Construction Contracts 101 (Free CLE)
Construction Attorney Mark Johnson, Senior Counsel at Lanak & Hanna, instructs a CLE course about construction contracts for subcontractors
Watch now to hear:
- Top contract terms every contractor needs to know about
- What to pay attention to in contract formation
- Pitfalls to avoid in your subcontracts
Attorneys: In Texas and Florida, this course is approved for one CLE credit hour. To receive information about how to obtain credit, contact Julie Gelderblom at email@example.com
Attorneys in California, the approval is pending with the State Bar. Please contact the email above for details.
To obtain CLE credit in all other states, check with your local State Bar for acceptance of out-of-state credits or approved jurisdiction guidelines.
Speaker 1 (00:00:02):
All right. Thanks Katherine. Uh, good morning everybody. It is Katherine just said I’m out here in Southern California. So we’re here today to talk about construction contracts, 1 0 1. So let me just get you a brief little, uh, ging horse preview of who’s, who I am, my background and why I’m here talking to you about construction contracts. So, uh, I’ve been a lawyer in California for approximately 30 years throughout that time. I have focused on construction disputes and environmental contamination disputes. Um, I have tried approximately 40 or so cases to verdicts in arbitrations, judge trials, bench trials, um, O and jury trials. So I have tried, um, disputes involving instruction claims and virtually every way you can do it. In fact, I’m currently actually in a trial in California right now on a construction claim case. So today’s an off day for the court. So I’m here speaking with you folks.
Uh, I’ve been a partner at three major national law firms for over 20 years. And so I’ve had lots of experience in construction contracts and probably most importantly for you folks, how they actually play out when you’re involved in a dispute regarding them. But let’s talk about, uh, the construction contracts themselves and, uh, things to know about it. So the next slide will tell us what we’re gonna be talking about here today. Um, I’m gonna talk about basically the two major types of contracts, which are first prime contracts, which is prime contracts being contracts between the owner and the GC or general contractor. So I’m not referred to those as prime contracts sometimes referred to as a general contract or direct contract, same thing, different terms. So we’re talking about the negotiation stage key terms and a little bit about bonds. We could probably do a program, uh, on bonds by himself, but we’ll mention those that will be going along next, uh, depending on where you are in the, um, chain.
So to speak of construction, we’re gonna talk about subcontracts, which may or may not be, uh, relevant, more relevant than the prime contract topic, as I said, depending on where you are in the chain. So again, negotiation the ever popular and very, in my opinion, misused term flow down. In other words, how does the prime contract relate to, or incorporate the prime contract? I’m sorry, I may have misspoke, but how the subcontract incorporates and relates to the prime contact. If I said that wrong, the first time payment, which of course is the life blood of any construction project, how to get paid, how to get that cash flow in. So you can pay your folks, pay your supplies and keep on working. Um, the next topic is contract performance, some brief issues that obviously come up during the construction stage, the actual implementing the scope of work and some tips on how to make your performance.
Um, he set up to, to identify issues and prepare you if you need to actually get involved in the dispute resolution process, which segues right into the last topic, which is dispute resolution, that certainly can be its own webinar itself, but we will talk about the various ways that disputes can be resolved and, uh, pros and a little bit of pros and cons about, about those ways and some issues that you can expect. So we’ll move on first to the prime contracts. As I just said, I got cut pretty much covered my own slide here with my little rambling there. But first one is the prime contract direct contract general contract, which is between owner and contractor next sometimes called tier two contracts, which is a subcontract between the general and a sub or a supplier. And the last one is sometimes called tier three contract, which are sub subcontract between sub subcontractor and lower tier subcontractors of lower tier suppliers.
Those are the types of contracts we’re gonna talk about. We’ve kind of probably lumped the last two together, but, um, those are the major three areas. All right. So prime contract, let’s talk about negotiation. That’s always the first stage. So the reality is most frankly, very few public works contracts are negotiable. You will typically on prime contracts on a government job, a public works job, whether it’s state or federal money, you’re going to get a actual exemplar of the actual contract, including in your bid package. And when you submit the bid, you are agreeing to be bound to the prime contract. In other words, when you, if you are selected as the lowest responsive bidder, which is a requirement of public contracting, you will then be accepted to sign the actual contract that was included with the prime contract. So there is no negotiation you’re stuck with it.
So you have to evaluate that risk when you place your bid up, cover up things to think about when you’re actually placing that bid is what are the bond requirements all virtually all except for in California, for example, all public work contracts that are above $25,000 require both payment, bonds and performance bonds. They also typically require a bid bond, which basically says you’re gonna be bound by the bid. So when you’re placing a bid on a prime contract, make sure that you can meet all the bonding requirements that are, that are set forth. In other words, do you have the financial wherewithal to get a bond for the scope of work you’re actually getting, um, bidding on, um, that, and I I’d love to next slide, but I’ll cover another topic. Um, let go back to that one. The other thing to think about, including what I just said, a bond requirements, think about your subs too, because they’re gonna have bond requirements. They’re gonna flow down to them. So when you’re picking your subs and typically in a prime contract, above a cert in a public work contract, excuse me, above a certain dollar level, you’re gonna have to designate who those subs are. Make sure you’re designating a sub that like you can meet the bonding requirements of the contracts.
All right, now let’s go to now to a little bit about private works. They’re different again, I think on prime contracts, the depending on the dollar, you know, where whether they are or not negotiable is probably a case by case basis and probably has mostly to do in your relationship with the private work developer owner. Um, if they are submitting to bid probably less of a negotiation, if it’s kind of a so source or negotiated project as the team Germans live, you’re probably gonna have more room. I think you’re more likely to find, um, greater negotiations, um, positions or bargaining power. If you’re talking about a bigger project, a smaller project, they’re just gonna say, you know, take it or leave it. For example, I’d like to give here is you walk into bank of America and you wanna get a car loan. You’re gonna be told, you’re gonna sign up this document right here.
You happen to be Google and you walk in and you want 300 million loan. That’s gonna be a negotiation. The same kind of concept applies to a client contract and my experience, um, again, so when you’re bidding a job, rarely do you see the actual contract when you’re bidding a private work job, it’s more of a, um, you know, bid the work and then we’ll work on the contract type of thing. I’m, I’m just getting a typical, of course things can always change. Um, and you might be able to negotiate stuff after the, after being award of the bid because unlike a public works, uh, develop, um, I’m sorry, public works, um, owner developer, whatever you want to call ’em, uh, a private private owner can certainly change the terms of the change, the terms of the contractor, do whatever the frankly want to do. They’re not, they’re not subject to the contracting laws that the federal government or state governments or local government are typically subject to.
