Construction Law Blog

Construction Risk Management

Construction Risk Management

Part 1 of this Article, Understanding Risks in Construction, defines the concept of risk as it pertains to construction, addresses the various forms of risk which can effect a construction project, and methods for evaluation of this risk on a project by project basis.

With an understanding of risk, and its various forms and sources impacting the project, steps can be taken to manage this risk pro-actively. The process of managing these risks in the best interest of the project itself requires more planning and strategy than producing contract terms which look to make certain parties responsible for everything. It is highly beneficial to address contractual risk through improving both contract language clarity and contract administration practices.

 

To allocate risks to those parties who are in the best position to evaluate, control, bear the cost of, or benefit from the assumption of risk is the goal in seeking an allocation of risk in the best interest of the project. This will allow the owner to have a project more likely to reach its completion timely and correctly and within budget through reduced unforeseen expenses.

Contractors can benefit through proper risk allocation as profit margins in todays economic environment are usually quite thin, which can quickly be erased though uncontrollable and unforeseen events. The fewer the uncertainties the less unknown risk contractors are asked to burden, which can allow them to offer more competitive bids.

Design professionals also can benefit through being able to maintain a truly professional relationship with the project team and owner by not being required to assume types and amounts of risk out of proportion to their degree of involvement on the project.

Examples of risk management in the best interest of the project include the following:

 

The allocation of risks and responsibilities are subject to adjustment on a project by project basis based on project specific facts, circumstances, and negotiations between the parties. Consideration should also be given to the other agreements also in existence on the project which may also be impacted, such as the owner-architect and owner-contractor agreements for proper coordination and to prevent conflicting terms.

Your comments and future article topic suggestions are invited in the field below.

The author, 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 by email: John@LIConstructionLaw.com or (516) 462-7051.

 

 

This is a general information article and should not be construed as legal advice or a legal opinion.  Readers are encouraged to seek counsel from a construction lawyer for advice on a particular circumstance. Project Image courtesy of [contributor name] / FreeDigitalPhotos.net".

Networking Opportunities in New York Construction

Construction in particular adapts and responds to changes as a regular course of business. From changes in codes, regulations, and client preferences, staying abreast of the trends influencing the industry is essential for those who hope to earn their living from it.

Networking has always been an important function to anyone running a business. Whether it be the old fashioned handshake when being introduced to someone at a networking event, or internet based social and professional networking sites, the purpose remains the same; to meet new potential customers, build contacts that you can call on, looking to fill or find job openings, and to promote yourself.

Most, if not all, construction companies run some form of a website. And many may even have used the business networking sites available to all businesses, such as Linkedin, Twitter, or Facebook pages. But opportunities exist for the construction business owner to take their business networking to the next level of productivity, by becoming introduced to business networking cites dedicated exclusively to the construction industry.

Enter C-Source, and CIS Leads. C-Source is a free online network dedicated to the construction industry with numerous features and benefits for the construction business owner. This site was designed for the non-computer expert construction business to efficiently network and make relevant contacts.

“One of our main goals in launching C-Source was to create a networking platform for commercial contractors that was comprehensive yet user friendly, allowing users more time to focus on making connections” says Blair Grant, Client Services Supervisor for C-Source.

The user interface is designed to place all the information the construction business owner would want at their fingertips, and users can make connections with just the click of their mouse. Unlike other professional networking sites, however, C-Source allows the user to customize their search to find contacts that fit a specific need; such as locating SBE’s, MBE’s, WBE’s, Union / Non-Union Work, Bonded, and more.

Additionally, the level and accuracy of construction specific information found there is not replicated on the general professional networking sites, such as LinkedIn. “We have a team of people devoted to making sure all of our information is accurate, so our users have the most updated information about the companies listed in C-Source” says Grant.

The focus of C-Source is local, because the needs of construction business owners are local, and C-Source itself is a local company. This provides the ability for the New York area construction company to better focus its professional networking efforts on the New York area contacts, businesses, and decision makers most important to them.

Construction Information Systems (CIS), on the other hand, has been a leading online provider of project information to the construction industry for twenty years. With the ability to update project information on a daily basis, CIS has been assisting construction companies run better by assuring that they don’t miss a public or private construction job.

CIS Leads offers customized reporting services that covers both public and private sector projects, contractors, and design firms. A tight focus is maintained on the local NY, NJ, PA, and DE market through their use of over 40 reporters and researchers.

In addition to their project lead service, CIS also offers targeted marketing services for the construction business owner who wants to increase their visibility in the crowded New York metro area.

Your comments and future article topic suggestions are invited in the field below.

The author, 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 by email: John@LIConstructionLaw.com or (631) 608–1356 or (516) 462-7051. 

This is a general information article and should not be construed as legal advice or a legal opinion.  Readers are encouraged to seek counsel from a construction lawyer for advice on a particular circumstance.

