Send your Florida Notice to Owner in 60 Seconds.
And just like #1 above, it’s important to read this entire document, in detail, to avoid those issues you may be facing right now.
Read the entirety of the construction contract
Read the entirety of the construction contract, not just the payment structure, the completion deadline, and the scope of work. Even “legal boilerplate” matters! Failure to read a contract in its entirety could result in major complications down the line.
Don’t overlook the ghosts in the contract
One of the most overlooked provisions is what’s called incorporation by reference.
Why? Because it’s usually not a part of the received contract.
Contractors are so busy that they often don’t take the time to search for things referenced or incorporated or ask for them. But oftentimes, subcontracts will reference and incorporate the prime contract as well as additional documents.
Why does that matter?
Because if that’s the case, the prime contract and other documents will automatically be incorporated into yours. And if you’re unaware of this, your legal duties and responsibilities will be different from the ones you’re expecting. This could land you in a tricky spot.
For example, say a contract between an owner and contractor requires the contractor to provide monthly as-builts. If that contract is incorporated into yours and you haven’t been preparing as-builts, you won’t get paid.
What happens to a subcontractor who fails to ask about incorporations by reference and doesn’t know about this or many other requirements that flow down? The subcontractor will not meet these obligations and will surely pay a price for it.
There may be all sorts of such provisions and they’re done in various ways – incorporated, and sometimes hidden.
You have a right to request the prime contract and other documents which may be incorporated. Be sure to request and review them.
Don’t chalk the rest of the contract up to “legal boilerplate”.
Legal boilerplate is a term for standard information that can be dropped repeatedly into a variety of content, like contracts. It refers to standardized text or legal forms that are used over again without making significant changes to the original.
These clauses are generally considered miscellaneous provisions, but this is a dangerous view to adopt. Since a boilerplate clause will deal with issues like the validity and enforcement of a provision, attorney’s fees rights, indemnity obligations, and many other things, they can have a serious impact on the contract as a whole.
It’s imperative that you don’t gloss over what you consider “legal boilerplate” because it is often highly customized to hurt you. Take the time to read it closely.
Take these basics into consideration the next time you’re reviewing a contract. It will protect you and the ones you hire. Each of these basics are discussed in further detail below.
Hidden Traps in Construction Contracts
While some in the construction industry today, including Zinzow Law, strictly adhere to traditional guiding principles of honesty, integrity and fair play, there are many who do not.
The written contract was borne many years ago as a creature of necessity. Prime contracts, subcontracts, material supply contracts, purchase orders, and the like, are no longer the exception; they are the rule.
These contracts range from simple to elaborate, and from less than ten pages to hundreds of pages, but they all have one thing in common. They must be read and understood.
The keys to success are many but focusing your efforts in three areas will prove immensely valuable.
These areas are:
(1) contract review technique (Read Everything),
(2) expecting the unexpected (Look for Ghosts), and
(3) identifying common clauses or concepts of significance (Nothing is Boilerplate).
1. Contract Review Technique
Read Everything. Technique is as important, if not more so, than the other two focus areas. Without technique, there will be a guitar and sheet music but no sound, or important contract clauses and concepts that will go unnoticed.
Contract review technique must start with blocking focus time. Contracts are complex. Pages must be cross-referenced, read, and re-read. If you allow yourself to be interrupted during review, you will overlook, misunderstand, or forget major concepts.
Print the contract and review it in hard copy form (even if you are a paperless office). Statistics have proven that even a trained eye catches more issues and has better comprehension reviewing a document in hard copy form than in electronic form.
Lawyers write and review contracts every day with success, so mimic their success by borrowing some of the tools of their trade. Think of tools as implements, or an extension of the brain. One such important implement is a review checklist. If you do not have one, or your checklist is outdated, attend a contract review seminar taught by an expert where you might procure a reputable one, or seek out construction counsel.
When studying the contract as a whole and against the checklist, use highlighters, colored pens, sticky notes, and the like. Highlight important areas. Write comments in the margins. Use sticky notes to help you easily cross reference. If your office workflow design commands that you do not print, then use comparable electronic implements (word processor or PDF comment and highlight tools, bookmark or hyperlink tools, etc.).