All right? So obviously there’s a gazillion clauses in a private contract that, that, that you should pay attention to. These things are typically very large. It typically have general conditions that go on for 30, 40, 50 pages. Um, and talk about all, here’s just a couple things that, you know, I see as being conditions that are routinely, um, subject to disputes in prime contract situations, one is differing site conditions, clauses, differing site conditions. I’m sure you folks all know, but I’ll just say differing site condition is, Hey, we, we know that the contract requires us to go out here and trench, you gave me a geotechnical survey report that I’ve relied on in terms of soil conditions. In contrary to that report, there’s a bunch of dang granite boulders out here that I gotta deal with. That’s a differing site condition. I want money. I want time.
The next clause that ties right into that is you’ll typically see a lot of public contracts and a lot of private contracts you’ll see the ever popular note damage for delay clauses, which says, Hey contractor, if you get delayed, for whatever reason, you are entitled to the time extension, but there is no damages. Interestingly enough, that clause is also kind of the corollary of that is a flip pause, which says that if the contractor delays the owner, then the contractor is li for damages. So again, if you’re talking public work, these things are probably not negotiable. So you gotta assess the risk before you sign these contracts, five warranty clauses. Um, and we’ll talk about what some of these are in fact, illegal in some states. But let me talk about implied warranty contract says, it says, implied warranty contract says, look, we’re gonna give you a bunch of plans and spec, but you know what?
We’re not guaranteeing. They’re good. They might be a bunch of junk. If they’re bad, that’s on you contractor, better clause to consider when you’re signing up things, liquidated damages. These can be big bucks. Um, so typically that that clause thoses are, you don’t finish your scope of work your south. You use a construction lingo term by a certain fixed period of time set forth in the contract. You are li for liquidated damage of a fixed dollar amount. Um, again, so that’s something to think about when you’re looking at, do I really want to take the risk of this contract? Um, there we go. All right. So just, this is just an example of a different site condition. Um, I don’t need to read it. It kind of, it goes through, you’ll see this in a lot of contracts. Contractor represents it as inspected, yada yada, yada, I’m taking the risk cuz the contractor of unforeseen risks, hazard some difficulty and even stuff at the subs that there’s no dang way I can figure out.
Right? So you’re buying that, um, you know, all these clauses, I’ll say, uh, you know, you might be able to, if you actually got to dispute, there might be some arguments, but these are clauses you’re gonna have to deal with. Um, I don’t know if the next slide deals with this, but I’ll tell you another thing to be concerned about here is there’s gonna be a notice provision in all these contracts that said, if you did encounter certain conditions, you’ve got a certain period of time to, to provide notice. Um, I think we get into detail about that. You slides later.
All right. So public works owners might not be able to shift responsibility for differing site condition onto the general contractor. For example, California public contractor code section 7 1 0 4, makes those illegal in California. I don’t know about other states. I know about California public private contractor should try to limit scope of responsibility. If you get any ability to negotiate, try to limit it with clauses, such as you know, um, I I’m aligning on what’s in the bid documents. I’m relying on what’s in the geo technical survey sometimes refer to as a GSR or reasonably observable during a site visit. You know, the, the topic of that last bullet, there was public, obviously on a private work, you’re gonna have a much better idea that you can negotiate that much more likelihood. You can negotiate that just for delay. So this is, uh, I, you know, obviously briefly talked about it a second, but here’s an example of the clause.
An extension of time for contractors, completions, the work shall be contractor sole remedy for delay. So the owner’s gonna take the position that it doesn’t really matter what the heck happens. Um, they could, you know, delay the project, clearly delay the project. They could fail to give you power to the site. They could be, you know, all kinds of things. They could decide that, you know, we’re not gonna build a two story building. We’re gonna build an eight story building and Hey, you know what, buddy contractor, you’re gonna build it and takes you longer. That’s your tough love. Um, so let’s talk about what to do with those bothers. So again, California’s gonna help you out here. So California public contract, oh, 71 0 2 says that’s invalid on private projects. Let’s say you have to check your own state and see if it’s valid on your state for those clauses.
If it’s not, if it’s just, if it’s, if it’s a clause it’s not invalid, you’ve got, you’ve got arguments the way these clauses really work out. If you look at the case, law is you gotta figure out what the facts are and whether there’s really an equity situation that that comes into play here that makes it unreasonable and unjust to enforce the clause. My example of going from a two story structure to an eight story structure, I think with fit one in that clause, if you’ve got a project and there are, you know, 150 design changes and your price to complete goes from, you know, perfectly doubled, you’ve got a really good argument that that clause is invalid. Big picture concept for me is that in all the cases, whether it’s a judge, it’s a jury, it’s an arbitrator at some level, there is a decision that is made by those folks who is right, who is wrong. Who’s the good guy. Who’s the bad guy. I like to say in the large times their morality plays and they pick the good guy. They pick the bad guy and they do right by the good guy. And they screw the bad guy. You gotta be on the right side. That’s gonna be very fast dependent if you’re gonna try to get out of that, no damage toward the leg. Cause
Alright, so this is what I covered briefly a little while ago. So this is a typical clause owner, dis claims, any warranty express or implied the contract on blah, blah, blah X are, or will be accurate, consistent, or constructible. In other words, these we’ll give you these documents, but geez, I don’t know. I don’t know if they’re gonna be good. Um, so
California, once again is gonna say that is not valid California public contract code. The section by site will say that that is not valid. Public works, private works job. And I think you have a, you know, let’s just talk about something, try to negotiate something like that up front, out of the contract. If you’re dealing all these S that are bad, if you’re on public private work and you negotiate, try to get ’em out of there, uh, if you’re faced with having to deal with them and they’re in there, you, you know, you’ve got arguments. It’s really, like I say, here, you didn’t hire the con. You didn’t hire the designer. You didn’t hire the engineer. So it really should be the owner that should be on the hook for that. So that’s where the equity concept comes into play, but it’s much better off to deal with that front and get it out the contract rather than having to hire somebody like me go fight that thing for you.
Uh, liquidate damages is the last one we’re gonna cover. Like I said, there’re a lot more clauses that we could talk about, but you know, we’re trying to limit it to some of the ones that, that are probably most problematic. All right. So like I said, this is typically how this works is contractor has a fixed period of time to do its scope of work or so with shortened it there. Um, and, um, you know, just hypothetically, you’ve got 90 days to complete this project, the, the scope of work, you don’t complete it by X time, you will be subject to dollar date penalty. Um, that’s probably, non-negotiable, it’s probably non-negotiable on both public and private works. The reason I tell you that is typically those clauses exist because they are tied into some other contract. For example, I’ve done litigation about power print projects and the contractor, the owner has made a deal with the, or the owner of developers made a deal with the, with the public utility that we’re gonna bring you X kilowatts of power by X date and their subject of penalty. So that’s why they’re sometimes not negotiable on either both private or public works jobs.
