The Legal Edge: Solving Today’s Construction
Problems
Texas Housing Conference
July 28-30, 2014
Hilton Hotel
Austin, TX
Presenters
Moderator
Bobby Bowling, Tropicana Homes
Panel Members
Vijay D'Cruz, Locke Lord
Joe Davis, Husch Blackwell
Chris Ryman, Coats | Rose
Five Key Construction
Contract Clauses (among
others)
Chris E. Ryman
Coats, Rose, Yale, Ryman, & Lee, P.C.
www.coatsrose.com
Presented to:
The Texas Affiliation of Affordable Housing Providers
1. Limitation of Liability/ Consequential
Damages Waiver
“LIMITATION
OF
LIABILITY
AND
WAIVER
OF
CONSEQUENTIAL DAMAGES: IN NO EVENT SHALL THE
CONTRACTOR’S LIABILITY TO THE SUBCONTRACTOR
EXCEED THE FAIR VALUE OF THE SUBCONTRACTOR’S
SERVICES IN CONNECTION WITH THIS SUBCONTRACT
… CONTRACTOR AND ITS AFFILIATES SHALL HAVE NO
LIABILITY
TO
SUBCONTRACTOR
FOR
SPECIAL,
INDIRECT OR CONSEQUENTIAL DAMAGES
…
For
purposes of this Subcontract, the term “Consequential Damages”
shall mean special, indirect, incidental, or consequential losses or
damages, including but not limited to the loss of profits or revenues,
the loss or restricted use of property rights, the incurring of
financing costs, or any other loss or damage not constituting direct
damages deemed by law to be within the contemplation of the
parties to this Subcontract at the time it becomes effective.”
(abbreviated version)
1. Limitation of Liability/ Consequential
Damages Waiver
Key points:
– Texas court might enforce if
conspicuous & specific/ right language
used
– Sometimes a “save the company”
clause: may severely limit liability/
protect against more remote
(“consequential”) money damages
2. “No-damages-for-delay” clause
“The Contractor shall receive no financial compensation for
delay or hindrance of the Work. In no event shall the Owner be
liable to the Contactor or any Subcontractor or Supplier, any
other person or any surety for or any employee or agent of any
of them, for any damages arising out of or associated with any
delay or hindrance to the Work, regardless of the source of the
delay or hindrance, including events of Force Majeure, AND
EVEN IF SUCH DELAY OR HINDRANCE RESULTS
FROM, ARISES OUT OF OR IS DUE, IN WHOLE OR
IN PART, TO THE NEGLIGENCE, BREACH OF
CONTRACT OR OTHER FAULT OF THE OWNER. The
Contractor's sole remedy in any such case shall be an
extension of time.”
2. “No-damages-for-delay” clause
Key points:
– GC might only be entitled to time
extension; critical in delay cases
– Note: enforced by Houston court but
currently on appeal to Texas Supreme
Court
3. Dispute Resolution
“THE SUBCONTRACTOR AGREES TO WAIVE THE RIGHT TO TRIAL BY
JURY FOR ANY DISPUTE ARISING OUT OF OR IN ANY WAY RELATED TO
THE PROJECT, THE SUBCONTRACT WORK, THE SUBCONTRACT, OR
THE CONTRACT DOCUMENTS. The parties shall first, as an express condition
precedent, attempt to resolve such disputes by negotiations between their senior
executives, … and, if no resolution is then achieved, submission of the dispute
to non-binding mediation as soon as possible and within thirty (30) days after the
parties mutually agree upon a mediator. … If the parties cannot resolve the
dispute by mediation, the Contractor, at its sole discretion, may elect to litigate
the dispute in a court of competent jurisdiction or have the matter decided in
arbitration ...such appointed arbitrator to be a licensed Texas attorney with at
least ten (10) years of construction contract dispute experience… The
arbitration award shall be rendered in writing, must include an award of all or
substantially all attorney’s fees and costs to the prevailing party…The
Subcontractor agrees no such controversy or dispute – including but not limited
to mediation or arbitration proceedings – shall interfere with the continuation and
progress of the Subcontract Work….” (abbreviated version)
3. Dispute Resolution
Key points:
– Jury waiver (key for GCs; not as much for
owners)
– Meeting between officers/ mediation, trying to
avoid attorney’s fees
– GC’s right to choose arbitration or resolution in
court
– Arbitrator is qualified & must award attorney’s
fees
– Sub must continue working despite dispute
4. “Flow down” clause/ consistency
“The Contractor’s contract with the
Owner, the plans and specifications, the
bid documents (all of which are expressly
incorporated by reference as if fully set
forth herein) and this Subcontract, shall
be interpreted to be consistent with one
another, and any irreconcilable conflict
between the two, or any patent or latent
ambiguity, shall be interpreted to require
that which is most beneficial to the
Contractor.”
