Understanding and Negotiating Construction Contracts A Contractor's and Subcontractor's Guide to Protecting Company Assets

by Werremeyer, Kit

• ISBN13: 9780876298220
• ISBN10: 0876298226
• Edition: 1st
• Format: Paperback
• Copyright: 2006-09-29
• Publisher: RSMeans
• More Book Details

Summary

Construction is a complex business. Each project has its own unique physical and commercial considerations. Since there's no such thing as a "standard" or "typical" construction project, construction contracts should not be looked on as standard either. They must be carefully managed in order to have a successful outcome and to protect the company's interests and assets.

Author Biography

Kit Werremeyer is owner and president of Southernstar Consultants LLC, of Valrico, Florida, a provider of training in construction contract negotiations and management and other services for U.S. and international engineering and construction companies. He has more than 30 years' experience in sales, contracting, claims settlement, dispute resolution, and EPC project development, including work for major companies such as Bechtel, Kellogg Brown & Root, Fluor, J.A. Jones, Black & Veatch, DuPont, Shell Oil, Exxon/Mobil, BP/Amoco/ARCO, and many others.

Table of Contents

Acknowledgments	p. xiii
About the Author	p. xv
Preface	p. xvii
Disclaimer	p. xix
Introduction	p. xxi
The Goals of This Book	p. xxi
What Are the Benefits of This Book?	p. xxi
Contractor & Owner Conventions	p. xxii
Private Contracts or Government Contracts?	p. xxii
Key Contracting Concepts	p. xxii
Two Types of Commercial Terms & Conditions	p. xxiii
The Most Important Commercial Terms & Conditions	p. xxiv
The Contracting Process	p. xxv
Excuses for Not Negotiating Better Commercial Terms & Conditions	p. xxv
The Concept of Risk Transfer	p. xxvi
This is a Book Developed Just for Contractors	p. xxvi
Three Final Suggestions	p. xxvii
Contracts: Basic Training	p. 1
What Is a Contract?	p. 1
The Steps to a Contract	p. 1
Coming to the Party?	p. 2
"Here's My Proposal"	p. 3
"Consideration," or Something of Value	p. 5
The "Happy Test"	p. 5
"Can That Person Sign This Contract?"	p. 5
Call in the Enforcer To Close the Breach	p. 6
A Contract Example	p. 7
Strange Words & Long Paragraphs	p. 9
Contracting Myths	p. 10
Contract Negotiations	p. 11
Types & Forms of Contracts	p. 13
Fixed Price & Fixed Schedule Contracts	p. 13
Reimbursable Type Contracts	p. 14
Combined Fixed Price & Reimbursable Contracts	p. 16
Cost Plus Fee Contracts	p. 17
Guaranteed Maximum Price Contracts	p. 18
Target Price Contracts	p. 19
Contracts with Performance Incentives	p. 19
Form of Contracts	p. 20
Some Final Contract Housekeeping-Definitions	p. 25
Conclusion	p. 27
Scope of Work	p. 29
The Scope of Work Matrix	p. 33
Scoping Drawings	p. 34
Conclusion	p. 35
Terms of Payment & Cash Flow	p. 37
Cash Flow	p. 37
Interest Rates	p. 40
Periodic Progress & Milestone Payments	p. 40
Conclusion	p. 53
The Schedule	p. 55
Float	p. 56
Time Is of the Essence	p. 57
Extra Time, but No Money	p. 59
Conclusion	p. 61
Assurances of Performance	p. 63
Guaranties & Bonds	p. 63
What Does "Failure to Perform" Mean?	p. 65
What Is a Bond?	p. 66
Forms of Assurances of Performance	p. 66
Surety Companies	p. 73
Some Language Considerations on Guaranties & Bonds	p. 75
Types of Performance Assurances	p. 75
Conclusion	p. 92
Insurance	p. 93
What Is Insurance?	p. 94
Claims Made vs. Occurrence	p. 95
Types of Insurance	p. 95
Important Issues Associated with Insurance	p. 101
Additional Insured Status	p. 107
Additional Insurance Basics	p. 109
A Typical Insurance Clause in a Construction Contract	p. 119
Safety	p. 124
Indemnity	p. 125
Insurance & Indemnity	p. 125
Indemnity Definitions	p. 126
Transferring the Owner's Risks to Contractors	p. 127