Again, you know, here’s, these are clauses that you might be able to, if you can negotiate ’em out, you should try to do that. Or if you can try to limit them, it might be possible to challenge if you have to, after the project, or if you’re somebody can be resolution provision, the way you do that is there are requirements that how much liquidated damages are and whether it’s fair. You know, you can argue about whether you’re actually the cause of delay or whether you have some reason that you were delayed. That’s not your fault. If you can blame on someone else, you might be able to also challenge the liquidated damage concept itself in terms of it being invalid in California. For example, liquidated damages are only available. If it is difficult or impossible to access equitable actual damages and the liquidated damages provision, um, they are reasonable, uh, are reasonably based on what actual damages might be.
In other words, they’re in the ballpark. So for example, if you’ve got, let’s just say, you’ve got a $1 million scope of word contract and the penalties are $500,000 a day. That’s probably not a reasonable limitated damage clause, but again, you know, kind of negotiate it out. If you, if you can, there’s some you can make final thing on that is you really should. You can negotiate it out. You gotta analyze the risk of time a bit, you know, construction at risk. There’s a reason why there’s, you know, people do it. People, reason why people lose their or lose their shirt, doing it. So all risk needs to be taken advantage, taking reason when you’re making a bid. Um, let me grab some water here and then we’ll go to the next slide.
All right. So prime subcontractor performance is so obviously prime contractor assumes responsibility for sub performance. So when you’re talking about the owner, the owner’s gonna say, Hey, Hey, Hey, Hey, that’s, uh, part of this work is not good. Part of that work perspective, the electricals late the dental contractor, can’t say, oh, well, Hey, I didn’t do the electric. Oh, why you talking to me? He or she, or it, whatever you wanna say is on the hook for the sound despite to work. And obviously most of us know that general contractor, unless you’re talking heavy civil, or there is some subtle point health performance, most general co don’t actually do any physical work on the site. Um, so here’s another thing. So what, what all that first point ties into is you’ve gotta make sure that if you’re taking on a project where there’s substantial risk of performance, in terms of penalties, in terms of, you know, no damage or delays and a lot of clauses that can come back to bite a contractor, when you’re making a bid as a GC, you’ve gotta consider can my subs, can I rely on my subs to perform?
So there’s a couple ways to help you out here. You can’t consider bonding, bonding back fee sub, which means you get a bond in your favor on the, on the subcontractors is also something a little bit newer, not, not really new, much newer, but something called subcontractor default insurance, to talk about another webinar on that in the loan, but essentially similar to a bond, but the advantage is, and in a bond, the bonding company or surety decides that there’s actually a default and a subcontractor default insurance policy. The contractor decides if the subcontractor then default, but once they do that, they run the risk that ultimately the insurer will not agree with that decision. So that’s a, a topic we can go into much more depth, but we, that, that that’ll kinda hits the highlights for now. Um, so just because just, just real briefly, again, you both probably know payment, performance bonds, uh, protect you in events of contractor defaults fails and pay workers.
So when you’re thinking about a payment bond, that is a bond that is there for a sub that says that if he or require that says, if he doesn’t get paid, he can go to the bond performance bond, basically deals with it. The contractor or subcontractor doesn’t doesn’t finish. The job doesn’t is, is in default. And then the bonding company takes over, does responsible for the completion of the project. They hire their placement contractor. They can take over the project. There’s a variety of remedies that a bonding company can take. If you’re gonna do that, if you’re gonna bond back your sub, you’re obviously buying yourself some protection. Or if you, if you decide to get that sub subcontract, default insurance or SDI to kindly referred, to make sure you’re putting the cost of that stuff in your bid price, cause you’re gonna be on the hook for that unlikely. You know, you’re not gonna blatantly say that, oh, I’m gonna add to my contract later. You’re gonna have to build it in. Uh, alright, next slide.
Alright. So this is the term flow down and it’s more general than I just stated here, but some lot of prime contracts and some subcontracts say this term, which I, I don’t really understand what it means because I think it’s very vague. Um, and I think that if you, that the clause is used, that you’re seeing a negotiation, you should try to negotiate it and get more specificity on it. But like this one, this type, let me just say what the clause is. I’m talking about many contracts say the prime contract flows down to the subs as the prime contractor flows to the owner or worse. That effect basically means that the terms of the prime contract flow down to the subcontractors. So they’ve gotta perform as if the sub prime contract was part of the subcontract problem is that term flow down and there’s terms.
That kind of mean the same thing. It’s very hard to figure out exactly what is flowing down. So I would recommend that if you’re talking about a happy ability to negotiate this, you specifically identified what parts of a contract are in the subcontract. But I’ll tell you if you go to court and you’re gonna argue about this, that clause, it flows down to the same extent it flows to the owner is completely vague and meaningless. Yeah. Remember if you’re in a court, you’re talking to somebody who doesn’t know anything about construction, don’t tell you right now. I’m like I said, I’m in trial right now. And doesn’t know a thing about construction. And frankly, it’s like talking grief. It’s a whole different world that is very foreign to most people. So the way you, the, the, the make make, try to make your contracts. And this is a gentle over concept.
If you have the ability to negotiate, or if you’re drafting contracts, try to make it as clear as possible, don’t rely on, Hey, the subcontractor or that guy knows what I’m talking about. Because ultimately if you’re in a dispute, you’re gonna have to convince somebody that’s not in the industry at all. Like the, so think about that, basically make it, make it so a late person, I know that’s paid, but try to make it as simple as possible, what anyone can understand. Uh, alright. So this is the last bullet point here is bid time, make sure that, you know, the bond requirements and the insurance requirements, um, your, your subcontract here can deal with him, um, before you place them on your, uh, include them on your, in your dish, uh, blah, blah, blah. So unfortunately, I’ve got a real thing here and middle of that, but here’s basically the, the flow down clause of the type I was thinking I was, I was mentioning.
And I said, if I could figure to get this thing out, I can’t now I’m in trouble. Uh, but anyways, <laugh>, my technical wizardry is, uh, on whole display here. Um, but that’s the typical flow down clause. Subcontractors leave out to prime contractor to the same extent the prime contractor is bound to owner under the private contractor. I frankly don’t know what that means. And I will tell you that I don’t know what a judge means. So the extent you can negotiate, try to nail down what that means. In other words, try to say, look, what parts of the prime contract are I responsible for? What parts of them flow down and then list those parts and say, those are incorporated into the contract, this section here about whatever that means that first sentence I think is subject to interpretation and is vague. And it’s just, to me, it’s unfortunate how many times is that’s in contracts and, and it’s just not described. So I think that’s something to be aware of when you’re negotiating contracts, um, look, and the last point is, you know, seems kind of self obvious. So things kind of intuitive, but if you’re a subcontractor and you’re being asked to be bound to a prime contract, you need to see the prime contract. Lots of times in construction project, the sub never sees the prime contract. It’s gotta clause like this slowdown clause, which a lot of them do you need to see the prime contract.
