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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.

Potential Settlement of a Chinese Drywall Case

Per today's Tampa Tribune Online: "A Miami-based supplier of tainted Chinese drywall agreed in a court filing today to a $55 million settlement of claims that the corrosive product damaged homes, all or nearly all of them in Florida. The proposed settlement, which requires approval from U.S. District Judge Eldon Fallon in New Orleans, would resolve claims by thousands of plaintiffs against Banner Supply Co., several related companies and Banner's insurers."   The full article can be found here.   As noted in the article, the deal still has to be approved by the court and until that happens all of this is tentative.  However, this may be a good step in these cases being resolved and homeowners being able to recoup some of their damages.  Obviously this is not the end of this legal chase as the parties making payment will be seeking to recover from the suppliers of the chinese drywall.  Although settlement of this one case...

Hurricane Season – Disaster Planning Webinar Q and A

As readers of this blog know, one June 1 we put on a webinar to begin preparations for hurricane season. The webinar is available here under the title Disaster Planning for the 2011 Hurrican Season: Are You Ready to Weather the Storm? for those who were unable to join us live. During the course of the webinar we received a number of questions we were unable to answer live due to time constraints. I have listed below some of those questions and the answers. For the sake of clarity and brevity some of the questions have been modified. As always, the below answers are not intended to be legal advice but solely informational.   Q- Can the Board of Directors of a Condominium Association forbid owners and/or guests from entering the property after a natural disaster.  A- Generally, for the Association to prohibit access to the condominium a governmental entity would have to declare the building or surrounding area to...