“Words”
Do Matter in Public Works Contracts
Gregory M. Bergman, Esq.
John P. Dacey, Esq.
Bergman Dacey Goldsmith, PLC.
Offices in Orange and LA Counties
gbergman@bdgfirm.com
jdacey@bdgfirm.com
Key Principles
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Two key principles for the public entity owner
engaged in construction:
Cash - the “Lifeblood of Construction”; and
Specific Standards & Deliverables = the
“Owner’s Safety Net”.
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Build your contracts, policies, and procedures
around these two key principles to achieve
success.
Proper Context
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An owner enters many contracts to build a
construction project (General Contractor, Architect,
Engineers, Construction Manager, Geotechnical,
Testing Lab(s), Inspectors, Payment and Performance
Bonds, etc.).
The General Contractor in turn uses a multitude of
subcontractors to actually build the project, meaning
many more contracts are involved.
Think of all of these contracts as the arteries of the
project through which the Lifeblood of Construction
(“cash”) must flow. A project that pays well is
usually a successful project.
PROGRESSING THE WORK
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Contract relationships = arteries of a
construction project

Cash is the lifeblood that progresses the
work

Efficient cash flow = more work done

Contractors and subs work on jobs that
pay promptly
The Owner’s Safety Net
•
Don’t get left “holding the bag”!
Because of the number of people/companies an
owner hires to build a project, an owner needs to
ensure that risk and responsibility are clearly
apportioned at the outset.
Fail to do so and the owner is the ultimate loser.
The Owner’s Safety Net
* Specific Standards;
&
* Specific Deliverables =
how to avoid the bag!
Help the Cash Flow
Progress Payments: Statutory
Requirements; Processing; and Joint
Check Option.
do not just reject and return. Pay all
supported portions of a progress payment
request, rejecting only the unsupported
portions; explain why.
Help the Cash Flow
Stop Payment Notice Release Bonds:
Make Them a Contract Requirement.
in the general contract, require the general
contractor to furnish one within five days of
every stop notice served on a public entity.
Help the Cash Flow
Back Charge Provisions; Third Party
Contractors & Assignment Rights.
have a good solid back charge provision in the
general contract to provide the owner with cash
and the contractual ability to get work done if
the general contractor refuses or fails to
promptly take care of the work. Use a third
party contractor to handle these “stalemates”.
Help the Cash Flow
Joint Check Option.
make sure its in the owner’s contract so
the owner can ensure proper payment
to subcontractors and suppliers, if the
general is not doing so.
Help the Cash Flow
Partial Agreement Change Orders.
use this process to ensure that the
money flows to the subs who are
building the project - subs should not
have to “finance the job”.
Help the Cash Flow
Expedited Claims Process.
adopt one so that all disputes are
resolved within 90 days of the filing of a
claim or rights are lost; eliminates the
“cumulative impact” claim.
Help the Cash Flow
Substantial Completion; “True” Final Punch
List;
Statutory and contract definitions must match;
Minor or trivial items only; defective work is not a
punch list item; estimate the value of each punch
list item; punch list work must be part of the
close out process and scheduled.
Help the Cash Flow
Timely Release of Undisputed
Retention.
How do you determine amount?
Specified time within which to act;
Specified limit on amounts withheld;
Explain reason and calculation of the withhold;
2% per month interest/penalty, attorneys’ fees;
Notice of Completion fallacy – be aware!
Help the Cash Flow
Close Out & Retention.
build and schedule a reasonable but firm
Close Out Process into the general
contract tied to the owner’s back charge,
offset, joint check, third party contractor
and other remedies and coordinate with
the timely release of undisputed retention.
Help the Cash Flow
Escrow Account; The Performance Bond
Surety.
Use them always; For escrowed retention,
draft the escrow agreement so that the
owner can access the retention upon a
“declaration of a default in writing”. Not “in
the event of ….”
Help the Cash Flow
PCC 22300 (f)(7) states:
“The Owner shall have a right to draw upon the securities in the
event of a default by the Contractor. Upon seven days’ written
notice to the Escrow Agent from the owner of the default, the
Escrow Agent shall immediately convert the securities to cash and
shall distribute the cash as instructed by the Owner.”
Change section (f)(7) to read:
“The Owner shall have a right to draw upon the securities if the
Owner declares a default by the Contractor. Upon seven days’
written notice to the Escrow Agent from the owner of the default,
the Escrow Agent shall immediately convert the securities to cash
and shall distribute the cash as instructed by the Owner.”
Help the Cash Flow
How can you do so?
Section 22300 (f) states the escrow
agreement shall be null, void and
unenforceable unless it is “substantially
similar” to the following form….”
Don’t just cut and paste – think!
Help the Cash Flow
The Performance Bond Surety.
Draft your own;
to use independently bonded
obligations in the performance bond or
not (what are they?).
Help the Cash Flow
Liquidated Damages vs. Consequential
Damages for Delay; When to use
each.
