Construction Law Minneapolis

PRESENTED BY: DANIEL S. SCHLECK
March 15, 2008

5 Ways to Control Legal Risk

1. Types of Contracts
2. Important Contract Clauses
3. Insurance
4. Bonds
5. Special Subcontractor Issues

TYPES OF CONTRACTS

• Firm Fixed Price
• Fixed Unit Price
• Cost Reimbursement With Fixed Fee
• Cost Reimbursement With Fixed Fee Up to
• Guaranteed Maximum Price.
• Time and Materials

IMPORTANT CONTRACT CLAUSES

• Scope of Work
• Coordination
• Change Orders
• Responsibility for Site Conditions
• Termination
• Notice of Claims
• Attorney’s Fees

SCOPE OF WORK

• To the greatest extent possible, a contract should spell out the exact nature of the work to be performed.
• Most projects will change to some extent from the time the contract is written to the time of performance.
• Change provisions in contracts allow for routine changes.
• A “Cardinal Change” constitutes a breach of the contract by the owner.

CHANGE ORDERS

• Many contracts contain provisions requiring that change orders be done in writing.
• However, changes are often made without a writing.
• Sometimes a waiver of the written requirement is valid.

RESPONSIBILITY FOR SITE CONDITIONS

• There is always a risk that the site conditions will vary from those anticipated when the contract was formed.
• Contractors should include a contractual provision requiring subcontractors to:
  • Inspect conditions at project site;and
  • Based upon that inspection, accept responsibility to satisfactorily perform work without additional expense to contractor.
  • A “Differing Site Conditions” provision can be used to share the risk of changing conditions.

TERMINATION

• Most construction contracts allow the contractor or owner to terminate the contract if certain criteria are met.  In order to validly terminate a contract in
• Minnesota, the terminating party must pay close attention to the termination clause and follow it to a “T.”

NOTICE OF CLAIMS

• Contractors should make note of any “notice provisions” included in a contract.
• Unless there is a finding of no prejudice against the non-claiming party, or a waiver of notice by the non-claiming party, notice provisions will likely be enforced by Minnesota Courts.
• Notice provisions can be waived if there is actual knowledge and acquiescence.  New Ulm Bldg. Center, Inc. v. Studtmann, 225 N.W.2d 4 (Minn.1974).

ATTORNEY’S FEES

• “The general rule is that attorneys’ fees are allowable if authorized by contract or statute, or if a party acts in bad faith.” Material Movers, Inc. v. Hill, 316 N.W.2d 13, 18 (Minn. 1982).

INSURANCE

• Liability
• Auto
• Workers Comp
• Builder’s Risk

BONDS

• Bid Bonds
• Performance Bonds
• Payment Bonds

SPECIAL SUBCONTRACTOR ISSUES

• Flow Down Clause
• Pay When Paid Clause
• Mechanics Liens

FLOW DOWN CLAUSE

• A flow down clause is a must for contractors.
• A flow down clause contractually binds the subcontractor to the general contractor in the same manner as the general contractor is bound to the owner

“PAY IF”/ “PAY WHEN” PAID

• Minn. Stat. § 337.10, subd.3, provides that a construction contract “shall be deemed to require the prime contractor and all subcontractors to promptly pay any subcontractor or material supplier contract within ten days of receipt by the party responsible for payment of undisputed services provided by the party requesting payment.”
• Some contractors include “pay-if-paid” clauses in their contracts with subcontractors.

MECHANICS LIEN

• Serve pre-lien notices if required within 45 days of starting work.
• File a mechanic’s lien statement within 120 days of the last date of work.
• Must commence foreclosure within one year of the last date of work.
• The above requirements must be followed exactly as required by Minnesota statute §514, otherwise the mechanic’s lien will be unenforceable.

DAMAGES

No Damage for Delays

• Owners and general contractors may try to include a provision in the contract which eliminates their liability for any delay.
• The enforceability of such “no damage for delay” provisions in private contractshas not been ruled on by Minnesota courts. 
• However, note that Minn. Stat. § 15.411 subd.2  prohibits “no damage for delay” clauses in public workscontracts.

Liquidated Damages

• Contractual provisions providing for liquidated damages have been approved by Minnesota Courts.
• In Gorco Construction Co. v. Stein, 99 N.W.2d 69, 74 (Minn. 1959), the Minnesota Supreme Court stated: “ The modern trend is to look with candor, if not with favor, upon a contract provision for liquidated damages when entered into deliberately between parties who have equality of opportunity for understanding and insisting upon their rights)

Waiver of Consequential Damages

• Consequential Damages are damages that result from the damage to something else. (i.e. You didn’t finish your contract so I lost the sale of my building to someone else.)

WRAP-UP

• Types of Contracts
• Important Contract Clauses
• Insurance
• Bonds
• Special Subcontractor Issues
• Damages

Keys To Construction Risk Management

• Clarify objectives
• Identify the nature of the uncertainties
• Introduce effective communication systems
• Improve decision making
• Introduce only effective risk control measures
• Protect the project objectives
• Provide knowledge of risk history

For Further Information Contact
Daniel S. Schleck
Schleck & Associates PA
763-249-0888
dschleck@schleckpa.com