Fairness Is Not a Consideration	p. 127
Is an Indemnity Required in a Construction Contract?	p. 127
Anti-Indemnity Legislation	p. 128
Examples of Indemnification Clauses	p. 131
Indemnification, Additional Insured Status, & Contractual Liability Insurance	p. 137
Owners Love Claims!	p. 140
Negotiating Indemnity Clauses	p. 141
Knock-for-Knock Indemnities	p. 144
Conclusion	p. 145
Changes	p. 147
Some Ground Rules	p. 148
Protecting the Project Manager	p. 148
Owners' Directives	p. 149
Constructive Changes	p. 149
Payment for Changes	p. 149
Sample Change Clauses	p. 150
Major Contract Changes	p. 155
Negotiating Change Clauses	p. 156
Conclusion	p. 157
Disputes & Their Resolution	p. 159
What's a Project Manager To Do? A Short Story To Start With	p. 159
Disputes-The Construction Contract's Bad Actor	p. 160
An Ounce of Prevention	p. 161
Dispute Resolution Options	p. 162
The Folks Who Negotiate, Mediate, Arbitrate, & Litigate	p. 163
Dispute Resolution Clauses	p. 164
Conclusion	p. 166
Damages	p. 167
Breach of Contract/Failure To Perform	p. 167
Contractors' Financial Exposure	p. 168
Actual Damages-A Silent Risk?	p. 168
Liquidated Damages	p. 170
Consequential Damages	p. 176
Conclusion	p. 179
Warranties	p. 181
A Workable Definition of Warranty	p. 181
Warranty Issues	p. 182
The Uniform Commercial Code	p. 187
When Is No Warranty Appropriate?	p. 189
Extended Duration Warranties	p. 191
Limiting Provisions in Warranties	p. 193
Pass-Through Warranties	p. 194
Latent Defects & Warranties	p. 195
A Sample Warranty	p. 195
Conclusion	p. 195
Termination & Suspension	p. 197
Termination for Cause	p. 197
Termination for Convenience	p. 199
Suspension	p. 202
Cancellation	p. 205
Conclusion	p. 205
Force Majeure	p. 207
Negotiating Clauses	p. 207
Sample Contract Language	p. 208
Conclusion	p. 212
Other Contract Clauses	p. 213
Site Conditions	p. 214
Use of Completed Portions of the Work	p. 219
Patent Indemnity	p. 220
Secrecy & Confidentiality Clauses & Agreements	p. 220
Owner's Right To Inspect	p. 222
Independent Contractors	p. 224
Assignment	p. 225
Acceptance & the Punch List	p. 226
Advance & Partial Waiver of Liens	p. 229
Final Waiver of Liens	p. 231
Audit Rights	p. 233
Severability or Validity Clauses	p. 235
Venue & Applicable Law	p. 235
Some Interesting Clauses to Close	p. 237
International Contracting	p. 239
International Contracts	p. 240
The U.S. Foreign Corrupt Practices Act	p. 241
Letters of Credit	p. 242
Split Contracts: Onshore & Offshore Contracts	p. 243
Political, Religious, & Economic Risks	p. 244
Overseas Private Investment Corporation (OPIC)	p. 245
Legal Systems in Foreign Countries	p. 245
Local Employees, Partners, & Agents	p. 246
Offshore Companies	p. 247
Currency Risks	p. 248
Applicable Law	p. 251
Joint Ventures	p. 253
Joint Operations	p. 254
Import & Export Considerations	p. 254
Understanding Incoterms	p. 256
The Export-Import Bank of the United States	p. 258
Where to Get Some Help-Ask the U.S. Government	p. 259
Lastly, Use the Right Paper Size!	p. 260
Conclusion	p. 260
Some Final Thoughts on Negotiating Contracts	p. 261
Why Negotiate?	p. 261
The Concept of Standard Terms & Conditions	p. 262
Get Rid of the Indemnity Clause!	p. 264
Don't Provide Additional Insured Status	p. 264
Risk Transfer Clauses, Insurance, & Safety	p. 265
How to Say No Without Aggravating the Owner	p. 265
The Worst Contracting Word: "Reasonable"	p. 266
The Best Contracting Word: "Notwithstanding"	p. 266
Win-Win & Lose-Lose in Contract Negotiations-Fairy Tales?	p. 267
Is There a Price for Bad Commercial Terms & Conditions?	p. 268
Terms of Payment	p. 268
Some Tips on Successful Negotiating	p. 269
Three First (and Final) Suggestions	p. 269
Resources	p. 271
Glossary	p. 271
Index	p. 287
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