Construction Practices
ASA supports legislation to make void as against public policy any contract terms that obligate a subcontractor to indemnify, “hold harmless” or defend any others from the consequences of accidental loss, unless the subcontractor’s obligation to indemnify or defend are limited to the extent of bodily injury or property damage by the negligent acts or omissions of the subcontractor. ASA also advocates that model construction contracts should limit any obligations on the part of a subcontractor to indemnify, hold harmless or defend any others from the consequences of accidental loss to the extent of bodily injury and property damage losses caused by the negligent acts or omissions of the subcontractor. Ideally, such model contracts should disclaim any duty on the part of a subcontractor to defend an indemnified party from claims, and should limit a subcontractor’s exposure for hazardous materials claims to losses caused by the subcontractor’s sole negligence.
Insurance and Risk Management: “Mastering Hold Harmless Clauses,” “ASA Anti-Indemnity Statutes in the 50 States,” “FAQ on Casualty Risk Transfer”
Contracts and Project Management: “Subcontractor Negotiating Tips—A Compilation,” “ASA Subcontract Documents Suite,” “White Paper: Defending Your—Not Others’—Mistakes”
ASA supports legislation to make void as against policy any contractual terms that require either a subcontractor or a subcontractor’s insurer to indemnify or defend “additional insureds” or any other against claims for accidental loss unless the obligations of indemnity or defense are limited to the extent of bodily injury and property damage caused by the negligent acts or omission of the subcontractor. ASA also advocates that model construction contracts should prohibit any contractual terms that require either a subcontractor or a subcontractor’s insurer to indemnify or defend additional insureds or any other against claims for accidental loss, unless the obligations of indemnity or defense are limited to the extent of bodily injury and property damage caused by the negligent acts of omissions of the subcontractor.
Insurance and Risk Management: “Mastering Hold Harmless Clauses,” “FAQ on Casualty Risk Transfer”
Contracts and Project Management: “ASA White Paper: Addressing the Additional Insured Problem,” “ASA Subcontract Documents Suite,” “White Paper: Defending Your—Not Others’—Mistakes”
ASA advocates that model contracts should encourage the use of Owners and Contractors Protective Liability Insurance (OCP) or equivalent products to insure the liability of owners and contractors arising from operations performed for them by the subcontractor or from their supervision of those operations, sometimes called “vicarious liability.”
ASA supports to make void as against public policy any contractual terms that waive a subcontractor’s rights of subrogation for loss payments and expenses made by the subcontractor or covered by the subcontractor’s workers’ compensation insurance or general liability insurance. ASA also advocates that model construction contracts should prohibit or exclude any contractual terms that waive subcontractor’s rights of subrogation for loss payments and expenses made by the subcontractor or caused by the subcontractor’s workers compensation or general liability insurance.
Insurance and Risk Management: “FAQ on Casualty Risk Transfer”
ASA supports legislation and regulation to discourage the use of Owner Controlled Insurance Programs (OCIPs), Contractor Controlled Insurance Programs (CCIPs) and Project Specific Insurance Programs (PSIPs), commonly known as “wraps” or “wrap-ups.”
Insurance and Risk Management: “Consolidated Insurance Programs Using ASA Tools to Address Costs and Hidden Risks,” “Risk Transfer: 30 Questions for Consolidated Insurance Programs
Contracts and Project Management: “ASA Subcontract Documents Suite”
Construction contractors and subcontractors report that getting approval and eventual payment for change orders on federal construction increasingly has become an ordeal. There is little precedent for statutory direction on change orders on either public or private work. ASA, in conjunction with members of the construction procurement coalition, supports establishing parameters for requesting, approving and paying for change orders on federal construction. ASA supports federal legislation or regulation that would establish parameters for requesting, approving and paying for change orders on federal construction.
Contracts and Project Management: “ASA Subcontract Documents Suite,” “Subcontractor Negotiating Tips—A Compilation,” “Effective Administration and Management of Changes and Claims,” “Preparation and Presentation of Change Proposals and Claims,” “Contract Formation and Its Impact on Changes and Claims,” “Translating Changes and Changed Conditions,” “Contract Changes and Claims—Contractual and Legal Basis of Entitlement to Subcontract Adjustment,” “ASA Change Order Reservation of Rights Stickers,” “White Paper: Preserving Claims for Scope Changes,” “White Paper: Preserving Claims for Schedule Changes”
Architects, engineers and their firms increasingly ignore their professional responsibility by attempting to pass on portions of their work to contractors, subcontractors and suppliers. Contractors, subcontractors and suppliers frequently are not qualified nor do they have full knowledge of overall design considerations affecting other trades as well as their own. ASA believes that architects, engineers and their firms should assume and accept full responsibility for all areas of design associated with the construction process. ASA supports state legislation and regulations that clarify that the engineer of record has full and final responsibility for design.
