s own negligence

5

Summary of Indemnity If yours is not a construction contract “collaterally” relating to “a single family house, townhouse, duplex, or land development directly related thereto; or a public works project of a municipality” your construction contract should:  Contain broad form indemnity for claims for personal injury by a “contractor’s own employee or subcontractor of any tier” and for “copyright infringement”.  Make sure the limited broad form indemnify still complies with express and conspicuous requirements.  Include a full indemnity for the indemnitor’s own negligence (as opposed to indemnity for your negligence) for any and all claims “to the fullest extent provided by law”.  Require the downstream party to defend you, as well as indemnify and hold you harmless.

2. Insurance

Martin & Martin Law

6

Additional Insured – New Legislation Chapter 151 also prohibits requiring additional insured coverage for one’s own negligence. Endorsements have not caught up with legislative changes. Until endorsements change, contract should require current additional insured endorsement to the fullest extent allowed by law. New additional insured endorsements will be promulgated shortly (ask your agent).

Martin & Martin Law

Sample Provision-Primary and Non-Contributory “Party insurance policies shall be endorsed to provide that the coverage shall be primary and noncontributory over any other insurance maintained by [Your Company]”

7

Certificate of Insurance New law makes clear that Certificates are not policies of insurance and may not “amend, extend or alter coverage.” In other words, you cannot rely on a certificate of insurance as proof and evidence of actual coverage.

How to insure downstream Party has desired Coverage? 1. Have Contract specify coverage, endorsements and exclusions. 2. Have Contract require production of policy upon request. [Certificate is not policy] 3. Request policy, or at least the parts of the policy that evidence the desired coverage, endorsements and exclusions, at the outset of project.

8

Standard Endorsements Additional Insured 

Commercial General Liability ISO Form CG 20 10 07 4 for ongoing operations or equivalent AND





ISO Form CG 20 37 0704 for completed operations or equivalent Auto Liability ISO TX Form CA 04 03 06 04 or equivalent Workers Compensation

Make Failure of Coverage an Immediate Material Breach Have the Contract permit you to consider a failure to provide evidence of, and failure to prevent lapses in, coverage a material breach of the contract. Permit your company to immediately step in and renew required insurance if Party lets it lapse, at Party’s expense. This prevents a potential lapse in coverage from the time you discover a lack of insurance, but are unsure of your rights under the contract to take immediate action to continue coverage.

9

Other Recommended Insurance Contract Requirements Require Downstream contractors to include in your contract with them all insurance provisions in the Prime contract. ( Review limits also) Require notice of cancellation of insurance. Make insurance an independent obligation: completed operations survive the construction contract. “Party’s obligation to provide insurance pursuant to this section shall be independent of all other obligations under this Contract.” Martin & Martin Law

Waiver of Subrogation

“Well, back to the old drawing board!” Martin & Martin Law

10

Waiver of Subrogation "Subrogation" is a doctrine of equity and is the substitution of all insurance carriers in the place of the contractor, so that the person in whose favor it is applied succeeds to the rights of the contractor in relation to the debt. Generally, an insurer paying a claim under a policy becomes equitably subrogated “steps into the shoes” of the insured for any cause of action the insured may have against a third party responsible for the injury. The purpose of a waiver of subrogation clause in construction contracts is to avoid disruptions and disputes between the parties working on a project. The clause is also key to a builder’s risk policy to provide one property insurance policy for all the parties. Martin & Martin Law

Effect of Waiver of Subrogation If Owner, Contractor, Subcontractor and all sub-subcontractors and suppliers waive subrogation as to each other, then their insurance carriers who have paid under their policies cannot sue each other.

Martin & Martin Law

11

Endorsements Waiver of Subrogation Requirement 

Commercial General Liability ISO Form CG 24 04 10 93 or equivalent



Auto Liability ISO TX Form CA 20 89 06 04 or equivalent



Workers Compensation ISO TX Form WC 42 03 04A or equivalent

3.

New Lien Waiver Law

“We couldn’t have done it without him.” Martin & Martin Law

12

New Lien Waiver Law All Conditional and Unconditional Lien Waiver forms for use on Projects with Prime Contracts dated after January 1, 2012, must be rewritten to comply with Chapter 53, Subchapter L, Texas Property Code § § 53.281-53.287.