Uh, alright. So on to onto subcontract key, we’re onto key sub. We went to a whole nother section, we’re have key subcontract issue. So the first one obviously is scope and price. So if you are looking to, you know, make sure that regardless of your dental contractor or the subcontractor, make sure that what’s going on here in terms of what the scope of work is and what’s included or excluded in the price is, uh, is, is clearly stated. Don’t just say, for example, uh, subcontract is gonna do plumbing scope. That’s that’s too big. Make sure you’re attach. You’re saying subcontract would form the following scope of work. And according to the contract documents, and I would state if possible subcontractor will do the plumbing work showing on sheets, you know, P one through eight, the subcontractor will perform the plumbing cords with the plumbing specifications, you know, 6 0 5 through 8 0 2.
They are attached here too, the key and all, you know, the, the, if you can make your contract as clear as possible, it’s gonna, it’s gonna pay dividends in the long run. Um, that’s my final bullet point. I just covered it. Um, um, so, you know, um, this is, this is a big issue with construction projects. So schedule obviously subcontractor will provide contractor with scheduling information and post schedule for performance of a work and informant date, acceptable to contractor subcontractor. Here’s the one I probably should highlight subcontractor shall conform to contractor, project schedule and all revisions or changes made there to this, that clause, right? There is a clause I have litigated about or similar ones many times. And this gets into the situation. What is the contractor’s schedule? And can the contractor just keep on changing the schedule and making jump through hoops? The answer in my opinion is no, but the way, if you could, you know, try to limit this to, you know, I’m only gonna comply with the contract schedule attached to the contract at the time of bid, unless it’s a change order, something like that. It’s in your, its your interest to do that. If you can’t, then you’re gonna have to document, you’re gonna have to document document, document. You’re gonna have to document, Hey, this is changing. This is changing my schedule. This is gonna impact your schedule’s not accurate. Um, like I said, if you can try to limit where you need to document during the project and make these things clearer up front, that’s gonna pay dividends for you.
Uh, alright. So this gets into the next situation and kind ties into my document document, document comment. So virtually all subcontracts are gonna have to set provision that say, you’re gonna have to give prompt, notice of scheduled delay. You’re gonna have to give prompt, notice of change conditions. You’re gonna have to give prompt notice of any condition you encounter that thinks you’re gonna have seek extra compensation, more money or more dollars or more time. So here’s the substantial clause. Similar typical clause. That’s gonna say that should subcontractor be substantially delayed in the re prosecution, a completion of the work subcontractor settle within within five calendar days from the beginning, the delay prime con contracted manager of writing of the positive delay.
Last moment, give notice a potential delay as soon as possible, even a scope of delay or quantum or cost of impact is not known better to overdose. You know, one thing that in my experience, a litigation, the big general contractor are much better at taping. The file than subcontractors are. They’ve got the resources to do, and they’ve got people sitting back in their office, you know, Hey sub, you’re not doing this. Hey, sub you’re behind all this type of stuff. The stent that you can match them on that game are not a game. And that pruded course of conduct to be correct about it, the better you’re gonna be. So if you, if you come across something like my example, way back from wind about, you know, we’re supposed to have Sandy soil or regular soil, and I’m having much in Boulder when you hit those boulders, tell them, Hey, we just hit Boulder.
That’s a different site condition that is going to impact us. We are gonna be delayed by this. We will identify later the quantum of that or the cost or the cost or the amount of the delay, but get your notice as soon as possible about that, Hey, this is a problem. We are going to have an issue, try to meet this five calendar day thing as best you can. You know, again, if you go to litigation, if you didn’t do it in five days and you get around it, probably particularly if, Hey, everybody knows that this was an issue. I’ve told everybody, but don’t, don’t rely on you. I told Johnny when we were out, when we were out in the trailer about this, but very least send Johnny an email saying, Hey, Donny, I hit, I hit boulders. That’s gonna cause the leg I’m figuring out how much I won’t know for sure until later, but it’s definitely gonna be a problem.
Right? So we just talked about liquidated damages. Uh, while ago they almost always slow down. So this is just a typical thought. So like I said, if you can negotiate ’em out or if you can negotiate a limits on it, uh, you know, better off, you’re gonna be, uh, I don’t know how, you know, it’s, whether you’re gonna be able to do that. It’s gonna be case specific. Um, you know, obviously even in the public works contest, uh, in the public work context while prime contracts are almost never negotiable subs are not really subject to that. So there’s probably is more room for a sub to negotiate, even on a, even on a <inaudible> project than, than there is for a prime contractor to negotiate with public agency.
The thing to be considered about is indemnity clauses. Every subcontracts gonna have a huge broad indemnity clauses, probably a civil one of the prime contract too, but basically says it just, you know, we can read it. I don’t need to read it, but it basically says you’re, you’re on the hook for virtually everything, whatever goes wrong in that private, these clauses are designed to make it so that the general contractor can basically walk the hands of everything, say, Hey, there’s a problem. It’s your problem. So, um, so there are some limits by law. There’s are some limits ultimately that you’re gonna have to, uh, that you can assert just in terms of going back to the concept of equity that we talked about early. But again, if you can try and negotiate these clause and limits, you’re gonna be better off. Um, some of these clauses are so broad that the law does help you out.
So I think that’s the next one. So some of these S are too broad, like for example, um, in California, you can’t, you can’t, um, um, you can’t, as general contractor could not require a sub to identify indemnify a general contractor for the general contractor’s active negligence or welcomeness conduct. I guess if there’s other statutes in other states that would, that would, that would provide that as well. Um, you know, some that, it just depends again, if the equity concept does come into play, if you’re gonna go to the litigation on this, but you know, it’s gonna be a problem. And particularly it’s gonna be a problem in terms of the defense obligation. So how that would work is let’s just say the GC gets sued by the owner for whatever, um, delay for construction defect. Anything, first thing they’re gonna do is they’re gonna send out notice to all their subcontractors and say, Hey, we got this lawsuit, or we got this point.