Contracts and Project Management: “ASA Subcontract Documents Suite,” “Subcontractor Negotiating Tips—A Compilation,” “White Paper: Defining Design Responsibility,” “White Paper: Evaluating Transfers of Design Responsibility”
The traditional payment system creates cash flow problems for subcontractors. An alternative system, known as direct disbursement, frequently is used in some parts of the country. Direct disbursement allows for a third party (e.g. a title company, lender, etc.) to disburse the construction funds to all parties. The third-party arrangement is the sole difference in contract agreements between owners, construction manager, the general contractor and the architect to approve the work of a subcontractor. This payment method also retains the use of partial lien waivers to protect subcontractors, owners, lenders, construction managers and prime contractors. ASA supports the use of direct disbursement in lieu of the traditional payment system in construction. Direct disbursement also may be used in lieu of a payment bond when such bonds are unavailable or inappropriate.
Access to surety bonds is a concern to all construction contractors and subcontractors. The process of determining a contractor’s eligibility for a bond is subjective and contractors report that the information provided by their surety agents is inadequate. ASA supports federal legislation to assure that qualified contractors have equal access to surety bonds by giving an applicant for bond against which adverse action is taken the right to receive a statement of reasons for such action from the surety or its agent.
ASA supports legislation to amend the Federal Arbitration Act so that in states with industry-specific venue laws, the arbitration can be held in the state and according to the state’s own laws, even if the contract calls for arbitration.
ASA supports legislation granting construction contractors and their employees immunity from negligence lawsuits based on good faith, voluntary actions of themselves and their employees made without promise of compensation to the contractor, to provide rescue or relief assistance in connection with a natural or manmade disaster or other life-threatening emergency, or to provide volunteer services at the request of law enforcement or state emergency management officials without promise of compensation beyond possible reimbursement of funds.
The purpose of contractor licensing is to ensure that building and construction contractors have the appropriate construction and management skills to operate in a safe and ethical manner. Such laws should be designed and implemented to encourage healthy competition, rather than to discourage competition. ASA believes a state licensing law should include, at least, the following provisions:
- All general and specialty trade contractors doing business in the state must obtain a license before commencing work.
- In order to obtain a license, a contractor must:
- Periodically pass a written exam designed to demonstrate knowledge of the industry. The state licensing board must administer such exam at regular intervals, with the schedule announced at least 60 days in advance.
- Demonstrate practical experience in the field.
- Demonstrate financial capability.
- Show evidence of appropriate insurance coverage.
- Provide a surety bond to assure payment of appropriate taxes.
- If the status of any of its eligibility requirements changes, the contractor must promptly notify the state licensing board and, if the deficiency is not corrected with a reasonable period of time, the contractor’s license should be suspended until the deficiency is corrected.
- A contractor’s license may be suspended or revoked for any activity that demonstrates a fundamental lack of business integrity, including failure to comply with state public safety and health requirements, failure to pay its bills and/or a consistent pattern of failure to perform its contractual obligations.
A contractor must publicly display its license number, including at its business office and on the construction site, and on business letterhead, advertisements and building permits, and vehicles with the firm’s name.
Labor and material furnished by prime contractors, subcontractors, material suppliers or mechanics become affixed to the real estate to improve the value of the land and cannot be reclaimed by them. Lien laws provide a meaningful security interest in the land to secure payment for the labor and materials furnished to improve the land. ASA believes a mechanic’s lien law should contain, at least, the following provisions:
- Liens should be available to all persons furnishing labor or materials or services for use at the construction site except suppliers to suppliers.
- The priority of the lien should date back to visible commencement of work.
- The owner’s liability should not be limited to the contract balance.
- Pre-work notices (e.g., “preliminary notice,” “notice of furnishing”) may be offered to protect owners in lieu of “lien fund” provisions limiting recovery.
- If the landlord directly or implicitly consents to improvements, liens should attach to the landlord’s interest.
- No contract for construction, whether prime contract or subcontract, should include a waiver of lien rights.
- The owner may bond off liens.
- The lienor should not have less than 90 days to file notice or otherwise perfect lien after completion of the project or last performance of its work, whichever is later.
- The owner and/or prime contractor should be required to provide claimants or potential claimants with the legal description of the property, the owner’s name and address, project financing and other information necessary to perfect a lien.
Contracts and Project Management: “FASA Lien & Bond Claims in the 50 States,” “ASA Subcontract Documents Suite,” “Strengthening Subcontractor Rights Under a Mechanic’s Lien Law,” “Mastering Negotiations on Mechanic’s Liens,” “ASA Lien Waiver Reservation of Rights Stickers,” “White Paper: Curbing the Risk of Lien Waivers,” “White Paper: Establishing the Right to Payment Assurances”
Construction owners frequently place “no damage for delay” clauses in their contracts and prime contractors are including similar terms in their subcontracts. The no-damage-for-delay clause is used to protect the construction owner or prime contractor from liability for unanticipated additional costs associated with delay to, disruption of or interference with a subcontractor’s work. Many construction delays are the result of the acts or omissions of the owner, its design professional or prime contractor. Such delays result in higher overhead and construction costs that impose a significant financial burden upon subcontractors. ASA believes that subcontractors should be equitably compensated for the additional costs associated with owner or prime contractor-caused delays. ASA supports state legislation to make no-damage-for-delay clauses against public policy.