New Lien Waiver Law: Purpose • New Law is designed to prevent the injustice of a Party giving up its lien rights and receiving a bad check or otherwise never getting paid. • It also address the problem of swearing under oath that you have paid your subcontractors, when you cannot and have not paid them until you receive the funds. Martin & Martin Law

13

Statutory Forms The legislature includes in the Statute mandatory Unconditional and Conditional Waiver Forms for Progress and Final Payment. Lien Waiver Forms must “substantially comply” with statutory forms. ”Attempted compliance” ends August 2012.

New Lien Waiver Law Requirements • Conditional Lien Waiver and Release becomes effective only when check clears the bank. • Unconditional Final and Progress Waivers must contain bold, all-caps notice at top of front page. • Unconditional Lien Waiver may not be signed until payment has been received. • Party must swear under oath it will use the funds to pay its subcontractors and suppliers. • Violation renders release/waiver void--party may still file a lien. • You can still require a list of persons unpaid at the time of signing. Martin & Martin Law

14

Are Final Unconditional Lien Waivers Still Necessary? • New Law effectively does away with the need for a Final Unconditional Lien Waiver. • The Conditional Lien Waiver is signed in advance of payment, and becomes effective when payment is actually received. At this point, an enforceable lien waiver is in place. Martin & Martin Law

Problem with Unconditional Waiver Contractors who need an Unconditional Final Lien Waiver for an Owner have no way to make sure the Subcontractor signs the Unconditional Lien Waiver, unless a face-to-face exchange is made, which is often impractical. A contract provision may solve this problem making failure to sign final unconditional release an immediate breach. Martin & Martin Law

15

4. Dispute Resolution

Martin & Martin Law

Arbitration: Joinder  If you choose arbitration, which is a decision in itself, or are pulled into an arbitration not of your choosing, you will want all necessary parties to participate.  Problems occur if, for example, the Prime Contract requires arbitration, but the Subcontracts do not. Your Contracts need a provision that, should arbitration be ordered as to you, that the downstream Party contracting with you agrees to be joined for claims arising out of its work. Martin & Martin Law

16

Other DR Provisions Arbitration vs. Litigation Choice of Forum Waiver of Jury Trial Prevailing party gets attorneys fees (pros and cons) Martin & Martin Law

5. Payment

“As soon as one problem is solved, another rears its ugly head” Martin & Martin Law

17

Pay-when-paid provisions are legal in Texas. Don’t Promise to Pay until you are Paid: Make payment to you a “condition precedent” of your duty to pay the downstream party. Make clear that there is no right to payment until you receive your payment. Use clear unequivocal language. Recite that the payment provision shall not be construed merely as a “time of payment” clause. Beware: Provisions in statute by which contingent payee can render clause unenforceable if owner or contingent payor does not timely and properly respond to proper request for information. Martin & Martin Law

Right of Setoff The law is unclear on whether you can withhold payment on one project due to problems on another, without an express contractual provision. If you have multiple projects with a party, without a clear provision in your contracts, you could find yourself paying large sums to a person defaulting on another job. Martin & Martin Law

18

6. Bankruptcy

“The Tip of the Iceberg” Martin & Martin Law

Bankruptcy Bankruptcy of Party can eliminate contractual remedies and tie up the contract for an extended period and require you to jump through many hoops in the Bankruptcy Court—the all powerful Federal court that takes over all debts, obligations and even contracts of the Party. Stay of Contractual Rights and Remedies: When a Party files bankruptcy (which you may often be the last to know), the contract and all remedies are frozen until: 



The debtor (trustee) decides to accept or reject the contract; and The Court has granted a lift of stay granting you the right to take legal action under the contract; such as the right to assert setoffs readily available in case of breach outside the bankruptcy court. Martin & Martin Law

19

Bankruptcy Cumbersome Procedures: You must enter the Bankruptcy with Notice of Appearance; Proofs of Claims; motions to lift stay; motion to accept or reject contract; hearings, negotiations with Trustee and Debtor’s counsel just to get the Court’s permission to cure the default. Recovery against Party is uncertain and delayed at best. Proposed Provision: The proposed subcontract provision does not cure all ills but requires the Party to immediately notify you and to the fullest extent allowed by law, agree to motions, orders, and acceptance of contract to expedite the process.