Here’s our, here’s our demand that you defend and indemnify. So defend, yeah, you probably know this, but defend means you’re gonna fight that thing and you’re gonna pay for my lawyers, or you’re gonna bring in lawyers to, to fight it for me, indemnity means, Hey, if I get hit with money or damages, you’re gonna pay the money. Not me. You know, like I said, we can try to deal with this later, but you should try to try to deal with it up front, much better. Try to, if you, if you either negotiate it out or definitely consider the indemnity risk when you make the bid and decide, Hey, is this risk? Is this the risk of problems on this project? Am I really putting myself too far out if I agree to this? So, um, you know, bids are more than just, what’s the price, what’s the scope. You gotta consider a lot of, lot of things when you’re making up, when you’re making a bid in order to make sure you’re not, not, you know, in a hole and in a problem later down the road.
Uh, so another one that’s good. Think of mind are these change order requests, clauses, they’re all gonna have change order requests, things which are basic, very similar to very similar to what, what we just talked about. They’re gonna say, you know, if you, you identified anything that, that you think is a change, anything that you think that requires more time or more money, you’re gonna have to notify the general contractor within a very short period of time. Typically five days is really pretty common. The other thing to think about when you’re looking at a change order, uh, request or a change order provision is, does it talk about mark, lots of these lots of contracts limit mark up? So if you’re mark, if you’re trying to mark up a job and you would typically mark it up 15%, hypothetically, there may be a clause in that contract that says change, order requests get marked up at 5%, something like that nature.
Um, so you should take that into consideration. Get if you can negotiate it great. If not, you gotta think about it when you’re making, when you’re making your bid. Um, also another clause to keep in mind is, um, virtually all contractor gonna say this, if a change order request is disputed, subcontractor will perform the disputed work, right? So the last thing in trust me, this is I’ve dealt with this too many times change order request. And the cause says, he’s not gonna do it. That is gonna be a problem. That is gonna be a huge problem. That is particularly if you’re dealing, if you happen to present this plane, a forum with construction personnel, that’s gonna be a problem. That is, that is very, just very, uh, much disfavor to not do the work. Um, and it can really, really cause big problems for you.
So let SU look for that clause, assume you’re gonna have to do it and, and do the work under protest. If you’re in that spot problem is that you went into on this thing is again, the document document problem. Lot of subcontractors just say, oh, well I’ve heard a bunch more money on the project. And some of it, or part of it, or a lot of it’s do this change order. It’s not really gonna be good enough. You’re gonna have to identify the specific work that was a change order work and how much and, and why and how you include it. Then ultimately you have to prove that your change order request work was done for the change order and that the cost you incurred were reasonable for that. So you’re going to dispute of work. First, you reserve all claims, Hey, we have encountered X, Y, Z problem.
This is a change. You have refused our change order. We will perform this work under protest. We reserve all claims. And then to the best you can try to track your costs separately for that change order work. I’ve even been on projects where if it’s a big enough change order, the contractor will actually put people with different colored vests on the site and doing change order work and say, all the guys at red vests are doing change order work, and you track them separately. Bet the better you can separate off the cost, the better you’re gonna be in the long run. If you have to fight about it and probably are, we’ve already disputed your change order request.
Uh, alright, so here’s, here’s just another, this basically a change order clause and giving notice of the clause five days, like I said, seems to be the most popular five period of in these clauses, but basically says you don’t give notice and you don’t get, you know, don’t get blah, blah, blah, jump through XYZ hoops. You’re not gonna gimme any money. You’re not paying any time. Um, alright then let’s talk about, let’s talk about we getting paid, look up the terms of what, what is required, what you’re gonna need to do to give money. If you’re a sub. So public works project, the federal project you’re gonna have to give certified payroll reports, you know, they’re required. I imagine a lot of states are certainly required in California. Public projects are certainly required under the federal acquisition regulation on federal projects. Certified payroll records are, you know, certified under penalty perjury.
Um, and they should be right. It should be accurate. It’s big problems if they’re not including criminal prosecution. Uh, and they are kind of, you know, they’re known as basically the Bible in terms of what was the labor cost on a project who did what, um, lean releases. This is basically, uh, you’re gonna have to get lean releases for your lower tier subs, your suppliers on I’m just identifying conditions that the contract’s gonna say union, all clear letters, basically the letter from the union saying if it’s our union job that you know, all union dues have been paid, blah, blah, blah, final thing to think about. So that’s the first three bullets where things that you’re gonna, that are probably gonna contract. If you’re gonna have to find with before the, uh, GC has to pay you. The other thing to think about is look at the prompt pay act prompt pay California has a statute that requires by both public work and private works that says if you get money for, if, if a contractor or a subcontractor gets money for, for the, for the work of a lower tier server supplier, they’ve got a certain amount of time to pay that person.
Or they’re going to be hit with penalties. California’s 2% interest per month, which adds up quite quickly. So think about that when you’re processing payment, where, where you are. All right, let’s talk briefly. A lot of contracts have pay if paid, paid, paid those types of things. Um, so pay if paid is illegal in some states it’s illegal in California, uh, pay when paid pay, if paid by the way is legal in some states. I believe it’s legal in Georgia. No, I’m sorry. Made be wrong about that. It’s legal in some states pay if paid is illegal in a lot of states, California is illegal pay when paid, um, that I believe is legal. It’s legal in, California’s probably legal in most states, but the caveat that in California pay win, paid means there’s a reasonable period. So in other words, yes, it’s okay for the contract to say, will we, the G the GC will pay the sub with the next 80, after the GC gets paid from the owner, there is a reasonable period when if that doesn’t happen, that the subs still have to pay the lower gear. So, um, so, and I, you know, like I said, I know California law much better than obviously don’t know many states laws in California.
Um, just something to look at. So to be aware of, all right, talk about payment. Let’s talk about how you get paid. So, um, look, let’s talk about subcontractors and lean rights, right? You don’t have lean rights on public work, but you do have lean rights on private works. I’m sure pretty much in the all state you do California certainly do. But in order to protect pro to have lean rights, you got, except through the statutory requirement, the first one being on a project is you gotta give preliminary notice to the owner. The general contractor, a lie is your ability, even though you’re not in privity of contract, you don’t have a contract with the owner. It gives you the right to put a lie on the owner’s property. But in order to do that, you have to perfect that lie or under the terms of the statutes, your particular state.
Um, again, we can have another discussion about all of these things for more than an hour, but generally you’re gonna have to, within a very short period of time after going on the project, there’s ways around this. But the prudent course is in California, within 20 days of bringing stuff to the project, you give notice a lean, you give place, notice you fill a preliminary notice or 20 day notice or various names, but you wanna give notice in accordance with the statute of your claim on that, uh, claim to lean rights on that property. Um, some projects, uh, also have this, there are no lie rights in public work projects. I said, you obviously can’t go placing a lie on the United States military base. You can’t go place a lie on the white house. So public works contracts. Uh, like I said, in California, anything over 25 grand, I forget the cop and federal projects, but there there’s similar requirements there they’re gonna have to, they’re gonna have a payment bond.