Contracts and Project Management: “ASA Subcontract Documents Suite,” “Subcontractor Negotiating Tips—A Compilation”
Prime contractors frequently place pay-if-paid clauses, sometimes called contingent payment clauses, in their subcontracts. Such contingent payment clauses transfer the risk of owner default from the prime contractor (who has both the ability and the responsibility to examine the financial ability of the owner) to the subcontractor (who does not). Such contingent payment clauses place a subcontractor at risk for nonpayment by the owner for reasons created by the prime contractor and/or other subcontractors. ASA supports state legislation to make the use of contingent payment clauses against public policy.
Contracts and Project Management: “ASA Subcontract Documents Suite,” “Subcontractor Negotiating Tips—A Compilation,” “Contingent Payment FAQ,” “Mastering Contingent Payment,” “Negotiating the Payment Clause—A Script,” “Strategies for Obtaining Unconditional Payment for Performance,” “ASA Contingent Payment Clauses in the 50 States,” “ASA Payment Application Reservation of Rights Stickers,” “White Paper: Establishing the Right to Payment Assurances”
Slow payment is a major factor contributing to cash flow problems of construction contractors and subcontractors. ASA supports legislation that requires owners to pay their prime contractors within 10 days after receipt of a proper invoice, prime contractors to pay their subcontractors within seven days after receiving payment from the owner, and subcontractors to pay their subcontractors and suppliers within seven days of receipt of payment from the prime contractor. A late payment interest penalty must be paid automatically when payment is late.
Contracts and Project Management: “ASA Subcontract Documents Suite,” “Subcontractor Negotiating Tips—A Compilation,” “ASA Prompt Payment in the 50 States,” “Mastering Final Payment,” “Negotiating the Payment Clause—A Script,” “Strategies for Obtaining Unconditional Payment for Performance,” “ASA Payment Application Reservation of Rights Stickers,” “White Paper: Establishing the Right to Payment Assurances,” “White Paper on Progress Payments”
Historically, 10 percent has been retained from construction progress payments. The retainage system has become increasingly inequitable and counterproductive. ASA supports the elimination of unnecessary retainage on all construction projects. In addition, ASA supports legislation to prohibit a prime contractor from retaining a higher percentage from its subcontractors than the owner is retaining from it. Finally, ASA supports legislation that requires retained funds to be held in escrow with interest accruing to the benefit of the party to whom funds are owed.
Contracts and Project Management: “ASA Subcontract Documents Suite,” “Subcontractor Negotiating Tips—A Compilation,” “FASA Retainage Laws in the 50 States,” “FAQ on Retainage,” “White Paper: Eliminating or Limiting Retainage”
A statute of repose is one of the several legal devices defining the time period within which a lawsuit must be brought on a particular claim. Generally, a statute of repose cuts off a right of action after a specific time measured from delivery of the product to completion of work regardless of time of accrual of a cause of action, or of notice of an invasion of a legal right. ASA supports state legislation to define the time period within which a lawsuit must be brought on a particular project as no longer than seven years.
Prime contractors frequently place clauses in their subcontracts that prohibit a subcontractor from stopping work for nonpayment. Under such a cause, a subcontractor may be required to work indefinitely without receiving payment for work performed. ASA supports state legislation to make such clauses against public policy.
Contracts and Project Management: “ASA Subcontract Documents Suite,” “Subcontractor Negotiating Tips—A Compilation,” “ASA Prompt Payment in the 50 States,” “Mastering Final Payment,” “Negotiating the Payment Clause—A Script,” “Strategies for Obtaining Unconditional Payment for Performance,” “ASA Payment Application Reservation of Rights Stickers,” “White Paper: Establishing the Right to Payment Assurances,” “Mastering the Ability to Stop Work for Non-Payment”
Prime contractors, on occasion, divert funds, which have been paid to them by the owner so that they may pay others, fund other jobs or use the funds for other purposes. ASA supports legislation that imposes a trust on funds that are in the hands of a contractor to be used to pay its lower tier subcontractors and material suppliers. ASA also endorses criminal penalties for misappropriation of these trust funds.
Contracts and subcontracts in the construction industry require that disputes be settled under the laws of a state that may not have adequate protection for one of the parties to the contract or in a state at a significant disadvantage from the location of the project. Such contract provisions can place subcontractors at a significant disadvantage in attempts to reach an equitable resolution to a legitimate dispute. ASA supports state legislation to require that a dispute over work performed in a state be settled in and under the law of that state.
Contracts and Project Management: “ASA Subcontract Documents Suite,” “Subcontractor Negotiating Tips—A Compilation,” “Anti-Forum Selection Clauses in the 50 States”