Make sure you review all relevant documents. Many contracts use the term “contract documents.” Some define that term, others do not. If the term is defined, be sure you print each of the referenced documents and review them. If the term is not defined, think about what documents may be relevant, such as proposals, plans, specifications, upstream contracts, downstream contracts, exhibits, and warranty documents. Print and review them.
More often than not, the contract documents must be read as a whole. When read as a whole they may have a drastically different legal meaning than when read individually. When read as a whole they may often conflict. Conflicts must be identified and resolved.
During your study take note of who drafted the contract documents. Contract documents come in two forms:
One is no less risky than the other, but you must recognize the distinctions and adjust your review approach.
Industry standard forms have different slants, and these documents each have a specific intended purpose for a particular project or risk (e.g. small project residential, complex commercial, non-complex commercial, industrial, etc.). They also contemplate a particular project delivery method (construction management at risk, construction management not at risk, cost plus fee, cost plus fee with a guaranteed maximum price, fixed price, etc.).
The AIA-American Institute of Architects documents, for example, are generally slanted toward the architect first, the owner second, and contractors third.
ConsensusDocs® documents are typically more neutral.
These standard forms have their benefits, but they also come with many drawbacks. Among those are that you must use the right contract forms for the right project and delivery method (while selection guides exist, contractors often either select the wrong forms, or are presented with the wrong forms), and must catch, delete, revise, and add language that is appropriate for the project at hand.
Be careful to confirm by your-own study whether the standard form has been modified. Both AIA and ConsensusDocs®, for example, create their templates in a manner designed to show where deletions, revisions, and additions are made, either by a mark in the margin or some other notation.
Do not rely upon these features, as they cannot be trusted.
These templates are often re-drafted outside of the AIA and ConsensusDocs® tools in a manner that destroys this tracking. Some authors do this with sinister intent to conceal changes; others do it to avoid paying licensing fees. Either way you will be the victim if you do not read the contract documents carefully.
Private contract documents can range from fair to patently unfair, and there is nothing standard about them. Even so-called boilerplate is different between one contract and the next. A different word here or there, and even punctuation placement differences can transform a mild clause into a wild one. Numbering schemes, organization, and overall structural approach may be different too, so make no assumptions about where to find things in the contract documents.
It is appropriate to start your review with sections on price and time, and then shift to the remainder of the contract documents. Where possible, read the contract documents entirely through before reaching any preliminary conclusions, and then read them again to make annotations for your further consideration and to determine if review by construction counsel is appropriate. Last but not least, review the contract documents with a crystal ball. Imagine where things can go wrong on your project and why, and then determine how or if the contract documents address those particular challenges.
2. Look for Ghosts.
Construction contracts can be quite elaborate. They must be read carefully, and in their entirety to find what may be hidden in plain sight.
Contract documents never exist in a vacuum. They are layered atop of the real-life activities, risks, and potential rewards of a construction project. Contracts are designed, when they are created well, to address every conceivable activity, risk, and potential reward that you may encounter on a construction project and dictate what the outcome will be under each particular circumstance.
It is therefore necessary when reviewing a contract that you take the crystal ball approach to find what may be hidden in plain sight. Sentences in a contract must be read in contemplation of some future issue. If read without context, the sentence can, and often will, take on a completely different meaning to the reader, obscuring risks and outcomes.
Context, however, is not the only reason it is important to expect the unexpected while reviewing a construction contract.
You must also expect the unexpected to avoid overlooking important terms, conditions, or restrictions that may be hidden in plain sight. Whether a privately customized contract, or an industry standard form, today’s contracts often contain tables of contents, a numbering scheme, and headings for various sections in the contract.
Observe these with a healthy distrust. Not every contract drafter intentionally obscures important clauses, though some do. Others, by accident, or imprecision, include clauses which should be contained in one location in a completely different section, either as an afterthought, or because they were not careful when crafting the contract document. Still others place the clauses right where they should be, but those clauses necessarily interplay with clauses in other sections.
Interrelated clauses, even if under separate headings, must be read and interpreted together.