And what a payment bond does is it basically gives you the takes the place to leave. So if you’re, if you did not get paid on a timely basis by whoever owe you money, the GC or a sub, if you’re a lower tier subcontractor, the payment bond steps in and gives you the right to right to Sue the bond company and the person that posted the bond, typically at DC or a higher tee tier sub, these things are very, very powerful in California. There is very limited defenses to a payment bond claim. Basically, if you brought, brought good for services to a project, and it was actually incorporated in that project, and you’re not paid within the contract time period, regardless of whether it’s change order work, and regardless whether dispute a change order work, you may assert a payment bond claim against a surety.
It’s a big hammer. And it’s, I think in frankly, it’s underused. Um, so consider that there, if you got a payment bond, consider that you’ve got a hammer consider whether you use it or not. Uh, once again, I mentioned it briefly, but there prompt pay log. You gotta think about if you’re getting paid and you’ve got money that you got paid for a lower tier sum, you better think about passing it on with seven days or whatever time period applies in your state. Otherwise you’re gonna be sending some penalties, uh, or could be seven penalties. Um, let’s see where we here slow down, um, about, think about when you’re a subcontractor. A lot of times, you know, let’s just figure out upfront who’s responsible for getting permits. Um, typically that’s a VC that’s responsibility and you probably assume that if you’re a subcontractor for watch out some contract do require the subcontractor to do that again, if you get negotiated out great, if not, um, you know, factor the in, when you’re making your bid, uh, basically you, what I’ve said about claims provisions, they, the notice provisions, they apply to the prime contract, they apply to the subcontractor.
Um, you gotta be aware of them and, and you gotta try to comply with as best you can. Like I said, giving what the contractor or owner would cause effective notice because it doesn’t state how much time or how much cost is involved in the notice, giving a notice that doesn’t provide those details. It’s way better than no notice at all. That’s that’s the key from my perspective.
Uh, so yeah, so claims is probably everybody knows you got money, you got time, or you got both. So, you know, make sure you’re covering when you’re submitting a claim. If you’re only asking for money, let’s just say, hypothe, you submit a change order request. If you’re, if you don’t know how much time you want, don’t submit a change order claim or a notice or anything that says, or a change order request that says, Hey, I want 25 bucks for hitting that rock. If you’re, don’t say anything about time, there’s gonna be an argument that you don’t want time. So if you want time, if you don’t know how much time when you send a claim in say, I want 25 bucks, we are evaluating the time impact of this condition. We reserve our rights to assert time. Once that has been determined, you know, particularly if you’re dealing with a contract that’s got liquidated damages time is often just as, as is important, preserving time and getting time extension just as important as getting money for the change condition.
All right. So I can’t tell you how many times I’ve gone to a project site and been asked, ask for the project team, Hey, what is the change order, uh, notice period on this project, when do you have to get notice of the different psychs what’s the contract say? And they say, I don’t know, I’ve never seen the contract. So, so this contract performance tip is, you know, the contracts, they’re all, unless it’s a very simple project. Most contracts are very detailed and very long, and frankly, it’s unrealistic dispense that most project executives or project field teams are gonna read it. So try and to shorten it down, try to give the highlights. As I say, a little, a little bullet point that you can hand out the people that me should know, Hey, here’s our schedule. Hey, if you encount different psych conditions, you’ve got, you know, five days to tell people a little bullet point thing that everybody knows what to do.
You know, you can give that, um, you can, you know, make sure everybody’s on board, what the contract says, at least the key revisions of the contract, and maybe make a little something they can send out in the field so that everybody’s on board with what to do. Um, next bullet pull in terms of contract performance, if was not in writing, it didn’t happen. You know, the idea that, Hey, I had lunch with Johnny and I told him in the trailer or whatever, or over a beer that, you know, we, we, we we’re, you know, we’re having problems because we’re getting delayed because electrical, sub’s not doing X, Y or Z, put that in writing. Um, make sure that everything is documented. If they’re responding late to RFIs, put that in the file, say, Hey, we’re out here putting on our thumbs because you know, your dang architect won’t respond to our RFI, got no site power.
You know, we can go on and on and on with all kind of examples, but if it’s not in writing, it didn’t happen. Make sure, you know, when the document game, I know what the pain, I know that a lot of the subs don’t have the staff to do it to the extent it’s very important and the extent that you’re gonna, you know, in my view, you know, the best way to avoid being in a long term or heavily litigated dispute is to assume upfront that you have to be that you will be the one and prepare yourself kinda like a boy scout model, right. Be prepared or whatever it is. Same thing applies to contract. The more you assume, the more you prepared to fight, the more you more you’re gonna be in, in a position to fight. If you have to, um, they, daily reports are really critical.
They’re gonna be, you know, they’re gonna be used at for, or against you, um, in, in the litigation, if you were to say, you know, we couldn’t do that work because we were delayed by the, you know, that, that drywall, it wouldn’t hang the wouldn’t hang the, uh, wouldn’t hang the, uh, the sheet rock. And so we couldn’t paint the thing. You know, if there’s not an explanation as to why you’re not doing the work, then, um, then that’s gonna be a problem in right. Uh, default, default termination. You know, obviously nobody wants to hear about this, but that’s the, uh, you know, this is, you know, if you deal with that, uh, situation, try to see if you can cure during the cure period, if not document why it’s not, why it’s not, why you’re not able to cure why you’re not, why it’s not a default, why you’re not able to cure the time period. Um, there’s not a ton more to say about that.
But one thing I will add to that is the failure to man work. So our failure to prosecute work, if that’s what the default is, if you dispute that the level of work or manpower or resources you’re bringing to the site, that the contractor is putting you in default, because you are below what, what the contractor is saying is the resources required. The solution to that is to continue on site with the resources that you believe is adequate, according to your schedule and your expectation of the work, the solution to that is not to say, I’m not gonna man up. Um, I’m not gonna that you don’t have to man up to what the general contractor asks for necessarily, if you believe it’s excessive, but you should keep men resources on site that meets what you can arguably say is your foreseeable requirements at the time.
Cause that’s like I said, the, the, the worst thing to do is to leave the job and not perform work, termination, convenience, um, you know, a lot of contracts have these, just be aware when you’re bidding, uh, bidding your projects, whether or not what the terminations are for convenience are sometimes, you know, it’s pretty easy for someone to terminate for a convenience. The thing that’s critical is the highlighted portion below, which is the, what, what you get. If there is a termination for convenience, this one has a reasonable sum for overhead and profit. That’s fairly typical. The, the, you know, what this clause is doing is it’s taking away the right to get profit for the completion of the work. So just bear that when you’re negotiating contract BI or look at what, what the default provision says, look at the periods, look at if they can terminate for convenience and what you get, if that happens. Um, alright.
