Change Orders and COVID-19: Know Your Rights and Protect Your Business

COVID-19 has changed the way we all do business. In these unprecedented times, dealing effectively with unforeseen issues as they arise is essential to keeping your business profitable.

In this free webinar led by Construction Attorney Joe Katz,  subcontractors, GCs, and government contractors will learn important steps to leverage their rights and protect their business.

What we’ll cover:

• How to handle COVID-related delays including pricing fluctuations, non-payment and sick personnel
• Key contract clauses and notice requirements
• What constitutes “emergency work?”

 

Transcript

 

Seth Bloom: (00:12)

My name’s Seth Bloom, I’m senior director of attorney services at Levelset here in New Orleans. I’m excited to present another great webinar today from one of our attorney network lawyers. That’s Joe Katz. Today’s webinar will be on how subcontractors can avoid risk and the potential for costly lawsuits. Um, Joe Katz is with Katz’ law and that’s in the greater DC area. He’s a construction lawyer. So without further ado, I will turn it over to Joe. If you have any questions, uh, just post your questions during the presentation. We’ll also save a few minutes for the end and of course you can always post them on the attorneys network, a Q&A section. So thank you so much for doing this today, Joe, we look forward to it.

 

Joe Katz: (01:47)

Thank you, Seth. And uh, everybody else at Levelset, Catherine and Garret and, uh, all the other people behind the scenes Levelset really has been a, an important resource for contractors and subcontractors during this, uh, really new, new era for everybody owners, GCs, subcontractors, that like nobody’s really faced, uh, construction during a, an ongoing pandemic, uh, before, at least not in our lifetime. Thank you also, uh, it’s my assistant Dylan Shane for again, a terrific work in really setting up the technology and the, and the graphics for this webinar. So let me, let me just, uh, first begin with what I’m not going to be covering today, which is really kind of beyond the scope of this webinar webinar. Um, one thing I don’t really practice is employment law. So certainly the carers act on a national level and many States have enacted, uh, state specific legislation, which governs, uh, employment law for the COVID-19 era, which includes firing, you know, can you, can you fire an employee for a, just because you don’t have to work during the pandemic, can you fire them for not working for not, we’re not wanting to come in or go to work?

 

Joe Katz: (03:18)

Uh, can you, can you terminate somebody because they’re dealing with somebody that’s either been quarantined in the house or even school in requirements almost, uh, across the country, public schools have resorted to virtual schooling, which means that anybody with school aged children needs to either be home themselves or, uh, take care of, of childcare, or even if for the most part it’s taken care of. There’s, there’s definitely emergency situations where coverage is needed. So, so an employee that’s excessively missing, et cetera. Um, and then conversely employee rights that that’s all, all that, that whole topic is beyond really, uh, my scope and the scope of this webinar. The other, uh, aspect that I’m really specifically not covering is, again, the cares act as it relates to financial type of financial and tax related incentives or different, you know, the PPP loan, or now it’s really, everybody’s focusing on PPP, forgiveness, um, idol loans, uh, other kinds of national right federal or state incentives on account of, or, or aid or assistance on account of the pandemic.

 

Joe Katz: (04:41)

Again, that’s something that is not really in my wheelhouse and not something that I’m covering in this webinar. What I do is construction litigation. So typically, um, while many of my clients will consult me, uh, slightly when in an ongoing situation, um, for the most part, much of my, uh, the bread and butter of what I do is litigation. So dealing with problems that have accrued two, three years ago, you know, one to two, if it’s a, if it’s a mechanics lien, it’s, it’s, uh, less than that, but a payment bond will often be about a year prior. Other litigation will be two to three years prior. Uh, and that’s the situation we’re litigating. So from my viewpoint, COVID-19 the era, the era of COVID-19 in terms of the changes and the, the claims that will come out of COVID-19 for the most part is still, unfortunately is still an unknown we’re we’re just recently getting, uh, rulings from trial level courts on a lot of insurance related claims, um, from my, from, from, you know, what I’m getting across the wire here on various CLS or other legal news wires, unfortunately for the most part is, uh, the denial of claims for COVID-19, uh, from, from an insurance perspective often because the insurance companies have riders or really exclusions that exclude a health or pandemic related epidemic pandemic related, um, occurrences.

