Legal and Regulatory

2021 Executive Insights: Leaders in Construction Law

Industry experts share their thoughts and advice on seeking representation, contract language and the effects of COVID-19 on construction law.
July 15, 2021
Legal and Regulatory

What should contractors look for in a law firm when seeking legal representation?

Gregory Cokinos
President and CEO
Cokinos | Young

First, experience in the construction industry is of primary importance and vital to successfully negotiating construction contracts and handling construction claims and disputes. Even a mildly complex construction dispute is more than most non-construction lawyers can properly handle. Issues concerning scheduling, productivity, change management and risk shifting (among many others) are complex and unique to construction and can be further complicated by the procedural and substantive law that differs from jurisdiction to jurisdiction.

Second, it is essential that your law firm has a culture of representing construction professionals. Understanding construction nomenclature and how construction projects are staffed, organized and documented saves time and money in an already expensive and time-consuming process.

You cannot overstate the advantage of shared resources within an established construction firm when evaluating and handling construction matters. A law firm that dedicates a significant portion of its practice to the construction industry is uniquely positioned to realize this advantage. Finally, as I tell our young lawyers, “success” only comes before “work” in the dictionary. Hard work is the key to successfully negotiating a contract or executing a litigation plan in this complex industry. So, look for a firm that is not afraid of working long days and weekends to achieve success.

Ernest Isola
Partner, Co-Chair of Construction Group
Gordon Rees Scully Mansukhani LLP

In our experience, contractors seeking legal representation are looking for a law firm with attorneys who are responsive and have the experience and expertise in those areas that are important to the contractor’s business. We know that a contractor is constantly confronted with time sensitive issues that are driven by schedule, deliverables, in addition to the needs of clients and subcontractors.

When the contractor reaches out to the attorney for advice, the attorney should initially respond that day or within 24 hours at most, and less if the initial contact indicates the issue is time sensitive. After the initial contact, regular status updates are crucial such that all parties are properly advised of recent developments so that an action plan can be devised and adjusted.

The contractor should absolutely expect that his or her attorney has a strong working knowledge of the construction process and the issues confronting contractors at every step of the project. An experienced construction attorney will be able to offer a wide range of legal services and advice in contract analysis, claim prosecution, payment and lien issues, liability and claim avoidance as well as litigation.

That advice should be objective and fact-based, with a clear explanation of risks, costs, benefits and likely impacts based on the scenarios presented.

All in all, the contractor and attorney form a cohesive team that can effectively analyze and respond to complex legal issues as they arise, as well as also evaluate the practical impacts and potential consequences of decisions that are made.

Ali Salamirad
Managing Partner

Contractors should look for lawyers who can understand, analyze and predict the outcome of their issues, soon after retention. To do so, lawyers need to have substantial experience with the unique issues that contractors deal with frequently. Lawyers also need to be willing and capable of obtaining critical input from experts and consultants at an early stage, in order to predict the cost and likely outcome of litigation.

As a specialized boutique law firm, SMTD Law LLP takes great pride in being able to provide this rapid response to our clients, which is why many of the nation’s leading construction firms rely on SMTD Law LLP to help them navigate these murky waters.

Henry Bangert
Founding Partner
Beltzer Bangert & Gunnell LLP

A significant aspect of construction law is understanding the technical side of the legal issues. It is essential that a contractor’s lawyer understand the construction issues in play. When seeking legal representation, contractors should look for lawyers with construction industry experience and knowledge.

Timothy Woodward, Esq.
Partner and Chair of the Construction Practice Group
Shutts & Bowen LLP

Experience and credentials are, of course, necessary. So is a deep bench. Contractors selecting law firms to handle their matters should consider not only the lead lawyer, but the other members of the team too, as many construction claims require more than one capable person to be managed effectively. 

Evaluating the legal team, including associate and/or paralegal members, is often overlooked, but can make a big difference in terms of overall effectiveness and cost management. It is also critical that contractors selecting a legal team ensure that the legal team is, from the outset, on the same page with respect to how much of a “hands-on” active role the contractor and/or its in-house legal team will play in the day-to-day management of their claims.

Ultimately, however, what really separates “good” from “great” lawyer/client relationships is when the legal team also really understands the contractor’s business, including the nature of the work it performs, its niche in the marketplace and the company’s goals.

What legal checklist should every contractor make before commencing a new project?