All right. I think we’re getting close here to the end and I’ll just be, obviously this new resolution could be, you know, maybe a day that the situation here. So, um, let’s just go through it quickly. So a lot of times it’s become kind of a norm. It’s a new thing to do that. A lot of contracts have a clause that says before we engage in arbitration or litigation, um, parties will attempt in a good faith effort to mediate the dispute. So my next question, isn’t that enforceable. And the question is, I mean, if, if you don’t mediate, um, is an judge arbitrator gonna say, eh, no, you can’t see you can’t go to arbitration because you gotta go to mediation. Uh, my, my view on that is maybe, maybe not. It’s very judge dependent and hard to guess, but the reality is, and let’s talk about mediation in general mediation before formal dispute process.
It’s a great goal. It’s a great concept. I have no problem with the thought. The reality is, is that mediation’s only were, if both parties are willing to set some degree of compromise, can’t go into mediation or any settlement negotiation inspect. You’re gonna get a hundred cent on the dollar. All the other side, give you a hundred cent on the dollar. In contrast, if you are the party that’s being asked to pay money, can’t go in there expecting to have the guys say, oh yeah, I’ll take zero. You’re right, buddy. Not gonna work. There’s usually a compromise needs to happen. And sometimes that compromise people. Aren’t in a situation where they’re ready to compromise early on in the project. They need more documents. They need more facts. They need more, frankly, the hassle of being litigation to make them in the right mood to, to solve the situation.
So there a lot of ’em go, are they enforceable? I don’t know. I’m not saying they’re not a good, they’re not a good thought process us. I’m just saying sometimes they’re effective. Sometimes they’re not. Next thing is arbitration versus litigation. I’ve done em, both ways. Lots of ways. I’ll tell you. One thing I would say is that arbitration or, or bench trial is, is with invite. Then we preferable to a jury, a jury. If you just think, I mean, when you’re litigating a foreign judge, you’re dealing with someone that doesn’t know instruction. It’s much easier to put on a case in front of experienced construction, arbitrators who know the lingos. You don’t have to go through everything like what the change order request. What’s, you know, whatever. There’s a million things that we can think about in the construction industry that are really terms of art that people in the industry speak.
Like they’re just talking, you know, outta hand, which are very foreign to the, to, to most people. One thing I will say about Duries is that a predis dispute jury waiver is illegal in some states it’s illegal in California. So you there’s a lot of contract to say, this is that we’ll agree that this dispute handled in the superior court of Los Angeles county, both sides agree to wa jury that’s illegal in California. What’s not illegal is that after dispute happens, you can decide how you want the parties. After dispute happens, can decide. However they want to decide. There is dispute. In other words, if there’s an arbitration clause in a contract and after you guys initiated arbitration, go off that process and you say, you know what? We don’t wanna go to arbitration. We wanna go to litigation. If you both agree fine. The same thing is true in the reverse, frankly, if you ensure litigation or arbitration and you decide let’s go out and, you know, draw straws, fine, whatever you wanna do, that’s fine.
Once you’re in the dispute, you basically control your own destiny. Arbitration works litigation just real quickly. A lot of times people say, wait a minute, arbitration. What I don’t like about that is there’s essentially no appeal rights, very hard to appeal arbitration to sit. That’s true. It’s also true that the arbitrator, at least in California, can get the backs law wrong, the long wrong, and there’s no appeal from it. You’re stuck with it. That’s obviously not good. What the pro of that is obviously the pro of that is it ends. There is no appeal. You’re basically stuck with the situation. Litigation does have the advantage that you can appeal, but as a practical matter, if there are findings of fact made in the litigation process in other words. Yes. That was in the scope of work or no, that was not in the scope of work.
It’s gonna be very hard for the public court to, to overturn that. If it’s an issue of law, you have a much better shot of getting, getting that, uh, getting that overturn. In other words, issue of law being like, for example, um, the delay clause is, is, is, is not enforceable, something of that nature, but you know, so arbitration has this pros, you know, great advantage arbitration is that you control the arbitrator, you select it. And you decide when and where the arbitrator is gonna happen. Largely litigation is pretty much a crapshoot, but you know, like I said, they’re putting some costs in both ways to go. The last thing I’m gonna talk about, I believe is prevailing provision. So there will be blood. Um, if you’re deciding whether you want an attorney provision, think about this, there will be blood means that litigation is incredibly expensive.
It just is. It’s. Uh, one of my former partners used to call it the blood score of the rich. And well, that means is if you thinking about attorney revision, if you are the big guy, if you think you’re gonna have more financial wherewithal than, than the party you’re gonna be in his view with you probably do not want Trace’s revision. The reason for that is if you, cause then you can flood to the other side, frankly, by having more, more attorneys, throwing more things at the smaller guy, so that you basically beat him up through a war of attrition. If there’s an attorney fee provision, that smaller guy may be willing to engage in that process, if he thinks he’s an upside he gives is P feedback. So maybe it’s somewhat counterintuitive, but think about who benefits if you’re negotiating a contract or if you’re deciding whether division should be in a contract. Think about that dynamic. And let’s that’s the end. Maybe I’m on the,
Speaker 2 (01:00:00):
Thank you. No, that’s it looks good.
Speaker 1 (01:00:03):
I watched this on my last slide.
Speaker 2 (01:00:05):
Yes. Um, here we go, though, for the attorneys, you can go one back mark for a second. Um, sure. Attorneys, you will get this information in an email as well with the follow up email that’s coming Friday, but right there on the screen, if you were an interning license in California, Florida, or Texas, there are special instructions for you, especially Texas. You need to send an email to me, Catherine dot Barona level, set.com with your state bar number and all other states. You’re gonna self-report to your state bar. So check with them for the instructions and mark, we do have several questions. Um, are you able to pull up that Q a box at the end, at the, of your zoom screen? That’s where the questions are typed in.
Speaker 1 (01:01:06):
Yeah, but I can’t read ’em so,
Speaker 2 (01:01:09):
Okay. Um, well I’ll read ’em off. So, um,
Speaker 1 (01:01:12):
Go a minute. There’s like 30 questions.
Speaker 2 (01:01:14):
Well, there’s okay. There’s 18, but I was gonna tell people we don’t have time to get to all of these. Um, we’re gonna hang on for however many mark can get to, but if
Speaker 1 (01:01:25):
You, I will, that’s fine, Kevin. I will say my, my contact information is down. If you guys wanna send an email, I’ll be happy. Happy to answer questions, but go ahead. Sorry.
Speaker 2 (01:01:36):
Sounds good. Um, first one from, at one 20 was what about the spon doctrine on defects and any efficiencies in the plans in contract documents?