 

Joe Katz: (06:32)

Now, again, remember that the, the situations that get to court is when in this case, an insurance companies covered was challenged by the insurance company, citing some sort of exclusion for a pandemic or, or a health related situation. If many, many companies might have had riders that covered that, and therefore there was no litigation they were covered and that issue didn’t reach, didn’t reach the courts. So court rulings, and it’s also appeals have not yet really had any time to develop an appeal. Normally it takes about a year to make its way through the appeals court, to a ruling on the appeal. So in terms of the legal world, we are still catching up. We always will, we’ll be catching up to problems about a year or two out. Um, but that being said, all that being said, there is still a lot that can be done a lot that that needs to be known a lot that can be done both for current contracts and future contracts. And that’s really the topic of today’s webinar. We named the change orders to, to really be able to drive home that this is a, you know, your mid contract COVID-19 has hit and now impacted your project. That is that’s the perfect groundwork for a change order. And that’s what really what we’re covering today.

 

Joe Katz:: (08:10)

Okay. So everybody knows, you know, mid-March certainly by April construction, like almost every industry across the country, uh, took it off know ground almost to, uh, to a complete halt. Um, many state, many States had some sort of exception for construction as being an essential service that can continue, but even so the office oftentimes had to be, uh, you know, people that were working from home. And, uh, there was really a disruption in April, even if you a state said, um, you know, construction remains essential and ongoing. I know I experienced for my clients, uh, you know, March and April real slowdowns as, as kind of everything was sinking in as to, as to how this is going to be developing in the coming weeks and months. Um, now if you look here at my second bullet point here by September, uh, jobs are coming back, um, but there’s still, you know, about, about a third of the, of the, uh, jobs that were lost or remain unfilled causing a labor shortage as everybody is probably aware and sharp increase in prices I have here that, uh, lumber prices increased 30% in September.

 

Joe Katz: (09:36)

I think from, from what I’m hearing from clients overall, lumber has nearly doubled in price. Uh, you know, from this time last year for pre pandemic last year. Now a lot of that, um, a lot of that apparently is related to a bump in residential construction because of the historically low interest rates. We’re we’re, we’re seeing. Uh, but regardless, uh, work that maybe was, was, was under contract, but not yet performed to the extent and evolve lumber steel, concrete, those prices have shot up significantly and certainly can affect trade contractors bottom line. This is an area that would be ripe for a change moving forward contracts that are being signed this week next week, next month, if COVID 19 has taught us anything, I think it’s that things can change on a dime prices. You know, if there’s a second wave, there could be shutdowns again, increased labor shortages, even even increased, greater increases in prices. And the way to kind of, um, plan for the future is really now inside of our contracts and our subcontracts.

 

Joe Katz: (11:14)

All right. And that’s kind of what I was just talking about. So both repurposing staff standard contracts for the most part are standardized. You know, we’ve got the AIA, the American Institute of architects, suite of documents. We’ve got, uh, consensus docs. Uh, of course the federal government not only is the, is, or the contract clauses standardized and actually in the far, uh, interpretation is for the most part, uh, standardized across the, across the spectrum of litigation, uh, has built a body of law that interprets the government contract clauses pretty uniformly. And, but beyond that, beyond what we call an actual standardized contracts, even a contractor or an owner that doesn’t use one of the, one of the actually standardized contracts for the most part, um, internally they’ve got a standard contract that all the trade contractors, uh, have to sign. We’ll talk as, as we go a little bit deeper, we’ll talk about modifications that could and should be made by trade contractors to these GC standard contracts.

 

Joe Katz: (12:28)

Um, but remember, we’ve, everybody’s working within a space of standard contract terms. They they’ll differ slightly, but for the most part, everybody knows change order is different site conditions, delays, suspensions, all these things have been in construction contracts for, for decades. Uh, now not necessarily anticipating a worldwide pandemic and, uh, those effects now that we’re living yet, we can repurpose the contract clauses that we’re already dealing with. Look at them with COVID glasses, to see how they can help us, how they can recoup some of our losses throughout let’s remember that. Whereas, whereas the president announced the national emergency, whereas governors across the country have signed executive orders for whether it’s stay at home orders or other orders that, that limit, uh, what can, what can occur timely performance if your contract is, is for the most part, still an album, an obligation of a contractor and a trade contractor pending, whatever else is going on.

 

Joe Katz: (13:58)

So if, if we’re talking about, um, claims for payment, right, your GC should still pay you if that timeframe has arrived, regardless of whether the works, the kind of contractor installed, he’s been paid by the owner, et cetera, et cetera. Uh, so a claim for payments should still be made and performance unless it’s been halted, um, still on some level needs to either occur. And if it can occur, they’ll take us into what I think is our next slide. Well, it’s not, but as a little bit later on, we’re going to talk about what do you do if you’ve been in it or next slide, if you’ve been delayed, how do you account for that delay and how do you, how do you, uh, raise your hand and say know COVID-19 is impacting my ability to complete my work on under my schedule force majeure clause is a force majeure clause basically says some outside force, some outside situation, not my fault of the contractor or the trade contractor is preventing my performance of this contract of this work.

