1 Contractual Risk Allocation Provisions Presented by: Rolly Chambers & Gene Rash Smith, Currie & Hancock, LLP March 5, 2013

22 Presenter Biographies Gene Rash and Rolly Chambers – –Partners in Charlotte, NC office of Smith Currie & Hancock, LLP Smith Currie & Hancock, LLP ( – –60 attorneys devoted exclusively to construction and government contracts – –Focus on construction business legal matters – –Offices in Atlanta, Charlotte, Ft. Lauderdale, San Francisco & Washington, D.C.

33 Risk-Shifting Provisions What will we cover? – –Differing Site Conditions & Site Inspection Provisions – –Delays and No-Damage-For-Delay Clauses – –Indemnity Provisions – –Disclaimers of Implied Warranty of Plans & Specs – –Green Warranties

44 Risk-Shifting Provisions Why be concerned? – –Clients might not account for them because they may: Overlook them in the rush of bidding Misunderstand or misinterpret them Believe them to be unenforceable Not willing to risk losing the contract – –You can help with knowledge and expectations

55 Differing Site Conditions What is a differing site condition? – –A physical condition – –Encountered during the work – –Not known when contract was formed – –Materially different from the condition believed to exist when bid was prepared

66 Differing Site Conditions What is a differing site condition? – –Not readily apparent, hidden from view Examples: – –Poor soils – –Concealed Rock – –Unknown subsurface piping – –Unanticipated groundwater

77 Differing Site Conditions Who bears the risk? – –The General Common Law Rule: contractor bears risks associated with his performance – –The general rule creates problems: If GC bears all risk, GC must account for an unknown Owner may overpay if GC includes a large contingency If contingency was too small, GC incurs a loss

88 Differing Site Conditions The Solution – changed conditions clause – –Shifts at least some risk to owner for changed (differing) site conditions – –The shifted risks depend on the clause itself – –May limit the types of conditions covered – –May limit categories of costs recoverable

99 Differing Site Conditions Changed Conditions Clauses: – –Type I changed condition is a condition materially different from those indicated in the contract documents (FAR ; p. 257 of CSCL) Need to have some representation indicated in the contract documents regarding the condition at issue

1010 Differing Site Conditions Type II changed condition is: an unknown physical condition at the site, of an unusual nature, which differs materially from those ordinarily encountered and recognized as inherent in work of the character provided for in the contract

1111 Differing Site Conditions Type 1 Changed Condition Recovery: – –Certain conditions indicated by contract docs – –Contractor relied on those physical conditions – –Nature of conditions encountered was materially different from what was indicated – –Proper notice given – –Additional costs or time incurred

1212 Differing Site Conditions Type II Changed Condition Recovery – –Conditions encountered were: Unusual & Materially different from those anticipated given – –The locale – –The nature of the work Notice + Damages Totality of the circumstances analysis

1313 Differing Site Conditions Obstacles to Recovery – –Site investigation provisions – –Exculpatory Clauses Disclaiming liability for accuracy of contract docs – –Notice requirements – –No Changed Conditions Clause

1414 Differing Site Conditions In the absence of a Changed Conditions clause: – –Misrepresentation? – –Mutual mistake? – –Does Spearin doctrine apply?

1515 Spearin Doctrine What is it? – –Party furnishing design impliedly warrants its adequacy and sufficiency Shield/Sword – –Defensive use – if Contractor complies with design – –Offensive use – for additional costs/time

1616 Spearin Doctrine Chipping away at Spearin – –Site inspection provisions – –Require Contractor review/verification of plans/specs – –Express disclaimers – –Design/Build – –Performance specifications

1717 Delay Issues Delays are a major source of disputes Understanding delay analysis: – –Excusable delays – –Nonexcusable delays Excusable – depends on contract terms – –Fault of owner or its agent – –Not contractor's (or its subcontractors’) fault and recognized by contract terms as excusable

1818 Delay Issues Excusable delay examples: – –Design errors – –Owner’s failure to provide site access – –Owner’s interference – –Unusual Weather? Nonexcusable means no right to additional time or money

1919 Delay Issues Excusable delays may be: – –Compensable or Non-compensable Compensable: – –Delay is fault of owner or its agent – –Contractor entitled to time and money so long as contract provisions do not shift risk to Contractor

2020 Delay Issues Non-compensable but excusable – –Usually not owner’s fault (unless risk shifting clause renders an owner caused delay non- compensable) – –Not contractor’s fault – –Contractor entitled to an extension of time, but no additional monetary compensation

2121 Delay Issues Multiple, overlapping delays? – –Considered “concurrent delays” if excusable and non-excusable delays occur in the same timeframe – –Traditional rule is neither party bears responsibility – –Modern trend is to attempt to apportion responsibility if possible

2222 Delay Issues Delay Risk Shifting – –The No-Damage-For-Delay provision – –Common in prime and sub contracts – –Generally enforceable – –Exceptions to enforceability vary by jurisdiction

2323 Delay Issues Exceptions to enforceability of NDFD clause – –Varies by jurisdiction – –Fraud or misrepresentation – –Active interference – –So unreasonably long as to justify abandonment – –Gross negligence – –Not contemplated by the parties – –Might be drafted in violation of anti pay-if-paid statutes

2424 Indemnification Issues Contractual Indemnity Agreements – –Promise by indemnitor to hold harmless another for certain future losses, liabilities or damages. – –Indemnitor does not have to be at fault – –Heavily favors party with greater bargaining power – –Potential for substantial liability

2525 Indemnification Issues Contractual Indemnity Agreements – –Strictly construed by most courts – –Some states have statutory limitations such as: Sole negligence of indemnitee Partial negligence of indemnitee (less common) – –Prefer provisions with comparative negligence

2626 Warranty Issues Surety’s potential warranty liability – –Performance issue, or – –Material defect warranty (sealants, roofing….) Green issues: – –3 rd party certification (USGBC/GBCI re: LEED) – –Performance requirements mandating specific energy reductions

2727 Warranty Issues Design/Build or performance based solicitation with extended energy reduction warranty obligation – –Ripe for claims – –Is the risk too high?

2828 Contractual Risk Allocation Provisions QUESTIONS? If you do not have the opportunity to have your question addressed during the session, you may contact the presenters directly: Gene Rash & Rolly Chambers Company: Smith, Currie & Hancock, LLP Phone: Address: 1023 W. Morehead St., Suite 301 Charlotte, NC 28208