Construction Contracts What You Need to Know March 19, 2015

2 WHO WE ARE  Kevin A. Delorey, Partner –Quarles & Brady, LLP  Charlie Kilander, CPCU, ARM –Risk Management Account Specialist –Integrated Risk Solutions, Inc.

3 WHO YOU ARE  Industry Representation  General Contractors vs. Subcontractors

4 AGENDA  Contract Form Overview  Contract Document Issues  Indemnification Clauses  Best Practices for Reviewing and Negotiating Contracts  Questions!

5 SOMETHING TO THINK ABOUT  How many of you enter into contracts in the course of your business?  How many of you review each and every line, and each and every item included in every contract?  How many of you know your assumed exposure?

6 CONTRACT FORMS  AIA  ConsensusDOCS  DBIA  EJCDC  Owner-Specific Forms

7 CONTRACT DOCUMENT ISSUES Sign a Complete Document  Never sign an incomplete contract  Fill in all blanks  Attach all exhibits and schedules

8 CONTRACT DOCUMENT ISSUES Do not sign personally  Always sign in a representative capacity  Failure to do so can result in personal liability

9 CONTRACT DOCUMENT ISSUES WORDS MATTER! Essential Terms vs "Boilerplate"

10 CONTRACT DOCUMENT ISSUES Standard of Care  Is “average” good enough?  What are owner’s expectations  Will matter if claims arise

11 CONTRACT DOCUMENT ISSUES Payment Procedures  Establish ground rules at the outset  Follow the process  Involve a third party (title company; construction monitor, etc.)  Lien waivers are a must (local law)  Retainage (local law)

12 CONTRACT DOCUMENT ISSUES Insurance  Coverage – applicable?  Amounts  Insureds / Additional Insureds  Bonds

13 CONTRACT DOCUMENT ISSUES Change Management  When is a schedule/cost change justified  How is it documented  Time periods for claims  Continued performance during dispute

14 CONTRACT DOCUMENT ISSUES Substantial Completion  How defined  Who determines  What if delivery is late (LD’s?)  Punch list process

15 CONTRACT DOCUMENT ISSUES Warranties  Who gives  How long  Claims limitations  Reserve contract rights

16 CONTRACT DOCUMENT ISSUES Termination  For cause/for convenience  Compensation  No unearned profits

17 CONTRACT DOCUMENT ISSUES Assignment  Owner needs this right for –Future purchaser –Project lender

18 HOLD HARMLESS VS. INDEMNIFY VS. DEFEND  Hold Harmless –To protect another against the risk of loss as well as actual loss –Tends to be interpreted as “pay as expenses are incurred”  Indemnify –Reimburse for any damage Narrower than HH – no protection against the RISK of loss, just actual loss –Tends to be interpreted as “payment at final disposition”  Defend –Indemnitor has to supply defense attorney and actively be involved in the defense of the matter The above two amount to passive involvement (recoupment) matters, defend means active participation

19 HOLD HARMLESS VS. INDEMNIFY VS. DEFEND  Does “Indemnify and Hold Harmless” include Defense? –NO!  If one party wants the other to defend them against claims and the costs associated with it – this needs to be expressly stated  Otherwise the provision only requires a recoupment or reimbursement of the costs and damages after the initial party has expended their own time and money

20 INDEMNIFICATION AGREEMENTS  Broad Form Agreement –All of the risk of loss described in the contract is transferred to the lower tier regardless of who is at fault for the loss  Intermediate Form Agreement –All of the risk of loss described in the contract is transferred to the lower tier except when the loss is entirely the fault of the higher tier  Limited Form Agreement –The lower tier is obligated to reimburse the higher tier for its share of the liability of loss described in the contract.

21 INDEMNIFICATION AGREEMENTS  Example #1 To the fullest extent permitted by law, the Sub-contractor shall defend, indemnify, and hold harmless the Contractor, its officers, directors, employees, and agents from and against all actual or alleged claims (including but not limited to property damage, bodily injury, sickness, or disease), damages, losses, and expenses (including but not limited to attorney, court, mediation, or arbitration fees) arising out of, relating to, or connected in any way to the performance of work described in this contract, whether or not caused in part by the Contractor.

22 INDEMNIFICATION AGREEMENTS  Example #2 To the fullest extent permitted by law, the Sub-contractor shall defend, indemnify, and hold harmless the Contractor, its officers, directors, employees, and agents from and against all actual or alleged claims (including but not limited to property damage, bodily injury, sickness, or disease), damages, losses, and expenses (including but not limited to attorney, court, mediation, or arbitration fees) arising out of, relating to, or connected in any way to the performance of work described in this contract, whether or not caused in part by the Contractor, but only to the extent caused by the acts, omissions, or liability of the Sub-contractor or others providing services under this contract.

23 IMPACT TO INSURANCE  Know what you are signing  Make sure your insurance policies cover what you are agreeing to  Certificate Issuance  Blanket Waivers vs. Individual Waivers –Blanket – where agreed to in an insurance contract –Individual – needs to be endorsed to the policy  Primary vs. Excess –Does contract specify the party to be primary –Does the contract specify insurance forms needed (CG 2010)  Additional Insured Status –Your policy will stand in the shoes of the additional insured

24 BEST PRACTICES  Internal Review Process –Who is reviewing the contracts? –Who is authorized to sign contracts within your company? –Are insurance requirements/coverages being reviewed?  External Review Process –Attorney –Insurance Agent –Insurance Carrier

25 CONSTRUCTION CONTRACTS QUESTIONS???