 

Joe Katz: (15:17)

And many contracts will have a force majeure clause. Many will not even if the contract does have a force majeure clause. What we do see coming through the courts now is if it addresses a pandemic, if it addresses a national emergency, for the most part COVID-19 will fall into those categories. If it gives samples of what it addresses such as acts of terrorism, acts of war national, uh, natural disasters or acts of God, uh, and it does not include specifically a pandemic or a national emergency. So then there’ll be some, some question, well, you know, is, is COVID-19 an act of God or not. Um, many will have. And that goes to, that goes to my first bullet point here, catch all language, anything outside of either party’s control. Yeah, yeah, yeah. I believe it does have that language. So for the most part COVID-19 can be covered when there is a catchall When it’s too, when it’s too, when the forest majority language is too narrow, courts are saying that, you know, they’ve spelled out for situations, terrorism, natural, the, you know, weather related disasters, uh, war and something else, and not a pandemic or another health situation. And courts will exclude this situation from a force majeure, right? To, to time extension often a force majeure clause will also allow for termination. Um, but again, it’s, it, everything needs to be looked at in terms of whether, whether the COVID-19 situation can be included.

 

Joe Katz: (17:20)

Um, this is what we were just talked about. Does the, does it clause only give you a time extension or does it also give you increased costs? Time? Extension is good on its own, which means that you can no longer be held liable for the failure to reach your schedule on time. Th th those amounts could be catastrophic. If you think about you think about, um, university or college housing. And if goal was to have construction complete step, this housing can be leased up to students in July and August in advance of the start of the school year, the college year in September. And now those, those timelines have gone by construction’s delayed. It can’t be shown and it’s not even done. So, you know, certainly it can’t be leased up and filled before the start of the school year, that owner, that developer can make a claim for millions in losses, from a year’s entire year’s worth of, of lost, uh, lost use is what it’s called.

 

Seth Bloom: (18:23)

No, I just wanted to jump in for a second. And again, we have a pretty big room full of people. So I just want to encourage people to ask any questions if you have them and why they get to them during the presentation or right after everyone’s been a little quiet today. So thanks. Joe continues. Sorry for the interruption.

 

Joe Katz: (18:38)

No, thank you, staff. And, and, you know, I, I w I welcome questions both, cause it kind of breaks up the monotony and it’s a challenge that I’m happy to take on.

 

Joe Katz: (18:53)

Okay. So an AIA contract, uh, you know, that clause is there. I’ve got that up on the next slide, uh, government contracts, and we’re going to have that up as well. Consensus docs. I couldn’t get a, I couldn’t find a consensus docs provision to put up there for you. And I’m not sure how widely used content’s is docs are versus the AIA. There’s the AA clause. And it’s got, um, it doesn’t, if I remember correctly, it does not call out. It’s got labor disputes. These are what would title a contractor. It’s an extension of time. We’ve got labor disputes, fire delivery, delays, casualties, adverse weather. So, so far COFA hasn’t, you know, isn’t any of those. Um, but we’ve got here, the catchall phrase or other causes beyond the contractor’s control. So certainly, uh, national shutdowns or statewide shutdowns of work, or simply not necessarily even if construction in your state is essential and is going on if your access to labor because of the, because of the pandemic is, is still made.

 

Joe Katz: (20:07)

Um, then that should certainly be covered by the AA clause. Uh, the, this is only a time extension. The, I do believe that, uh, I don’t have it here, but I believe 8.3 0.333 sections down. Uh, the AIA does, uh, does indicate that this doesn’t affect delay claims for costs, meaning that if the contract otherwise allows for it, then, uh, then excess costs can also be sought. This is the far clause. This is for government federal government work of the prime contractor and for the subcontractors. And you’ll notice over there. Uh, I don’t remember a five includes epidemic and item number six includes quarantine restrictions. Uh, and this is really, this is kind of a golden anybody working on a federal job, uh, that’s been impacted with this just as a, as a frame of reference. This far clause talks about excusable delays, meaning this is not something that a contractor or a subcontractor can be held liable for.

 

Joe Katz: (21:20)

If they can’t meet the construction schedule that would be epidemics or, or quarantine restrictions, it itself does not entitle a contractor or a subcontractor to a do it to additional funds because of increased costs, arising from an epidemic quality and restrictions restrictions. But because it’s because it’s by law, by federal law considered an excusable delay. So at the, at the time that work is, is, um, restricted on a count of COVID-19, whether by a stay at home order or any other restriction, um, there’s, you know, I know, you know, clients of mine have, have challenged, have sought extra costs as either a change or a constructive change to the requirements of, of construction of performance have changed because of, um, distancing requirements because of, um, access to, to the work. So,

 

Seth Bloom:(22:28)

Joey, we do have a question coming in not to cut you off it’s from one of our attendees. Typically we see contracts that limit bind subcontractors relief to the relief that GCs received from the owner in that dynamic. If the GC absorbs the COVID-19 costs, subs are expected to absorb the cost to how do you force the GC to pay you for these pandemic cost impacts regardless of whether they get paid by the owner.