Adam P. Handfinger
Co-Managing Partner, Miami Office
Peckar & Abramson, P.C.

Construction contracts are often-times complex, and compliance can be a real challenge, especially at the project level. Project teams must know how to comply with, and then coordinate, all applicable contracts (prime contracts, subcontracts, etc.). We often include the following provisions on project checklists as part of pre-commencement training for the project teams.

  1. Allowances. How the amounts are calculated and ultimately reconciled with the final contract value/balance.
  2. Changes. Identification of what constitutes a change and how to timely and completely document same.
  3. Confidentiality. What can and cannot be said about the project and to whom.
  4. Contingency. When it can be used and the applicable requirements (e.g., advance written approval by the owner).
  5. Contract Price/Contract Sum. Calculating and itemizing the amount, which may include identifying reimbursable and non-reimbursable costs.
  6. Force Majeure and Other Delays. Identification of the events entitling a contractor to an increase in time or an increase in money, as well as the necessary steps to submit those claims and properly preserve rights. Among other things, this typically includes the contractual definition of “adverse weather” and more critical since the pandemic, “changes in conditions.”
  7. Notices. When notice must be sent, the technical requirements to preserve all rights.
  8. Payment Provisions (Progress and Final). When to submit applications, the information required and how to administer receipt of payments and the making of downstream payments.
  9. Retainage. How and when it can be released to all contractors.
  10. Insurance and Safety. Requirements and protocols, especially those unique to the particular project.
  11. Schedule. Milestones and final completion requirements, including definition(s) of substantial completion.
  12. Subcontracts. Making sure that the elements of the prime contract are coordinated with subcontracts, including “flow downs” and “flow ups.”
  13. Trouble Points. What requires special attention, usually provisions that are out of the norm (e.g., site access) or areas of concern for the project (e.g., subsurface conditions).

Joshua Levy
Husch Blackwell LLP

Contractors need to ensure three core items before commencing work. These concerns are universal and apply in good times and in difficult markets. First, every contractor should prequalify the owner by asking for reasonable evidence that the owner has made financial arrangements to pay for the work.

A contractor should not accept it at face value when an owner says the “funding is covered.” Unless there is a pre-existing relationship or the owner is a well-recognized institution, a reliable pre-qualification protocol should be followed. The contractor needs to verify funding with a realistic contingency.

Once the money is verified, the contractor must closely review its contract for accuracy and, surprisingly, signatures. We see disputes arise on countless projects that have commenced without a signed contract. The disputes often involve scope questions because simple mistakes are made identifying the agreement set of plans, exclusions and inclusions and the agreed upon schedule for the work.

When the owner agreement is in place, the next items to check are signed subcontracts and additional insured coverages. The contractor shifts a variety of risks through subcontractor indemnification obligations and additional insured coverage.

However, contractors often consider the receipt of subcontractors’ initial payment applications as the backstop to verify agreements are signed and proof of insurance collected. That is a flawed approach. Project accidents can occur during the first 30 days of work. A contractor may not be able to utilize the protections in its subcontract without a signed version showing both parties agreed to all terms.

Scott Walters
Smith, Currie & Hancock, LLP - Atlanta

The main legal concern every contractor faces before starting a project is determining the multitude of project risks that might affect the contractor’s successful performance. Each project is unique and requires careful review, but any good pre-performance checklist should identify key areas where project risks arise and steps to manage those risks.

Some broad risk categories that I typically advise clients to identify and assess, or qualify, before starting a new construction project include qualifying: the contractor (itself); the owner; the project locale and site; subcontractors and suppliers; and project documentation. If the contractor is not responsible for project design, it should also qualify the design and design documents pre-project, primarily to ensure that the scope of work is clearly defined.

When qualifying itself, the contractor should consider such factors as its prior experience with similar projects and whether it has sufficient resources to pay for and perform the work. The same assessment tools would typically apply to qualifying subcontractors and vendors.

When qualifying the owner, the contractor’s main concern should be the owner’s experience on and success with similar projects and whether it has sufficient funding to pay for the work.

Qualifying the project locale and site can be critical to the contractor’s success. Here, the contractor should assess such things as licensing, permitting and registration requirements; available labor; wage and hour laws; special preference requirements (particularly on government projects); special tax and insurance requirements; applicable bond and lien laws; site accessibility; and site conditions. As for the project documents, the prudent contractor should have a checklist identifying all of the contract documents and key contract clauses that attempt to shift or allocate payment and performance risks between the contracting parties.

