Construction Contracts
What You Need to Know
March 19, 2015
WHO WE ARE
 Kevin A. Delorey, Partner
– Quarles & Brady, LLP
 Charlie Kilander, CPCU, ARM
– Risk Management Account Specialist
– Integrated Risk Solutions, Inc.
2
WHO YOU ARE
 Industry Representation
 General Contractors vs. Subcontractors
3
AGENDA
 Contract Form Overview
 Contract Document Issues
 Indemnification Clauses
 Best Practices for Reviewing and Negotiating Contracts
 Questions!
4
SOMETHING TO THINK ABOUT
 How many of you enter into contracts in the course of your business?
 How many of you review each and every line, and each and every item
included in every contract?
 How many of you know your assumed exposure?
5
CONTRACT FORMS
 AIA
 ConsensusDOCS
 DBIA
 EJCDC
 Owner-Specific Forms
6
CONTRACT DOCUMENT
ISSUES
Sign a Complete Document
 Never sign an incomplete contract
 Fill in all blanks
 Attach all exhibits and schedules
7
CONTRACT DOCUMENT
ISSUES
Do not sign personally
 Always sign in a representative capacity
 Failure to do so can result in personal liability
8
CONTRACT DOCUMENT
ISSUES
WORDS MATTER!
Essential Terms
vs
"Boilerplate"
9
CONTRACT DOCUMENT
ISSUES
Standard of Care
 Is “average” good enough?
 What are owner’s expectations
 Will matter if claims arise
10
CONTRACT DOCUMENT
ISSUES
Payment Procedures
 Establish ground rules at the outset
 Follow the process
 Involve a third party (title company; construction monitor,
etc.)
 Lien waivers are a must (local law)
 Retainage (local law)
11
CONTRACT DOCUMENT
ISSUES
Insurance




12
Coverage – applicable?
Amounts
Insureds / Additional Insureds
Bonds
CONTRACT DOCUMENT
ISSUES
Change Management




13
When is a schedule/cost change justified
How is it documented
Time periods for claims
Continued performance during dispute
CONTRACT DOCUMENT
ISSUES
Substantial Completion




14
How defined
Who determines
What if delivery is late (LD’s?)
Punch list process
CONTRACT DOCUMENT
ISSUES
Warranties




15
Who gives
How long
Claims limitations
Reserve contract rights
CONTRACT DOCUMENT
ISSUES
Termination
 For cause/for convenience
 Compensation
 No unearned profits
16
CONTRACT DOCUMENT
ISSUES
Assignment
 Owner needs this right for
–
–
17
Future purchaser
Project lender
HOLD HARMLESS VS.
INDEMNIFY VS. DEFEND
 Hold Harmless
– To protect another against the risk of loss as well as actual loss
– Tends to be interpreted as “pay as expenses are incurred”
 Indemnify
– Reimburse for any damage
• Narrower than HH – no protection against the RISK of loss,
just actual loss
– Tends to be interpreted as “payment at final disposition”
 Defend
– Indemnitor has to supply defense attorney and actively be
involved in the defense of the matter
The above two amount to passive involvement (recoupment) matters,
defend means active participation
18
HOLD HARMLESS VS.
INDEMNIFY VS. DEFEND
 Does “Indemnify and Hold Harmless” include Defense?
– NO!
 If one party wants the other to defend them against claims and the
costs associated with it – this needs to be expressly stated
 Otherwise the provision only requires a recoupment or
reimbursement of the costs and damages after the initial party has
expended their own time and money
19
INDEMNIFICATION
AGREEMENTS
 Broad Form Agreement
– All of the risk of loss described in the contract is transferred to
the lower tier regardless of who is at fault for the loss
 Intermediate Form Agreement
– All of the risk of loss described in the contract is transferred to
the lower tier except when the loss is entirely the fault of the
higher tier
 Limited Form Agreement
– The lower tier is obligated to reimburse the higher tier for its
share of the liability of loss described in the contract.
20
INDEMNIFICATION
AGREEMENTS
 Example #1
To the fullest extent permitted by law, the Sub-contractor shall
defend, indemnify, and hold harmless the Contractor, its officers,
directors, employees, and agents from and against all actual or
alleged claims (including but not limited to property damage, bodily
injury, sickness, or disease), damages, losses, and expenses
(including but not limited to attorney, court, mediation, or
arbitration fees) arising out of, relating to, or connected in any way
to the performance of work described in this contract, whether or
not caused in part by the Contractor.
21
INDEMNIFICATION
AGREEMENTS
 Example #2
To the fullest extent permitted by law, the Sub-contractor shall
defend, indemnify, and hold harmless the Contractor, its officers,
directors, employees, and agents from and against all actual or
alleged claims (including but not limited to property damage, bodily
injury, sickness, or disease), damages, losses, and expenses
(including but not limited to attorney, court, mediation, or
arbitration fees) arising out of, relating to, or connected in any way
to the performance of work described in this contract, whether or
not caused in part by the Contractor, but only to the extent caused
by the acts, omissions, or liability of the Sub-contractor or others
providing services under this contract.
22
IMPACT TO INSURANCE
 Know what you are signing
 Make sure your insurance policies cover what you are agreeing to
 Certificate Issuance
 Blanket Waivers vs. Individual Waivers
– Blanket – where agreed to in an insurance contract
– Individual – needs to be endorsed to the policy
 Primary vs. Excess
– Does contract specify the party to be primary
– Does the contract specify insurance forms needed (CG 2010)
 Additional Insured Status
– Your policy will stand in the shoes of the additional insured
23
BEST PRACTICES
 Internal Review Process
– Who is reviewing the contracts?
– Who is authorized to sign contracts within your company?
– Are insurance requirements/coverages being reviewed?
 External Review Process
– Attorney
– Insurance Agent
– Insurance Carrier
24
CONSTRUCTION CONTRACTS
QUESTIONS???
25