Notice provisions. Indemnification clauses. Limitations of liability. No-damages-for-delay provisions.
Also known as risk-shifting tactics, any of the above can create a headache and worse for anyone in the construction trade.
The best way to tackle risk-shifting is to understand it when you see it and know how to deal with it. But even seasoned GCs trip up or are sometimes left with no choice but to accept less-than-ideal terms. With that in mind, here’s a quick primer – emphasis on quick – on these potential legal landmines and what both sides of the transaction can do to keep things equitable.
Notice provisions. These provisions help owners to shift risk to the contractor. They require the GC (or sub) to provide timely notice of any delays in work or face the prospect of being held responsible for the delay. Owners routinely raise alleged failures of strict compliance with notice provisions in their attempts to fight contractor claims that may otherwise have merit. GCs, of course, also routinely are responsible for delays of all kinds.
Either way, notice provisions that do not specify any time period at all, or where the words “within a reasonable time” are used, create practical and legal challenges for all concerned and which are best avoided.
Your best bet as a GC or sub is to strictly adhere to the claim notice requirements in your contract. But failure to do so is not always fatal. There are, in fact, well-established legal principles that work in your favor, including one known as the Doctrine of Actual Notice, which weighs how material – or not – a breach of a notice provision might have been. In other words, if a judge decides the breach was immaterial, the GC or sub can prevail.
Indemnification clauses. Here we’re talking about claims made by third parties. For example, a visitor to a job site who suffered an injury and files a claim against the owner. A GC will want to make sure that, under their contract, they’re expected only to indemnify against their own negligent acts, not anyone else’s.
Both sides should be sure the agreement identifies the scope and extent of the indemnification. A contractor should try to limit their responsibilities to items they can control and for those that can be insured against. Same goes for the owner.
Limitation of Liability Provisions. These clauses allow the parties to contractually limit their exposure to damages in general. The parties also might want to come to an agreement regarding the type of damages that can be covered. As you might have guessed, these clauses also go a long way in helping reduce everyone’s insurance premiums.
No-Damages-for-Delay Provisions. These clauses protect owners from damages caused by time extensions, sometimes even when the owner caused the delay. This wouldn’t be fair to the GC, so they’ll want to negotiate some kind of limit or cap. Courts will more readily enforce these clauses if they are clearly written and unambiguous.
The best strategy in negotiating construction contract clauses is, of course, to keep everyone’s interest in mind. After all, contract provisions that protect both the owner and the GC can help ensure they work together again on a future project.
Tom Patton is a Surety and Insurance Advisor with CCIG. Reach him at TomP@thinkccig.com or 720-330-7922.
CCIG is a Denver-area insurance and bond brokerage with the full-service capabilities of a national brokerage. We do more than make sure you have the right policy. We also help you manage your long-term cost of insurance with our risk and claims management expertise and a commitment to service excellence.
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