In the wake of the pandemic, do you anticipate any changes in contract language with respect to force majeure clauses?

Kenneth W. Cobleigh, Esq.
Vice President and Counsel
AIA Contract Documents

Initially, there was a lot of concern among contractors and other project stakeholders over the need for contract clauses that specifically included the terms “force majeure” and “pandemic.” That concern largely disappeared as project participants began to work through the various challenges of the pandemic. It became apparent that the standard terms of the AIA Contract Documents were sufficient to address most, if not all, pandemic-related circumstances; and that more general terms, like section 8.3 of the A201™-2017, were preferable to more specific and restrictive clauses.

The standard terms provided enough structure and guidance to protect the key interests of the parties. They also incentivized the parties to discuss issues like labor inefficiency, in-person site visits, project delay and cost escalation, as well as to craft project-specific solutions that reasonably addressed each stakeholder’s concerns in order to avoid unnecessary project suspensions, contract terminations and other drastic steps.

When pandemic-related issues first appeared, the attorneys on the AIA Contract Documents content team immediately evaluated the core AIA Contract Documents and produced educational materials to help industry stakeholders navigate their contract options and remedies.

While major changes do not appear necessary, we continue to regularly review articles, attend webinars and participate in industry-wide discussions about the issues. We also hope to conduct targeted market outreach to see if stakeholders have suggestions for future edits to the standard AIA Contract Documents provisions.

How has the pandemic affected the lien rights of subcontractors?

Jason S. Lambert
Dinsmore & Shohl LLP

The pandemic created a period of slowed/stopped projects and uncertain futures. This brought to the forefront of many subcontractors’ minds the need to make sure all pre-lien notices are sent on every project.

Subcontractors can be reluctant to exercise their lien rights or to send pre-lien notices. They think it will anger the general contractor or make it more difficult to obtain payment, as it may make the general contractor look bad. But in reality, subcontractors have to serve pre-lien notices because they never really know what may happen on a project.

The pandemic has illustrated that dynamic perfectly. Even if everyone involved in a project is honorable, the work is running smoothly and the money is flowing freely, the project can still be brought to a screeching halt due to forces outside of everyone’s control. In those circumstances, subcontractors will wish they had their lien rights secured.

Subcontractors should exercise their pre-lien rights and, if they receive push back, they should use the pandemic as an example of why they are doing so. Pre-lien notices and similar documents are not a poor reflection of a project. If anything, they are indicative of a subcontractor who is on top of details and paperwork—good qualities to have for a project of any size.

Virtual testimony in construction litigation and arbitration has become the new normal during the pandemic. Has the lack of in-person testimony had an impact on the effectiveness of expert witnesses and analysis?

Rob Remington
Partner and Chair, Construction Law Practice Group
Hahn Loeser & Parks LLP

If there is one thing that we have learned from the last year, it is that virtual depositions can be effective and offer an increased level of efficiency and cost savings. Complex depositions involving a significant number of documents, witnesses or opposing counsel that you suspect might attempt to take advantage of the virtual format should be approached with caution.

But from our experience this past year, it is clear that the virtual format is an option that we should offer to our clients and implement where appropriate to enhance the efficiency of our legal services without compromising on quality.

Evan Blaker 
Cohen Seglias Pallas Greenhall & Furman PC

Last year at this time, as we were all in the early stages of the pandemic and learning how to work from home offices, I would have predicted that remote hearings and arbitrations wouldn’t be nearly as effective as live testimony. With the benefit of experience and hindsight, I can report that my prediction was not accurate. In fact, I now believe that virtual hearings are here to stay, even as we emerge from the COVID-19 pandemic that plagued us through 2020.

With any hearing or arbitration, virtual or live, preparation is key. That rule especially applies to expert witnesses. If the expert knows the record and demonstrates a familiarity with the project record, the testimony will be believable and persuasive, whether live or remote. Demonstrative exhibits are crucial, perhaps even more so in the virtual setting. A well-thought-out demonstrative or summary exhibit is critical, as it enables a judge or arbitrator(s) to follow the expert’s testimony and have a reference when deciding the case.