 

Joe Katz: (22:58)

Okay. So that’s a great, that’s a great question. And I would point out that, yeah, it’s absolutely true that many contracts, many, um, will have what’s called a flow down clause that says, you know, whatever, really, if we achieve from the owner, uh, prorata extends to you as well. Um, remember though that for the most part, whether it, whether in that specific clause you’re, you’re, you’re, this questioner is referring to or elsewhere, uh, within the contract, it’s, it’s generally gonna be flow down and flow up, you know, pass through in the sense of claims from a sub can, can be passed up the, through the GC

 

Joe Katz: (23:46)

To the owner. So if you’re getting, um, you know, the short end of the stick, meaning the GC is passing on an owner refusal to recognize, or, or, or a GC discission to absorb, absorb excess covert costs. And it’s not passing up your change order, your, your PCO or change order requests for additional funds on an account of COVID-19. Then that’s a breach, that’s typically a breach of the GCs obligation. Um, so it, you know, if you, if you, one way to think of it is a flow down, I have noticed that GCs have often taken, um, the word writes out, but for the most part, certainly 10, 15 years ago, the clause always said that the subcontractor has all the rights and responsibilities that the general contractor has to the owner. So responsibilities, we’re all familiar with, you know, you’ve got to, you’ve got to comply, uh, in your subcontract to whatever the prime has agreed to do for the owner.

 

Joe Katz: (24:54)

Rights is a, is a, is a word that has a lot of import. That means that every right, that the GC has in terms of going after the owner for additional time, additional costs is also a right, the sub has against the GC. So to answer the question directly, if your GC has decided to absorb COVID-19 costs from the owner, that’s not something without your agreement to do that. And you’ve sent up a notice or a, or a PCO for those costs. That should not be that that’s a decision that the, that the GC now owns and has to address it with you, that the trade contractor, and if there are increased costs, uh, should, should, should be liable for them.

 

Speaker 1: (25:43)

Joe, there was another one. And I think you answered a lot of the questions with this one, but I want the person to have an opportunity to ask it, um, what a trade contractor, for example, a framing contractor, be able to charge the client or the homeowner for the increase in lumber that’s happened recently, if the increase led to the contract amount to go over specifically when it came to the amount of what was charged and materials, for example, lumber.

 

Joe Katz:

Right? So that, that, that’s a great question. Uh, that’s exactly what we’re talking about. And the answer to that typically tell me against that that was a, that was a trade contractor or a, or a, or a prime.

 

Seth Bloom: (26:22)

It was a trade contractor. So he example of a framing contractor. So it was an anonymous person. So I’m gonna assume it’s a framing contractor.

 

Joe Katz: (26:31)

Okay. So it’s a framing contractor, who’s apparently on your contract with, uh, with the JC to build a house or a whole development of houses. Um, and that’s exactly, that’s exactly, uh, you know, this, this question has hit the nail on the head in terms of this entire presentation is, uh, is to, to find in your contract where you can make someone else pay that bill. So you don’t have to pay that, you know, a hundred percent increase at double a doubling in price of lumber because of COVID-19, um, you know, your contract likely doesn’t say, Oh, and by the way, you know, if there’s a, if there’s a national pandemic that raises the cost of lumber by a hundred percent, then I can get a change order for it. Uh, likely it doesn’t say that right. Straight up like that. So it’s, my job would be my job as your lawyer to find within your contract where we can recoup that extra cost. And that’s exactly what we’re talking about. Things like, um, things like changes, right? Change order clauses for a four okay. Unforeseeable situations. Mmm. Okay. You know, the, the concept here would be to say that, uh, we’re going to get into change orders right now. We’re just talking about delay and how you should, you, you won’t, you certainly won’t be held to a delay for that, an unforeseeable, uh, situation of getting the lumber. If there’s a lumber shortage, which I believe there is, uh, can you recoup the costs? That’s, that’s what we’re heading into next.