How badly do you need the project finished
on time?
Help the Cash Flow
Indemnity – Defense and Hold
Harmless Provisions.
In addition to property damage and
personal injury, add “economic loss”.
Don’t buy the argument that “I can’t
insure this”, it’s a red herring!
Help the Cash Flow
Specific Performance Standards vs. Standard
in the Industry.
What is the “standard in the industry?”
Why obligate someone to comply with something
that is so elusive its like trying to capture a drop of
mercury on a pane of glass?
Use it and lose- get left holding the bag.
Establish your performance standards by using
express and explicit contract language.
Help the Cash Flow
Specific Deliverables vs. Standard in the
Industry.
Same concept - “standard in the industry” does
not protect the owner—only the other party.
Establish specific deliverables by using express
and explicit contract language.
Help the Cash Flow
Establish Acceptable and NonAcceptable Percentages of Errors &
Omissions.
There are things you can do and one of them
is to put very specific language in your
professional service contracts to apportion risk
over which the professional service provider
has control; Agreed to percentage for errors
and omissions eliminates disputes and
establishes the path for dispute resolution.
Sample Language
7.8
Errors and Omissions
In addition to the standards and requirements set
forth elsewhere in this Agreement, including but not
limited to in Article 16 hereof, this Article 7.8 and
Article 7.81 establishes standards and requirements
that specifically govern the ARCHITECT’S and
DISTRICT’S apportionment of the risks associated
with errors and omissions in the Construction
Documents and/or for other failure on the part of the
ARCHITECT to perform services and work under this
Agreement.
Sample Language - cont’d
7.8.1
A.
Responsibility for Errors and Omissions
Errors:
All of the monetary cost, amount, and/or level of damage caused, in whole or in part,
by the errors of the ARCHITECT, the ARCHITECT’S Consultants and/or Sub-Consultants
for the Project, shall be aggregated together using 100% of such cost, amount and/or
level of damage (“Aggregate Total”). If the Aggregate Total is less than four percent
(4%) of the Contractor’s Base Bid Price, then the DISTRICT shall pay for the cost
and/or expense of correcting same by absorbing the price agreed to between the
DISTRICT and the Contractor to correct such errors by way of change order. However,
the ARCHITECT and ARCHITECT’S Consultants and Sub-Consultants shall provide and
perform all services and work necessary to correct the Construction Documents without
any charge, cost or expense to the DISTRICT for such services and/or work. However,
if the Aggregate Total is equal to or greater than four percent (4%) of the Contractor’s
Base Bid Price, then the ARCHITECT shall pay for one hundred percent (100%) of the
cost and/or expense of correcting same by absorbing the price agreed to between the
DISTRICT and the Contractor to correct such errors by way of change order.
Additionally, the ARCHITECT and ARCHITECT’S Consultants and Sub-Consultants shall
provide and perform all services and work necessary to correct the Construction
Documents without any charge, cost or expense to the DISTRICT for such services
and/or work. The obligations established by this Article 7.8.1 A. are in addition to, and
cumulative of, the DISTRICT’S indemnity rights under this Agreement.
Sample Language - cont’d
B.
Omissions:
All of the monetary cost, amount, and/or level of damage caused, in whole or in
part, by the omissions of the ARCHITECT, the ARCHITECT’S Consultants and/or SubConsultants for the Project shall be aggregated together using 100% of such cost,
amount and/or level of damage (“Aggregate Total”). The Aggregate Total shall then
be divided into two parts: the Sixty Percent (60%) part and the Forty Percent (40%)
part. If the Forty Percent (40%) part, over the life of the Project, totals less than
four percent (4%) of the Contractor’s Base Bid Price, then the DISTRICT shall bear
responsibility for the cost of the Sixty Percent (60%) part and the ARCHITECT shall
bear responsibility for the cost of the Forty Percent (40%) part. However, the
ARCHITECT and ARCHITECT’S Consultants and Sub-Consultants shall provide and
perform all services and work necessary to correct the Construction Documents
without any charge, cost or expense to the DISTRICT for such services and/or work.
However, if the Forty Percent (40%) part, over the life of the Project, equals or is
greater than four percent (4%) of the Contractor’s Base Bid Price, then the
ARCHITECT shall bear responsibility for the cost of one hundred percent (100%) of
the cost, amount, and/or level of damage caused, in whole or in part, by such
omissions. Additionally, the ARCHITECT and ARCHITECT’S Consultants and SubConsultants shall provide and perform all services and work necessary to correct the
Construction Documents without any charge, cost or expense to the DISTRICT for
such services and/or work. The obligations established by this Article 7.8.1 B. are in
addition to, and cumulative of, the DISTRICT’S indemnity rights under this
Agreement.
Words Do Matter
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But people matter more …!
“The greatest contract and process
in the world is only as good as the
people involved.”
Make a difference!
Thank You
John and Greg
Bergman Dacey Goldsmith, PLC.
Offices in Orange and LA Counties
gbergman@bdgfirm.com
jdacey@bdgfirm.com