In a complex construction case that I arbitrated late last year, we used charts and demonstratives to illustrate the expert’s analysis and basis for her conclusion. In fact, our opponents used our expert’s as-planned schedule during the hearing. That gave our expert instant credibility with the panel and certainly helped us defeat the claims of our opponent. The year of virtual depositions and hearings has highlighted the need for preparation and reminded all of us of the power of demonstrative exhibits.

What advice do you have for contractors when negotiating a contract to provide for increases due to the impact of COVID-19 on job costs and the project schedule?

Anthony Niccoli
Atkinson, Andelson, Loya, Ruud & Romo

Now that the pandemic is upon with us, many owners are requiring contractors to account for additional time and/or costs arising from COVID-19 in their bids. Easier said than done. Although contractors may know of the pandemic in a general sense, how it will affect a particular project in a specific or unique way is difficult, if not impossible, to ascertain.

So how do contractors put a price or quantity of time on the unknown? If we’re honest, we must admit they cannot. A contractor should communicate this hapless truth to an owner and negotiate a compromise.

A contractor and owner should agree on a contingency fund for additional costs and should build additional time into the project schedule. The parties can discuss and/or negotiate the amount of the contingency and additional time based on relevant factors. The contractor can access the contingency fund and/or additional allocated time only for COVID-19 delays. At the conclusion of the project, any unused contingency goes back to the owner. This strategy limits the risk to owner and contractor reducing the anxiety of both parties embarking on projects in these difficult and uncertain times.

Matthew T. Collins
Fabyanske, Westra, Hart & Thomson, P.A.

For the time being, contractors should now price COVID-19 personal protective equipment into their labor rates or general condition costs. COVID-19-related PPE is the new normal for the foreseeable future.

Contractors should also account for COVID-19 when preparing their construction schedules. The additional time required to accommodate social distancing best practices and absenteeism will have an impact on schedule.

Ben Westcott 
Co-Managing Shareholder
Andrews Myers PC

A typical force majeure provision provides limited (time only) relief to the party seeking to be excused from its obligations as a result of the effects of the force majeure event. In addition to force majeure, there are other provisions that you can look for or add to your contract to deal with COVID-19 impacts.

Emergencies (10.4 of A201-2017). “In an emergency affecting safety of persons or property, the Contractor shall act, at the Contractor’s discretion, to prevent threatened damage, injury or loss. Additional compensation or extension of time claimed by the Contractor on account of an emergency (including COVID-19) shall be determined as provided in Article 15 and Article 7.”

Some of the recoverable costs might include: additional gates for access and security, increased buses for transportation, additional shifts, split shifts and staggered shifts in order to comply with new laws imposing restrictions on the number of people that can be in one place at one time.

Form Amendment for Price Escalation (ConsensusDocs 200.1). This form creates a multiple-step process that provides for an equitable adjustment to the contract price for changes in potentially time and price-impacted material items. However, it requires effective negotiation with the owner on the front end, as well as foresight into (a) the potentially time- and price-impacted material items to be listed on Exhibit A, (b) the baseline price and (c) the percentage cap on adjustments.

Ian P. Faria
Office Managing Partner, Houston
Bradley Arant Boult Cummings LLP

The two areas of the contract that I find most helpful to contractors on a project, in light of the impact of COVID-19, are the escalation clause and the force majeure clause. Through no fault of the contractor, material costs have continued to increase month after month with little relief in sight. A carefully written materials escalation clause tied to certain benchmarks is usually the best way to recover those cost increases. Such a clause usually requires notice and a change order but, properly drafted, such a clause provides for a mandatory payment for material and cost increases (even for a fixed price contract).

Along the same line of thought, COVID-19 lockdowns impacted production schedules despite the industry being labeled “essential” in most jurisdictions, including Texas. When you also factor in the new OSHA regulations relating to COVID-19, delays in most projects were unavoidable. There are ample reports of entire crews, companies and projects that were forced to stand down for a minimum of ten days due to just one person testing positive for COVID-19. In such a situation, the force majeure clause in your contract would provide an avenue to mitigate a claim for delay or non-performance.

While there is no universally accepted definition of force majeure in most states, including Texas, such a clause in your contract allows a contractor to be excused for performance delays. In order to take advantage of this type of contractual protection, the force majeure clause should include a well-thought-out list of specific events (including global pandemics).

The clause should also include a “catch-all” in the provision to excuse performance. For the catch-all to be upheld, the event in question will have to be not foreseeable by the parties to the contract when the contract was entered, and they are usually upheld if the event in question is similar to the specific list in the clause.

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