 

Joe Katz: (28:12)

Um, let’s, let’s understand that owners, some owners will start to suspend work, which will also lead to costs, loss of profits, loss of, uh, of revenue, uh, by contractors and shared contractors. I was contacted by a church in may, June that the membership had made a decision that we’re going to suspend the construction mid-construction because we don’t want to go and, um, continue drawing down from, from our construction loan and other $5 million to finish this, this construction during a pandemic, when, for the most part it’s financed by the members and, you know, their jobs were uncertain, their retirement accounts were uncertain and, um, they paid under, it was a standard AIA contract and they had to pay the negotiated with them pretty well. The other side pretty well, but ultimately they accepted almost a $200,000 penalty being, uh, the loss profits of a portion of, of the work that was canceled because they were, they were suspending it for their own convenience contract. He didn’t do anything wrong, uh, because they became, uh, conscientious about moving forward with construction during the situation. But again, a $200,000 penalty in their minds was much, much better than drawing down on a, on a $5 loan and not knowing if and when it would be able to be repaid,

 

Joe Katz: (29:49)

Contracts have a suspension clauses, the AIA suspension clause, or we just discussed. Uh, and then, uh, the, the Pharrell so allows for a compensation. If the government is suspended, the work actually, or constructively by restricting access or making it so, um, inefficient to do this work under their guidelines, that just needs to be suspended, then that can also be a basis for increased costs, recovery of increased costs. Um, remember that there are custom clauses and again, uh, trade contractors should for future moving forward should make sure that their contracts do include the ability to collect more for increased prices for increase, whether it’s materials or labor or the access of flavor. Um, the ability to put a, put a pause on construction during shutdowns, or even if it’s not many States again, have, have a lot of construction to continue, but it’s sometimes just so impractical, uh, that it’s better or cheaper not to,

 

Joe Katz: (31:09)

Okay. Deadlines are continuing to run many courts for the, until about June or July. Put the pause button on statute of limitations for filing mechanics liens or bond claims. But as far as I know, most all courts are now open again. And those timeframes have rotten. I know here in Maryland, where I practice primarily by, um, by the end of August, those timeframes, that run, meaning that it’s something that had become due in March, April, may, or June now it’s due, but first week in August. But after that, um, no continuing time, time extensions were being granted for the filing of lawsuits. And of course, uh, notice requirements are, uh, are, are still running in contract Mechanics, liens bond claims are very sensitive to timeframes by statute Miller act. You’ve got one year to file a claim in court. You only have not, if you’re a sub sub you only have 90 days to provide notice that 90 days from your last day of work to provide notice mechanics lanes, uh, States are all different, but many of them also have notice requirements for sub subs and, uh, filing deadlines as short as 90 days through about, um, here in Maryland, Maryland, it’s 180 days

 

Joe Katz: (32:36)

REA has changed orders. Many contracts have timeframe, seven days, 10 days. Now, for the most part, there isn’t prejudice meaning that, uh, if, if the, if the nobody’s lost money, because he didn’t notice in 11 days after you realized, and not 10, that for the most part courts will not necessarily enforce those two stringently, but again, um, better, better, sooner than later. Okay. So to address now, the, the question of the specific question of labor lumbers increased by a hundred percent, how do I recoup that change orders? Um, we’ll typically talk about the general price increases delays from, from labor shortages, productivity losses and consequential delays. So We’re talking now about not, not waiving that requirement,

 

Joe Katz: (33:38)

Uh, documenting, right? So this is the contractor that wants to get paid for his, for his lumber. Uh, that’s increased needs to figure out where in his contract, uh, can you do that now? Let’s put it that right. So now’s the time to really get creative and inside your own company, make sure that the front office and the back office and the field, they’re all kind of talking amongst each other. So everybody knows the impacts the others are having. And then as well, to reach out to a lawyer, your lawyer, your accountant, sometimes your surety, uh, representative, uh, right off the bat. I would say that it’s likely that the construction itself was somehow impacted. The, the pace of the construction was somehow impacted by COVID. And the framing contractor can say, you know, when construction shut down in March or April, um, I didn’t know, you know, it was, it was unclear when it was going to resume.

 

Joe Katz: (34:46)

I couldn’t place an order, not knowing when construction would resume. And now that we’ve resumed two, three, four months later, I’m placing my order. Prices are 50% higher. And, you know, you general contractor, when the workshop down, even temporarily, you delayed my placing of an order and that created a material pricing freeze. So yes, you’re, you’re the change of access to the, to the work area, access to the job site, uh, had a, had a far reach, more far reaching impact than simply getting work done on the day that that weren’t allowed to be there. It was in terms of placing orders and, and the resulting increase in price that’s come because of it. That would, that would be one, uh, one idea to someone that’s asking, how do I get the price back for increased labor for increased, um, materials? And it will be the same for labor, right?