4. “Flow down” clause/ consistency
Key points:
–GC’s obligations to owner “flow
down” to sub
–Consistency between documents/
favorable to GC
5. Indemnification
A. EXCEPT WITH RESPECT TO CLAIMS RELATING TO BODILY INJURY OR DEATH OF
AN EMPLOYEE AS DEFINED IN SUBPARAGRAPH 8.3 B. BELOW, SUBCONTRACTOR
AGREES TO INDEMNIFY, DEFEND, AND HOLD HARMLESS CONTRACTOR, ALONG
WITH ITS PARENTS, SUBSIDIARIES, AFFILIATED COMPANIES AND PARTNERS
AND THEIR OFFICERS, DIRECTORS, MANAGERS, AGENTS, SERVANTS AND
EMPLOYEES, AND ANY PARTIES REQUIRED TO BE INDEMNIFIED BY CONTRACTOR
UNDER THE CONTRACT DOCUMENTS (COLLECTIVELY THE “INDEMNIFIED
PARTIES” OR INDIVIDUALLY AN “INDEMNIFIED PARTY”) FROM ALL CLAIMS,
SUITS, JUDGMENTS, COSTS AND EXPENSES – INCLUDING ATTORNEY’S FEES AND
EXPENSES OF LITIGATION – INVOLVING ECONOMIC LOSS, PERSONAL INJURY,
PROPERTY DAMAGE OR WRONGFUL DEATH (“CLAIMS) THAT ACTUALLY OR
ALLEGEDLY ARISE OUT OF OR ARE CONNECTED WITH SUBCONTRACTOR’S WORK
OR ITS PRESENCE OR THE PRESENCE ANY OF SUBCONTRACTOR’S
SUBCONTRACTORS ON THE PROJECT. NOTWITHSTANDING THE FOREGOING,
THIS INDEMNITY AND HOLD HARMLESS PROVISION SHALL NOT APPLY TO THE
EXTENT THAT IT REQUIRES SUBCONTRACTOR TO INDEMNIFY AN INDEMNIFIED
PARTY AGAINST A CLAIM CAUSED BY THE NEGLIGENCE OR FAULT, THE BREACH
OR VIOLATION OF A STATUTE, ORDINANCE, GOVERNMENTAL REGULATION,
STANDARD, OR RULE, OR THE BREACH OF CONTRACT OF THE INDEMNIFIED
PARTY, ITS AGENT OR EMPLOYEE, OR ANY THIRD PARTY UNDER THE CONTROL
OR SUPERVISION OF THE INDEMNIFIED PARTY, OTHER THAN SUBCONTRACTOR
OR ITS AGENT, EMPLOYEE OR SUBCONTRACTOR OF ANY TIER.