On many occasions contractors will endeavor to slant things in their favor by insisting that their proposal be made an exhibit to the contract. Feeling safe through their attached proposal, they often overlook important provisions within the body of the contract.
Consider the following example:
Exhibit B to the contract lists various specifications and other documents. You have asked that Exhibit B be revised to add your proposal, thinking that makes the proposal part of the contract and will control your obligations.
Your proposal attached to the contract specifies a level 3 drywall finish. However, concealed within the often-overlooked definitions section of the contract is a provision indicating that proposals and other submittals by the contractor are not part of the contract documents.
You might say to yourself at this point, “but my proposal was actually attached, so that overrides the provision in the definitions”. It might just do that, but for another clause hidden in plain sight in a different section which indicates that where there is an internal conflict between the contract documents, the exhibits do not control.
When these provisions are all read and interpreted together, your level 3 finish is out the door, and the level 5 finish specified in a “project manual” referenced in the contract is in.
Having reached this point in the Guide, you may be thinking that a careful reading of the body of the construction contract will save you, but not so fast. Terms, conditions, and restrictions can be hidden in other, less obvious places.
Hidden Terms and Conditions
In industrial construction, for example, the body of the contract itself may be innocuous enough. However, the total set of contract documents often includes specifications spanning into the thousands of pages.
When most think of specifications, they think of engineering details and materials lists. In their purest form, specifications are just that. However, plans and specifications often contain additional written terms, regularly hidden in plain sight, that have a significant impact on the contractor.
Some specifications, for example, include procedures and schedules for dispute resolution. Contractors will often skim over dispute resolution clauses, leaving those to the lawyers should a matter need to proceed to litigation or arbitration. However, those clauses often impose during construction claim deadlines and claim deliverable requirements that must be met to later have a legal right to pursue litigation or arbitration. These requirements can include, for example
Overlooking contract terms hidden in specifications or other contract documents can cost you millions. Your time is precious, so you may rationalize these risks to your company as merely theoretical.
You may choose not to spend the time to look for what may be hidden in plain sight but doing so brings considerable risk. The legal professionals at Zinzow Law have won disputes over a single clause.
3. Nothing is Boilerplate
Contractors should know that today’s “boilerplate” is no longer really boilerplate and therefore poses considerable risk if ignored.
Classic boilerplate was all purpose language that was typically non-negotiable, and which was standardized across many contract documents. Very little contract language today is standardized, but rather, it is highly customized by its author to protect one party over another.
Pay particular attention to incorporations and flow down provisions.
The prime contractor and the owner have a contract. Oftentimes, subcontracts and material supply contracts will incorporate the prime contract by reference, or otherwise “flow down” portions of the prime contract.
Why should you care?
Because your duties and rights may be governed by contract language that you will be completely unaware of if you speed read over these provisions. Be on the look-out for buzz words such as:
You have a right to request the prime contract or other contracts and documents which are incorporated by reference or which flow down provisions into your contract documents. Request and review them.
Make sure you understand how they impact your contract and determine whether you must or should include similar flow down or incorporation provisions in any sub-subcontracts or material supply contracts you may enter into for the project.
Know what form lien releases are required.
This may seem innocuous at first blush but overlooking this type of contract requirement can cost you. Experienced contractors know that Florida Law prescribes the form and content of lien releases (conditional and unconditional progress and final). Many contractors do not know that they can be contractually required to provide something different or more enhanced than what Florida Law prescribes. Typical contract provisions require lien releases to include affidavit language, under penalty of perjury, concerning the payment of sub-subcontractors and material suppliers, completion of work, and other items. If you are required to provide more than the statutorily required forms, you will need to think about whether to require the same in your sub-subcontracts and material supply contracts. Failure to provide contractually required forms is a common reason to delay or deny release of a progress or final payment.
Look for pay if paid provisions.
Not all conditional payment clauses are alike. Keep your eye out for buzz words like “pay . . . only after . . . first received payment from ____ ,” “acceptance of work and payment to ____ are a condition precedent to the obligation to pay,” or clauses of similar import.
Some mean you do not get paid if your customer does not get paid. Others merely control the timing of payment. Know what yours means, but even more importantly, make sure you have appropriate conditional payment provisions in your sub-subcontracts and material supply contracts, so you are not stuck advancing large sums of money you have not yet received.