 

Joe Katz: (35:49)

If there’s a, if there’s a labor was supposed to schedule called for, you know, framing work, uh, to, to go to keep going and April and may. Well in April, there was even a momentary shut down. I couldn’t, I couldn’t get my crews together. And by the time June and July came around where it was time to begin again, labor wasn’t available. So during when labor was available, uh, I wasn’t able to, to proceed with that and that’s led to increased costs or an inability really to, to get the right labor, um, another, uh, another way to, to try to attempt to get those fees back in terms of a PCO or a change order request. If, if the decision is made to kind of go for, for a cross, the board COVID-19 impact the construction change order, or what we’ll talk about a claim, then you’ll want to consider a cost code related to COVID-19.

 

Joe Katz: (36:57)

And this would be anything from increased healthcare needs, testing, uh, distancing type of, you know, plexiglass, or, or even, uh, the need to purchase individual tools. If there can’t be a generalized sharing of tools for whatever reason, and, and additional tools are needed, uh, additional rental equipment, if you know, two people can ride to a job anymore. Um, and you’ve got to kind of, or, or really, uh, you know, sizzle, you know, everybody needs their own lifts. It could be any number of, of changes, uh, could lead to the increase of costs. And if you’ve got, if you don’t have a cost code, flagging this as COVID-19 costs, it’s just going to get absorbed in your generic job cost. And it’s going to be very hard to separate what was a call it a base contract cost versus a COVID-19 specific.

 

Joe Katz: (38:05)

Alright. Let’s, uh, let’s make sure also that we’re aware, uh, that we’re not waiving change orders change orders can be waived. I often talk about changes, subcontracts and changes. And in general contract documentation being like a, an IED kind of it’s it’s been planted, they already have inside the subcontract inside the form change orders, the form partial releases

 

Joe Katz:: (38:37)

Inside there have been implanted these IDs that are just kind of waiting to blow up in the trade contractors face at, at the right time. So for example,

 

Joe Katz:: (38:53)

Subcontract language is a subcontract language will very often tie a trades contractors hands in terms of what can be, what can be accessed, what can be recovered. Cost-wise for example, a very common contract clause says, you know, if there’s, if there’s delay, then excess time can be provided, but under no circumstances could sell it. No damages for delay clause. There won’t be any excess money paid for delay time. Yes. Money, no. And what contract is delayed, where there’s no cost increased, not there’s always a cost and time is money. And there’s always a cost increase to delay on, uh, on our construction job. But if you have signed a no damages for delay clause across the board, then you’ve already, without even stepping foot on the job site, you’ve severely limited your rights and your entitlement to change orders for increased costs of delay.

 

Joe Katz: (39:58)

But, but you’re not, you know, once you make sure that the subcontract doesn’t have no damages for delay clause, you’re know you’re not HomeFree there are throughout the job throughout the contract administration, there will be documents that we’ll try again to get you to wave increase prices, increased costs for any types of changes, change orders, the federal government, and is notorious for this as are many GCs. When you’ve got you execute one change order, you know, you submitted, you noticed, uh, the drawing is unclear and, uh, or, or unworkable and changes made an RFI is put in and it changes made. And the cost goes up, you know, five to $10,000. Wonderful. You’re gonna get paid for that. Well, before you sign on that dotted line, read that, read that document carefully, because many times it will say that my sign in this change order, you’re acknowledging that there are no other costs, uh, to the date of that, of when you sign it, that there were no other increased costs, uh, through that day.

 

Joe Katz: (41:09)

And if you sign that during COVID-19, what you’ve just said is this, it, this design change is going to cost five, $10,000. I’m going to get paid for. And there are no other, uh, situations where I’ve increased costs. So you’ve just signed away your rights to recover for labor shortages, increased costs, uh, because of, COVID-19 not even thinking about it then thinking you’re going to, to that later. Um, unfortunately very, very often there are, are change orders in the works pending change orders ready in the works back office has already identified situations where there’s increased costs. Those are in the works and somebody just not reading it, not knowing, not realizing the impact we’ll sign one change order. Okay. That effectively at that moment waves all the, all the change orders currently in the works, because it’s, it says in there that as of today, there are no other increased costs that we’re seeking.

 

Joe Katz: (42:10)

W we wave it’s a waiver of increased costs to that date. And then something that I really uh, appreciate about whenever I have an opportunity is partial releases. And that’s my last bullet point here on this slide, partial releases are, uh, are misnomers. And, uh, because they’re not really partial releases, uh, they’re oftentimes full releases to that, through that date and time, because the partial release will say partial really just refers to the job’s not over. That’s all that word partial is, is reduced to, because the release says, we’ll say very clear, very clearly in exchange for X amount of money. Uh, we are waiving all claims for payment. Sometimes it exclusive attention, sometimes it doesn’t. Um, so, so this trade stock subcontractor group and the GC is saying that in exchange for this payment, um, on this day, we waive all money do for all work up to this point, boom, you’ve just signed away any claim to a change order for any change that happened prior to that date, you just waved away, potentially your attention potentially.

