Transcript Consult Your Doctor Before It Hurts

Managing Risk in
Construction Contracts
Brendan D. Bowles
Glaholt LLP
Standard Contracts: Pros
• Save time and money up front – no “re-inventing the
wheel”
• Save time and money in the field – players are familiar
with the contract and how it works
• Result of accumulated experience from many different
stakeholders
• Avoid repeating mistakes of the past
• Avoid mismatched expectations
Standard Contracts: Cons
• Banfai – “Tyranny of the Precedent” – slavish,
unthinking use of precedent undermines the deal
• Standard form rarely is an exact match of the actual
business deal and project requirements
• Standard forms should be revised to ensure:
(a) Responsibilities of each party clearly identified
(b) Risk is properly allocated
Fundamental Risks: Design – Bid –
Build (Traditional Project Delivery)
• Consultant is liable for design
• Contractor responsible for construction
• Contractor has no input during design phase, can lead
to conflict and increased costs
• No single entity for owner to turn to if issue is not
clearly one of design or construction
Fundamental Risks – Construction
Management
• Owner has direct liability to trades and suppliers,
multiple entities responsible to owner for design and
construction
• More contracts might equal more confusion
• CM is typically owner’s agent – scope of authority needs
to be clearly defined and understood so no surprises
Fundamental Risks – Design-Build
• Single entity responsible for both design and
construction
• Difficult to precisely define the scope of the designbuilder’s obligations until design complete
• Fixed price risky because price cannot be precisely
determined until design complete. As a result designbuilder builds in price contingencies.
Other Key Risks
Construction Management
• Owner might be the “Constructor” under Occupational
Health and Safety Act
• Substantial performance – when is it achieved in a
project with so many “prime” contracts?
Design-Build
• Who acts as payment certifier when designer and builder
are one and the same?
The Emerging Risk – Green
Construction
“Green construction is planning and managing a
construction project in accordance with the contract
documents in order to minimize the impact of the
construction process on the environment.”
Glavinich, Contractor’s Guide to Green Building
Construction (Hoboken: Wiley & Sons, Inc., 2008)
Green Building:
“A building that provides the specified building
performance requirements while minimizing disturbance
to and improving the functioning of local, regional, and
global ecosystems both during and after its construction
and specified service life.”
American Society of Testing and Materials (ASTM)
Standard E2114-06a
History of Green Building Movement
• 1970:
• 1987:
• 1989:
• 1992:
• 1993:
• 1994:
U.S. Environmental Protection Agency
established
Brundtland Report
American Institute of Architects (AIA)
establishes its committee on the Environment
UN Conference on Sustainable Development
UK Green Building Rating System
AIA and International Union of Architects
Joint Declaration of Interdependence for a
Sustainable Future
US Green Building Council established
AIA Environmental Resources Guide
History of Green Building Movement
• 1998:
• 2000:
• 2002:
• 2002:
US Green Building Council issues LEED
Version 1.0
LEED 2.0
LEED 2.1
Canada Green Building Council established
(modelled on USGBC)
Risks in the Green Building Project
General principles apply equally to green building
projects:
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Risk
Risk
Risk
Risk
retention
reduction
transfer
avoidance
Risks in the Green Building Project
Increased liabilities:
 Use of non-standard materials and systems
 Increased risk of failure of such materials and systems
 Failure of one integrated specialty can snowball into
failure of multiple related specialties
 Contractual responsibility for achieving LEED certification
Risks in the Green Building Project
Reduced risks:
 Air quality and mould litigation are unlikely, since green
buildings tend to have exceptional air quality
 Green projects are less vulnerable to energy price and
water costs increases
 Green projects tend to be more self-reliant (more natural
light, internal water and energy generation) and
therefore less vulnerable to power disruptions
Risks in the Green Building Project
Reduced risks:
 Every single step in a green building project must be
meticulously documented, for example, to meet LEED
requirements
 Potential for error is reduced, as is the potential for
disputes that arise because of insufficient documentation
 Liability issues are more readily determined
LEED: Leadership in Energy and
Environmental Design
• LEED is:
• A method of measuring
• A voluntary rating system used during the building
design process to set environmental and human health
protection goals
• A third-party certification process confirms the project’s
achievement of the design goals by reviewing
documentation collected during the design and
construction process
• A certain number of points must be achieved to meet
certification standards
LEED:
How does it work?
• Owner decides that the project will be a green project
• Owner registers its intent to have the project certified
with the CaGBC
• Registration gives the design team access to technical
guidance by independent LEED experts
• LEED scoring system consists of 7 prerequisites and 70
elective credits
• Prerequisites have no points associated with them, but
must be achieved to earn point in the associated
category
LEED:
How does it work?
Different Rating Systems:
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new construction
MURB (multi-unit residential building)
campus and multiple buildings
commercial interiors
core and shell
existing buildings
neighbourhood developments
Clauses for Owners to Review with
Special Care
• “Constructor” responsibility for health and safety in
Construction Management projects
• Dispute Resolution
• Limitation of Liability
• Financial Disclosure
Clauses for General Contractors to
Review with Special Care
• LEED documentation requirements
• Actually a Construction Manager at risk?
• Changes in the Work – documentation of changes,
impact on schedule and cost
• Exclusion Clauses in Bid Documents – Tercon case from
B.C. heading to Supreme Court of Canada
Clauses for Subcontractors to Review
with Special Care
• “Pay if paid” or “pay when paid” clauses
• Incorporation of the terms and conditions of the Prime
Contract into the Subcontract
• Priority of Contract Documents
• CM as Agent? Who is the contract with? Might affect lien
rights and availability of a payment bond