Martin & Martin Law

Bankruptcy – Take Early Action If a person contracting with you on a project goes bankrupt, call a lawyer. There are actions which can be taken within a short time of the filing by which you can reclaim items delivered and unpaid for; move for disbursement of cash to you for immediate debts, and get notice of and file claims within the bankruptcy.

20

7. Mechanics’ Liens

Martin & Martin Law

Mechanics’ Liens – Provisions to Negotiate for in Your Downstream Contracts Express requirement that Party shall pay for all labor and material. Payments conditional on the release, discharge and settlement of lien, lien notices or related claims. Make filing of lien (other than Party’s own lien), issuance of stop notice, failure to pay Party’s debts, or permitting Party’s debtors to assert claims for payment a material breach. Require immediate discharge of all claims, liens or obligations in the event of filing or notice of lien; issuance of stop notice or fundtrapping notice by Party. If release is not procured, consider requiring statutory bond to discharge lien to be procured by Party (bond-around the lien).

Martin & Martin Law

21

More Provisions to Negotiate for in Your Downstream Contracts If not discharged within 48 hours, you may take steps necessary to release, discharge, or settle lien claim at Party’s expense. Require Party to assume defense and pay costs and attorneys fees in case of lien action (contained in indemnity provision). Express right of Your Company to pay unpaid persons directly and deduct amount from Party payment. Express liability of Party for damages, costs and attorneys fees in the event Party files an improper, overstated lien or stop notice. Martin & Martin Law

8. Damages

Martin & Martin Law

22

Damages for Delay You will want to try to limit the other Party’s ability to claim and recover damages for delay. Limit $$ to amounts actually received by your upstream party as a consequence of such delays.

Martin & Martin Law

Liquidated Damages •Specify date. Use a liquidated damage date which is a certain number of days (to be agreed upon) after the “scheduled substantial completion date.” •Specify that no other damages apply: “The liquidated damages are “in lieu of any and all costs, losses, expenses claimed, penalties or other damages, special or consequential incurred by the Owner which are occasioned by delay.” •Early Bonus. Try to negotiate a bonus for each day that substantial completion is obtained earlier than the scheduled substantial completion date. Martin & Martin Law

23

Pass Liquidated Damages Downstream Make downstream party responsible for liquidated damages incurred by you as result of that party’s breach.

Consequential Damages • Consequential Damages are incidental damages that result naturally but not necessarily from the breach of contract such as lost profits or lost business. •Obtaining a waiver of consequential damages can greatly reduce your exposure in construction litigation.

Martin & Martin Law

24

9. Right to Control / Independent Contractor

Martin & Martin Law

Right to Control / Independent Contractor •Owners often insist that contractors, architects, subcontractors and consultants affirm by contract their right to the independent contractor status to protect Owners from liability. • The upstream party is not responsible for the actions of a downstream Party in the personal injury context, unless actual control is exercised or the upstream party retains the right of control in the contract. Martin & Martin Law

25

Try to Keep This Language in Your Downstream Contracts Downstream party is an independent contractor. You retain no right of control over downstream party Downstream party has and retains full control over personnel and employees.

10. Hazardous Materials and Safety

Martin & Martin Law

26

Hazardous Materials Hazardous waste claims, including Asbestos, are present and future liabilities. You can protect your company from claims arising out of hazardous waste by: 1. Identifying what you mean by hazardous waste, including a special section specifically on Asbestos. 2. Defining clearly the responsibilities of the other Party to the Contract as to such hazardous wastes. 3. Requiring the Party to indemnify you for all claims relating to the Party’s handling, storage, use, disposal and removal of hazardous waste. Martin & Martin Law

Conclusion

Martin & Martin Law

27

Disclaimer Information contained within this presentation provide information on general legal issues and is not intended to provide advice on any specific legal matter. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act upon this information without seeking professional counsel. Every matter is different and contracts must be tailored to the specific needs of each situation.

28