 

Joe Katz: (43:31)

You know, if you’re signing this a a month later from when the application went out, you just waved away your, your current month’s building that you haven’t even built yet. Um, now as a practical matter, the GCs don’t really use that release as a weapon against you, because if they did, you know, they would very quickly not have any, uh, trade contractors willing to work for them. Um, so, and, and this is something frankly, that the, that the folks at, at, within the GCs accounting or, or, uh, AP department aren’t even necessarily aware of, I’ll tell you who is very, very aware of these waivers that appear in monthly partial releases that appear in change orders. And of course, that appear in subcontracts or lawyers. So the lawyers often experienced construction lawyers retained by GCs in house lawyers, uh, and, uh, the lawyers for, for owners certainly, uh, are just when, when a situation comes to their desk.

 

Joe Katz: (44:42)

And this is like a situation that crosses my desk. It’s often about, uh, something that went wrong a year or two or up to three years ago. Uh, somebody has a big claim now for money. It’s gone through several, uh, several other, the eyes of several other. People’s the project manager, executive president, et cetera, it’s unresolved. And now we’ve got, you know, one, two, three, four, 500,000 or more million, $2 million in unpaid, unpaid PCs claims, et cetera. So now it hits the lawyer’s desk. The very first thing, one of the very first things I asked for, or can I see the monthly releases that were assigned throughout the job. And when I see those, and I see that money has been released month by month for any changes up until up until the day of signing that release. I know, you know, if I’m, if I’m representing the sub, I know that things are likely all over at this point or, or risk being all over, if not treated carefully, because release is a release is a release.

 

Joe Katz: (45:57)

If it, if it smells like a release locally, like a release walks like a release, it’s a release and a release is, is amongst the strongest terminology, uh, that courts apply and are bound to apply as plainly as written. So an argument that, well, this release what didn’t include change orders. It didn’t the fact that there’s change orders where you, you had all this, these change orders. You had notice of these change orders for six months, because we gave it to you. That’s not usually going to be effective against a release language and a partial release that way’s claims. Um, that that’s really, uh, I would say one of the biggest dangers facing trade subcontractor or, uh, or a subcontractor. And it’s, it’s, it’s very easily fixed. The way it’s fixed is by handwriting in there, you’re having your lawyer modify it or handwriting in, you know, except for, and list the changes that the PCO is that are outstanding, that are accepting, or even just accept out generic language. Uh, something like, except for claims that have been previously provided a notice has previously been provided upon, uh, and or unbilled work, extra, something like that. Uh, I, from my clients, I provide a stamp that has this language already on there, and I tell them, stamp it now for the most part it’s done electronically. But for years, I’ve had clients stamping on every partial release exclusionary language that that least doesn’t function a sword against them.

Joe Katz: (47:38)

Okay. So, um, change order mistakes, biggest mistake of a change order doing the work without a change order, um, virtually every subcontract and every, certainly every general contract is going to say, you have to have a change, a signed change order to do the work. And if you do, if work is done without a signed change order, won’t be paid for. But yet the minute after that subcontractor, that contract is signed, everybody seems to forget what they just both agreed to in writing and change order work. Let’s not, it’s not a change order cause it’s not executed extra work or additional work or changed work is routinely done without a signed change order. And that for the life of me, I can’t understand why my clients tell me, well, we want to be, you know, particularly if they’re a sub, we want to be a team player.

 

Joe Katz:: (48:31)

Uh, we don’t want to cause problems. We want to work in the future with this GC or this owner. Um, and that’s terrific. And all that can happen while you insist on change, a change order. You can simply to me, the easiest thing where I tell my clients to do is just send them the subcontract that applies, you know, circle where it says, change, order work. That’s not signed yet. You cannot do change order work unless there’s a signed change order and say, I’m just following our subcontracts. I can’t my hand, my hands are tied. I can’t do this work until we have a signed change order. Or I tell my clients make me the bad guy. You be the team player and say, you tell them that your lawyer just won’t allow the work to go forward without a change signed change order. At minimum, there should be an email exchange saying to go forward with the work, uh, courts have held throughout the country that, uh, an email signature, just name at the bottom of the email or, or, uh, you know, pre automated outlook signature is a signature, uh, as far as the plain meeting of, of signature.