Speaker 1 (01:01:54):
Uh, SP you know, I, I don’t know the spirit does apply. So SP basically the case, it talks about what kind of costs and damage you can get and how you deal with deficiencies, but also is most notably cited for the proposition about how you get investigation. Cause, um, I’m not sure if I answered the question, but yeah, spirit doctorate applies in California.
Speaker 2 (01:02:15):
Okay. Um, next question does great Western drywall versus rural construction serve as a good precedent for not equally spreading back charges or LDS, that’s
Speaker 1 (01:02:36):
It? Yeah, I guess I’ll answer it this way. Um, I, I think ultimately if you get into the speeds responsible for back charge or LDS contract provisions that talk about splitting ’em equally or something of that nature are you can probably defeat because you think about how it plays out. Really. You’re probably gonna have cross claims to go back and forth and there’s gonna be a finding of who does what now. That’s probably not a very likely situation in terms of actually litigating about that. But, um, but my answer would be that I, I think that you’re actually gonna be able to talk more about equity again, in terms of how that’s dealt with
Speaker 2 (01:03:18):
Is most slow down clauses is usually a one way conduit, should we fight for the same rights remedies and redress towards the contractor that the contractor has with the owner?
Speaker 1 (01:03:39):
The answer that question is sure. The, the, I think is so first of all, yeah, you’re right. The float down provision use typically is kind of a one way street. And basically the contractor decide what’s provision. He thinks are helpful, but he can flow down to the sub. So would it be ideal if we could have a reverse concept? Sure. Um, whether you can negotiate that or not. I don’t know, for example, like, you know, the damage to delay fog. I mentioned that a lot of ’em say there’s no damages for delay for a subcontractor, but in turn subcontractor responsible for any delay that he causes. And, um, then that the owner hits the contractor with. So sure. It would be better if you could make it a two way street. Um, I know if you’re gonna be successful doing that.
Speaker 2 (01:04:29):
All right. Thank you. Um, Julie asked, how successful have you been at negotiating out LDS and how are you handling anti indemnity states?
Speaker 1 (01:04:41):
So the answer to negotiating out LDS, I would say in public works project zero and private work, you can try to give a better, you have a better luck and I have had better luck in limiting it or making it more specific and at least carving out, um, carving out provisions, anti inden states. I mean, uh, I’m not sure exactly what the question is, but, uh, I guess I’ll just say, yeah, in states like California, there are provisions that I, I wouldn’t call anti indemnity, but definitely provisions that limit scope indemnities. So certainly be aware of the, what the, I mean, rather than having indemnity clause, thats its, uh, circumstances that are arguably void or illegal in your particular state, the extent you can try to negotiate, that’s, it’s easier. It’s just easier to deal experience.
Speaker 2 (01:05:35):
Thanks. Um, if I get paid late, but I already gave the prime a release, can I Sue them for prompt payment penalties?
Speaker 1 (01:05:50):
I got paid late, but I already gave the prime a release of your own questions a little bit vague. But if you got, if you gave this well, so I think what you’re saying is I gave, I gave this the primer release saying that I got paid. I later sued the sum, the prime. If in fact I gave the release without being paid. That’s the question. I think the answer is yes, because you effectively gave the release, assuming or conditioned upon the fact that you would get payment and that that condition ever happened. Then you would argue release is invalid. Hope I that question correctly. But if I did, that’s my,
Speaker 2 (01:06:33):
What can a subcontractor do to avoid forced mediation and no arbitration or clauses? That’s all.
Speaker 1 (01:06:46):
So what can a subcontractor do to avoid forced mediation? And I’m sorry, what was the last part?
Speaker 2 (01:06:52):
No arbitration or litigation clauses.
Speaker 1 (01:06:58):
Um, okay, so forced media. I mean, basically, if you don’t want, if, if, well, first of all, again, assuming you negotiate out that in the contract, if you, if there’s a mediation clause and you don’t wanna do it, you can basically refuse to go to mediation. And then if you are the party that has a claim to assert you can proceed and file a lawsuit or arbitration and just argue why it’s not enforcement or why it doesn’t matter. Frankly, you know, I, I think a lot of judges view a mediation pre-mediation clauses as kind of the check the box. So if the parties don’t want to go to it, there’s really no sense to make them go to it. So, um, that’s not a, that’s more of a practical answer than a, than a, you know, legal, I suppose, uh, in the LA the second part of that was what if there’s no arbitration and requires litigation?
Uh, the answer is that there’s not an arbitration provision. You cannot force the party to go to arbitration. Arbitration is, can only be enforced that there’s a contract calling for arbitration the flip side, though, if there’s an arbitration clause in the contract and you don’t want to arbitrate and you don’t wanna go to litigation, you can bring a lawsuit, uh, the lawsuit under the contract, and then deal with sometimes, maybe the other side doesn’t want to go to arbitration either. And once you are submitted to the jurisdiction of the court, you have waived your arbitration clause. The other side wants to enforce the arbitration clause. It would be his or her burden to compel you to go to arbitration.
Speaker 2 (01:08:36):
Okay. Next question. Um, how about mobility charges on a contract mobility to be paid by a certain percent of the contract is completed? That’s part one of the question.
Speaker 1 (01:08:59):
Well, I, I assume mobility means mowing and devolving, but I’m not exactly sure, but if that’s what it means, the contract certainly can specify certain provisions and what you have to do to pay that would be, that would different than, you know, we’re gonna pay you based on percentage work done in a particular time period. So, um, I’m not really sure what the question is, but the contract can clearly specify time period. When you get paid, it can be by a certain, you know, period of time, every 30 days, it can say that you’ll get paid a certain percentage based on completion of work. So it could also state you’ll get paid, you know, certain dollars, uh, uh, for the, for mobilization, if that’s, if that’s or de if that’s the question.
Speaker 2 (01:09:46):
OK. The second part was, um, retention percent on invoices. How do we know when to keep adding it on the invoices?
Speaker 1 (01:09:58):
So retention, um, is gonna be in the contract. It’s gonna be typically five or 10%. You keep on taking, dealing with retention until the project is complete until you were released. Um, until you get a final completion, I would keep on, I would keep on withholding retention until the very end of the project you would get would get, um, requests for a release of partial retention all the way through lets the contracts there. So you have no obligation to release any part of the retention until the project is to plea.
Speaker 2 (01:10:29):
Got it. Okay. Um, there are several others, but um, I know we’ve gone about 15 minutes over and Mark’s email address is there if you’d like to email him, but also I wanted to let everyone know if we didn’t get to your question, there is the level set community space you can go to and post your question there. And, um, construction attorneys in your state can see it on there and possibly answer your question through there.
Speaker 1 (01:11:04):
Great. Thanks for having me, Catherine.