5. Indemnification
B. INDEMNITY FOR EMPLOYEE CLAIMS: SUBCONTRACTOR AGREES TO AND SHALL
DEFEND, INDEMNIFY AND HOLD HARMLESS (COLLECTIVELY “INDEMNIFY”)
CONTRACTOR AND OWNER, AND ANY OTHER PARTIES REQUIRED TO BE INDEMNIFIED
BY CONTRACTOR UNDER THE CONTRACT DOCUMENTS AND THEIR REPRESENTATIVES,
PARTNERS, MEMBERS, DIRECTORS, OFFICERS, AGENTS, EMPLOYEES, INVITEES OR
LICENSEES (COLLECTIVELY THE “INDEMNIFIED PARTIES” OR INDIVIDUALLY AN
“INDEMNIFIED PARTY”) FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES,
DAMAGES, DEMANDS, INJURIES, JUDGEMENTS, CAUSES OF ACTION, SUITS, AND
LIABILITY OF EVERY KIND, INCLUDING BUT NOT LIMITED TO ALL EXPENSES OF
LITIGATION, COURT COSTS AND ATTORNEY’S FEES (COLLECTIVELY “CLAIMS”) , FOR
BODILY INJURY OR DEATH OF ANY EMPLOYEE OF SUBCONTRACTOR, ITS AGENTS, OR
ITS SUBCONTRACTORS OF ANY TIER (COLLECTIVELY “EMPLOYEE” FOR THE PURPOSE
OF THIS SECTION), ACTUALLY OR ALLEGEDLY OCCASIONED BY, CONTRIBUTED TO OR
ARISING OUT OF, IN WHOLE OR IN PART, THE SUBCONTRACT WORK, THE
PERFORMANCE OF THE SUBCONTRACT WORK OR THIS SUBCONTRACT, OR PRESENCE
AT THE PROJECT SITE, INCLUDING BUT NOT LIMITED TO CLAIMS DUE TO NEGLIGENCE,
GROSS NEGLIGENCE, BREACH OF WARRANTY, BREACH OF CONTRACT, VIOLATION OF
ANY STATUTE, RULE OR REGULATION OR OTHER ACT OR OMISSION BY
SUBCONTRACTOR, ITS EMPLOYEES, AGENTS OR ANY SUBCONTRACTOR OF
SUBCONTRACTOR OF ANY TIER, OR THEIR RESPECTIVE AGENTS OR EMPLOYEES, OR
ANY
OTHER
PARTY
FOR
WHOSE
ACTS
SUBCONTRACTOR
IS
LIABLE.
SUBCONTRACTOR’S OBLIGATION TO INDEMNIFY SHALL APPLY EVEN IF SUCH CLAIMS
ARE ACTUALLY OR ALLEGEDLY CAUSED IN WHOLE OR IN PART BY THE ACTS,
OMISSIONS, OR NEGLIGENCE OF AN INDEMNIFIED PARTY, EVEN IF SUCH NEGLIGENCE
OR OTHER ACTS OR OMISSIONS ARE ACTIVE OR PASSIVE, DIRECT OR INDIRECT, SOLE,
JOINT OR CONCURRENT. THIS INDEMNITY AGREEMENT IS INTENDED TO INDEMNIFY
THE AFOREMENTIONED INDEMNIFIED PARTIES FROM THE CONSEQUENCES OF THEIR
OWN NEGLIGENCE, AS PROVIDED ABOVE.
5. Indemnification
Key points:
- Enforceable only if:
1. Conspicuous
2. Properly worded (claims specified:
“express negligence rule”)
- Cannot indemnify a party from its own
negligence unless it is an employee injury
claim
6. Pay-if-paid (“contingent payment”) clauses
“Payment by the Owner to the General
Contractor shall be an express condition
precedent to any obligation by the General
Contractor to pay the Subcontractor for
the Subcontractor’s Work. The
Subcontractor therefore expressly
acknowledges and assumes the risk of
non-payment from the Owner to the
General Contractor.”
6. Pay-if-paid (“contingent payment”) clauses
Key points:
– SEVERELY restricted by 2007 Legislation
(except certain residential & road/ civil/
utility construction, design services)
– Enforceable only if properly worded (makes
clear payment by upstream party is express
condition precedent/ risk is understood);
• A “pay-when-paid” clause will not suffice
(e.g., “Contractor will pay Subcontractor
within 7 days of receiving payment from
Owner” ≠ pay-if-paid clause)
Chris E Ryman
Coats | Rose
3 E. Greenway Plaza
Suite 2000
Houston, Texas 77046
(713) 653-7345
cryman@coatsrose.com