 

Joe Katz: (49:40)

And it doesn’t have to be, you know, a blue ink, a wet signature could be an email that has a signature at the bottom of it. Um, so again, don’t, that’s my second bullet point. There don’t throw out your subcontract just because, uh, things are, things are going differently. Uh, that contract, even though the scope of work might not be in there for the change work or the extra work, that contract is still very relevant to doing the work and what needs to happen, uh, before, before you do do that work

 

Seth Bloom: (50:20)

Um, unaddressed change orders when that work is done and becomes, uh, a cost hasn’t been paid for now becomes a claim, right? So there was going to change order is that change order request or a PCO is when you’re looking for a signature saying you’ll get extra money and extra time to do this future work, to do this perspective work that you’re going to do. W when that’s not sign benching, you told, do the work anyways, do the work, and you’re still not paid for it. Then it becomes a claim looking backwards for excess costs of work already performed.

 

Joe Katz: (51:00)

Like we said, in the beginning, the jury is still out on claims related to COVID-19 it’s, it’ll take a year or two to really develop a body of case law. Addressing what aspects of COVID-19 are, uh, are, are appropriate fodder for increase costs. It’s definitely appropriate to talk to a construction lawyer. Now, if you’re experiencing, uh, increased costs, um, the advice I can give you now, you know, not knowing what the future will hold in terms of COVID-19 claims is that, you know, the, the three most common aspects of a claim for back looking work would be the extended manpower and equipment costs. You know, if there was delay and we had, we had more needed more manpower to get it done, more equipment to get it done. Um, home office overhead during the period of delay and with, or without a delay loss of productivity, the loss of efficiency, this the same work costs more to get done because of whether it’s labor shortages or distancing requirements, right?

 

Joe Katz:: (52:11)

You know, you can’t have a crew of 20 anymore. You had to have a crew of, of 10, that’s going to affect your efficiency. So something that can be done right now is to kind of begin to monitor through, uh, through a cost, um, cost code or other ways begin to monitor job specific, not just company-wide because if you’re performing three, four, or five, 10 jobs, you’re going to want to, you’re going to want to purchase more equipment or more tools, or, you know, purchase PPE, whatever it is you’re going to want to allocate by job expenses related to, to specific expenses related to dealing with the COVID-19 situation. Again, a construction attorney, specifically a construction attorney is really crucial to contractors and subcontractors these days. SAS, do we have time for a live Q and a

 

Seth Bloom: (53:16)

Yeah. Um, we went a little bit longer, but that’s okay. It was a lot of good information. Um, some of the, we got quite a few questions, so I’ll just pick and choose one or of them, and then we’ll wind down for the hour. But Diego asks, what if the GC submits a, the subcontractor costs and the owner rejects the costs, would the G would the GC GC still be liable to pay?

 

Joe Katz: (53:41)

Um, so even when an owner rejects the costs, usually the subcontract allows the, the sub, uh, as a pass through to, with his own counsel to challenge that denial. Right? So, um, what should in a perfect world, the GC should get back to the sub and say, Hey, uh, the owner has rejected your claim for costs. Are you, do you, are you willing to accept that? Or do you want to challenge that by hiring your own lawyer, or you probably have a lawyer if you submitted a cost of stream by having your lawyer, uh, really take our place in a sense for purposes of, of, um, continuing your upward claim, if they don’t do that and they settled with the owner, then they’ve just bought the liability to that claim. So they’re not gonna, they’re not gonna pay you short of a judge or an arbitrator saying they have to. Uh, but if they, but if you have that right, to challenge them and say, you know, you can, no, you can’t simply say the owner rejected it. So I’m rejecting it. You didn’t give me the ability to chase that cost with the owner. So now we’re going to litigate my entitlement to this cost. And if a judge or arbitrator says, yes, I’m entitled to it, then you, you bought, you bought that, uh, responsibility a hundred percent. Um, even though you never got it from the owner.

 

Seth Bloom: (55:06)

Okay, Joe, I think there’s a few more questions, but I’m going to whine, wind it up and thank you so much for this, uh, presentation and webinar today. We really appreciate our attorney network lawyers that share their knowledge, uh, for all of you. Again, my name is Seth bloom. I’m senior director of attorney services at Levelset. Uh, you can go to our attorney network question and answer. I posted it earlier and ask any question that you have of Joe or anyone, and get a few different lawyers to answer it at the same time, feel free to contact Joe directly. Um, if you’re in his area and you have legal questions or legal needs. So, Joe, thank you so much and thank you to everyone who made this webinar possible.

 

Joe Katz:: (55:45)

Thank you. Thank you, sir.

 

Seth Bloom: (55:47)

All right, everyone. Have a nice day. Thank you.