Important Considerations and Contract Clauses to Consider

On October 17th, John Caravella was invited to speak at the AIA Contract Document Workshop where he was able to share his knowledge about Construction Contract Interpretation and Fundamentals. In this specific article, we share Important Considerations and Contract Clauses to Consider, before signing the agreement.

Two Major Functions of a Contract:

  1. The contract assigns responsibilities (i.e. who must do what in order to fulfill their duties). Construction contracts commonly assign responsibility for obtaining municipal permits, developing and enforcing safety regulations on-site, etc.
  2. The contract apportions ricks (i.e. who is on the hook if anything goes wrong). Each party wants to assume as little risk as possible but cannot always transfer risk. – for example, “pay when paid” clauses that excuse a contractor from paying a subcontractor if the owner does not pay are unenforceable.

 

Statutory Considerations:

  • Construction contracts are often subject to statutes that affect the en-forceability of certain contract clauses or impose additional responsibilities.

Examples:

  1. Prompt Payment Act sets forth procedures for aggrieved contractors / subcontractors to seek expedited payment through arbitration. These cannot be avoided in contracts.
  2. General Business Law 770 et seq. requires additional disclosures and notices from contractors and afford additional remedies to owners.

 

New York Lien Law:

  • Trust fund provisions apply to many construction contracts and impose strict requirements regarding accounting for trust funds received in connection with construction contracts and the way trust funds may be disbursed.
  • Creates rights for a variety of parties including owners and subcontractors to an accounting of Lien Law trust funds.

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Licensing Concerns:

  • A contractor that is not licensed as an architect cannot offer design services.
  • Downstate New York municipalities require home improvement contractors to be licensed at the county and local municipal levels.
  • Failure to be licensed as a home improvement contractor may be raised by owner as a defense to making payment to the unlicensed contractor.

 

Contract Clauses to Consider:

  • Statutes may require certain clauses to be contained in contracts or may invalidate clauses in contracts (e.g., General Business Law 770 et seq., where applicable requires notices regarding contractor’s lien rights and notices of homeowner’s right to cancel).
  • Owners will wish to include clauses requiring lien waivers from contractors and subcontractors.
  • Contractors and subcontractors will wish to limit retention and provide for the quickest possible payments.
  • Dispute Resolution Clauses (may provide for mediation, arbitration, or litigation, but contracts covered by the Prompt Payment Act cannot preclude a party from seeking arbitration)
  • Governing Law Clause (determines what state or country’s law is to be applied in disputes).
  • Forum Selection Clauses (determines venue i.e. location of any dispute resolution).
  • Merger Clause (provides that contract is complete and that no representations other than those in the contract are binding on parties).
  • Severability Clause (provided that, even if one clause is found invalid by a court, the remainder of the contract will remain valid).

 

John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached online or by email: John@LIConstructionLaw.com or (631) 608-1346.

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