Do not overlook termination for convenience provisions.
Why? Because if your customer terminates you for convenience, your right to payment is not the balance of your contract.
Your right to payment is governed by that convenience provision and is often merely payment for work already performed plus a pre-determined profit percentage on that work. Upon termination for convenience, you stop work and receive your nominal termination for convenience payment.
You notify your sub-subcontractors and material suppliers that they can stop work too. But if you do not have your-own appropriate termination for convenience provision in your sub-subcontracts and material supply contracts you are at risk for breaching those agreements and may have to pay those sub-subcontractors and material suppliers the balance of their contracts, not some limited termination for convenience price.
Do not let your eyes glaze over what you might consider “legal boilerplate.”
Not all “boilerplate” is made alike. Today, virtually nothing is one size fits all boilerplate. Following are just a few oft overlooked “boilerplate” provisions that have real consequences.
Notice provisions
How does the contract require notices to be delivered?
Via certified mail, return receipt requested, overnight courier, or something else? In the electronic age most communications are exchanged via email. But this may be legally insufficient to preserve or assert rights.
To whom must these communications go? To a project manager? Your customer’s owner? Many provisions require that notices be sent to numerous companies and individuals. Failure to send notices to all required parties at the correct location can cause a loss of rights, be they to change orders, schedule, conflicts, or something else.
In the event of an unresolvable dispute, does the contract mandate arbitration or litigation? While no contractor wants to think about such things, you will kick yourself for not spending a few minutes on it if you receive a demand for arbitration from your customer, only to realize that your subcontractor is to blame for the problem, and you never took the time to include in your subcontract a similar arbitration requirement.
Now you cannot bring your subcontractor into the arbitration with you, and must fight in two different forums, essentially doubling your legal costs. You must also be weary of paragraphs bearing titles like: “other provisions” or “miscellaneous.”
These titles are used to lull you into a false sense of safety, thinking these sections contain nothing more than industry standard boilerplate. Nothing could be further from the truth.
We have seen contracts with conditions precedent to payment buried in a section of the contract titled “other provisions.” Those “other provisions” started with paragraph upon paragraph of language contractors often skip over as “boilerplate.” Deep in the center of that section was a single sentence that drastically shifted the risk of payment. Don’t be the one who glosses over what some consider “boilerplate.”
Provide your insurance agent with a copy of the contract documents
Or at least those provisions which discuss insurance and indemnity obligations.
Why? Because not all insurance is made alike.
Further, even the best policy for a particular job may not be the best policy for other jobs. Your insurance agent can explain what riders, endorsements, or other policies may be helpful for a particular project. Your agent can also explain what your policy covers and what it does not.
For example, you can learn about what the “your work” exclusion in your present commercial general liability policy means for a particular project (Surprise, many standard form insurance policies or endorsements provide no insurance for your-own allegedly defective work, and possibly even the defective work of your subcontractors) and whether you need a different policy or endorsement to provide more enhanced coverage.
Further, you can learn whether your insurance policy contains an “insured contracts” provision, and whether that provision insures one or more of your indemnity obligations under the contract. Your agent can also inform you whether your insurer will consent to a waiver of subrogation (a requirement of many construction contracts) or whether the policy already expressly allows the insured to unilaterally waive subrogation on behalf of its insurer.
Your agent can also discuss with you whether notice to third parties (such as the general contractor or project owner) of cancellation or modification of insurance is actually achievable with the standard form policy you have. Understanding how contract language dovetails with insurance is important for insurance coverage and risk mitigation reasons, but also to make sure your customer does not declare you in breach or otherwise use an insurance problem or requirement not met to hold up a progress or final payment.
These things happen every day.
Applying these concepts will pay big dividends in either helping you avoid a fight, or if a fight is necessary, poising you and your legal counsel for the win so that you can reap your just rewards for Building America.
DISCLAIMER:
The forgoing is intended for general education purposes only, and is not intended as legal or other advice or given for the purpose of seeking legal employment.
It is recommended that you consult with a bord-certified construction attorney about your particular situation.