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Construction Law Authority / Contracts (Page 3)


Sometimes the law isn't as you would expect. In fact, sometimes the law can dictate a result that you think is unfair. Therefore, it is always best to have someone research what the law is, instead of assuming it says what you think would be fair. As an example, some might find the law regarding the recoverability of home office overhead damages counterintuitive....

Construction Contracting for the Owner – Essential Terms of construction contracts

I wanted to address key terms for any contruction contract.  Although some of these may seem mind numbingly obvious, I have seen contracts over the years that failed to address very critical points. 1. Scope of Work - What are you trying to get done?  For more detail go here. 2. Contract Price - What is the price and how do we determine that? It depends on the type of contract.  Does the price include permitting, bonding or additional insurance? 3. Start Date and End Date - When do you want the work to start? When should it be completed? 4. Insurance - How much and who has to carry it? 5. Indeminfication - Who has to hold who harmless?   6. Dispute Resolution - Are you agreeing to arbitration or litigation in the case of a dispute?  Which disputes are subject to these provisions? What jurisdiction will these disputes be resolved in? Does the prevailing party get their legal fees back?...

Construction Contracting for the Owner – Types of contracts

There are several types of contracts which are used in between owners and contractors. The primary ones are lump sum contracts, unit price contracts, time and materials, construction manager and design-build.

Lump Sum:

A lump sum contract is the most basic agreement between a contractor and owner. The contractor agrees to provide specified services for a specific price. The owner agrees to pay the price upon completion of the work or according to an agreed payment schedule. T lump sum includes the costs of labor and materials and the contractor’s overhead and profit. The benefits of a lump sum contract for the owner are primarily that the costs are known at the outset of the project and the contractor has the risk if additional materials or time is needed.


Unit Price:

In a unit price contract a fixed price is established for each unit of work. A common example for condominium associations is a unit price for cubic feet of concrete repair on a balcony renovation project. This is useful as the price is set for the that unit of work.  Like a lump sum contract, the contractor is paid an agreed upon price, regardless of the actual cost to do the work. Unlike a lump sum contract the agreed upon price is usually for a small component of the work and not the entire project so the final cost may not be known at outset since the contract quantities at bid time are only estimates. Any contract for cost plus should require the contractor to keep careful records so as to be able to show quantities.


Time and Materials:

In a time and materials contract the contractor charges an hourly rate for labor, and there can be a certain percentage added to the materials and labor for profit. The perceived benefit for the owner is that they are not paying for any fluff that a contractor may build into the lump sum, and contractors are ensured that they will a fair profit. However, this contract shifts the price risks completely from the contractor to the owner. In the absence of checks and balances for the types of materials used and the actual time spent, including a guaranteed maximum price the owner could be giving the contractor a blank check.

Construction Contracting for the Owner – Scope of Work

It is an easy enough question, what is the scope of your project? For example it may be simply to reroof the building. However, what materials should be used, what will be done with damaged plywood decking, does the existing roof need to be pulled off or can it be roofed over? These are all basic questions that need to be addressed from what appeared to be a simple question. As the owner, the scope is very important for purposes of knowing what your expectations are and that the contractor understands those expectations.  The scope will also impact the price. In our reroof example, what is the contractor doing with the air conditioner stands on the flat roof? Are they being removed and put back, or the being removed and new ones put in? Can the work be done with the air conditioning units in place?  Whether a reroof or any construction work...

Construction Contracting for the Owner: The Owner – Contractor Relationship

   In choosing a Contractor, often the Owner chooses a Contractor through a bidding process. Sometimes the Owner engages a Contractor on their own.  However the Contractor is contracted it is important to spell out the details of the terms. Courts will not protect an Owner from a bad deal that the Owner has voluntarily entered. This means that those multimillion dollar one page contracts floating around (I have seen a number of them over the years) will be enforced by a court if the Owner does not live up to the terms, no matter how one sided. In the bidding process, the Owner, with the help of the Design Professional, sends out a bid packet to various contractors and invites them to bid on the project.  The Owner and Design Professional then evaluate the bids and review the responsiveness of the bid, the responsibleness of the bids (is the bidder lowballing now in hopes of issuing...

Construction Contracting for the Owner: The Owner – Design Professional Relationship

Once the owner has decided to undertake a project they generally retain the services of a design professional. The design professional is the engineer or architect hired by the owner to be used at various points throughout the project. General discussions between the owner and design professional should include the owner’s expectations of the projects, budgets, specific materials which need to be used or special considerations about the project. In both renovations and new construction these discussions would also include aesthetic considerations.  Although all these discussions may happen, the scope of the design professional’s relationship with the owner is that which is spelled out in the contract between the owner and design professionals. An owner in retaining the design professional needs to define his expectations of the design professional, and those expectations should be reduced to a written contract. As an owner, if you want the design professional to provide contract administration then you must ask...