The Inconvenient Termination for Convenience

Many construction contracts in New York make reference to how or why one or both parties are provided the right to terminate the agreement. One such typical form of termination, ‘Termination for Convenience’, may be provided.

Under New York construction law, an owner may be provided the right to terminate by contract, and courts will view this as an absolute right of the owner, and it is wholly enforceable.[1] Further, the owner is not required to act in good faith, and this right remains enforceable even in the Owner’s lack of good faith in its actions.

For a contractor working under a construction contract containing such a provision, the owner is not required to allow the contractor to complete the work, or pay its damages for termination,[2] which can be quite inconvenient to the contractor.

A typical termination for convenience clause provides the Owner the right to “ . . . abandon, postpone, or terminate the work or any part thereof, for any . . . reason, including the failure of the [contractor] and [owner] to agree upon the pricing of the work in accordance with [the contract] . . .” upon proper notice to the contractor.[3]

‘Convenience’ is defined as the ‘quality of being personally convenient or suitable or well adapted to one’s easy action or performance of functions[4]. And similarly, a parties' motives or motivations for such actions are irrelevant.

Recovery for a contractor under a typical termination for convenience clause in New York is generally limited to:

• Actual costs incurred up to the effective date of termination;
• Costs for settling and paying claims arising from the termination; and
• Any rate of profit and overhead on the above allowed by contract.

Such a termination may prove costly and unexpected to any contractor working under such a contract without an understanding of the potential ramifications. Contractors are always encouraged in seeking legal opinion prior to entering any New York construction contracts with unfamiliar terms and conditions to avoid unintended consequences.

Your comments and future article topic suggestions are invited in the field below.

The author, 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 by email: John@LIConstructionLaw.com or (631) 608–1356 or (516) 462-7051.

 

Five Crucial Surety Bond Principles for New York Contractors

The following article has been written by guest blogger Danielle Rodabaugh, who has outlined an informative examination of bonding principles in New York construction.

     Although surety bonds have been used to regulate New York's construction industry for decades, many contractors still have a limited understanding of their purpose. Surety bonds are crucial to New York's construction industry because they protect local government agencies, project owners and other financiers from losing the investments. To better understand the purpose behind New York surety bond regulations, contractors should acquaint themselves with the following five principles.

• Surety bonds are legally binding contracts. A basic surety bond definition

     (http://www.suretybonds.com/surety-bond-definition.html) explains that these risk mitigation tools function as legally enforced contracts that bind three separate entities to one another. When it comes to construction bonds, the three parties include the contractor or construction firms that purchases the bond (known as the bond's strong principal), the government agency or other project owner that requires the bond (known as the bond's strong obligee) and the company that sells the bond and acts as the contract mediator (known as the bond's strong surety).

     Each surety bond executed guarantees the principal will act in accordance with certain laws specific to the bond's contractual language. If the principal fails to meet the bond's stipulations, the bond will be used to pay for resulting damages or losses.

• New York surety bond requirements vary depending on where contractors work.

     Most contractors already know that the federal Miller Act requires separate payment and performance bonds on any publicly funded project whose contract exceeds $100,000. However, state and city governments have the power to enforce additional surety bond regulations per their discretion.

     Other than asbestos abatement work, all construction work in New York is regulated at the local level, meaning the state doesn't set surety bond regulations. For example, before a contractor can get a street and sidewalk construction permit to work in New York City, the contractor must file a street obstruction bond and a plumber's bond with the city's Department of Transportation (http://www.nyc.gov/html/dot/html/home/home.shtml). With each new construction project, New York contractors should always check with the government agency that regulates the geographic area to clarify any and all surety bond requirements.

• Some contractors might not qualify for the surety bonds they need.

     Since government agencies use surety bonds as a way to keep unqualified individuals from working in the New York construction market, it goes without saying that some contractors will not be able to get the contractor license bonds they need (http://contractorbonds.com/).

     Since surety bonds provide a financial guarantee, surety providers have the responsibility to determine who does and does not qualify for certain bonds. As a neutral third party, sureties risk a potential financial loss with every bond they issue, which is why they have such rigid qualifying standards.

• Getting a surety bond might cost more than some contractors can afford.

     Surety providers calculate surety bond premiums using a number of criteria. The base premium is determined as a percentage of the surety bond amount. For example, two different construction firms each need a $100,000 surety bond. The owner of the first company has a good credit score, so the bond premium will be calculated as 1% to 5% of the bond amount, which would be $1,000 to $5,000. The owner of the second company has a poor credit score, so the premium could range anywhere from 6% to 30% of the bond amount, which would be $6,000 to $30,000.

     The basic nature of surety bonds is to protect consumers and government entities from fraud, malpractice and financial loss. For this reason, surety bonds issued in the construction industry are often written to cover the full amount of the project. Since construction projects can be so expensive, this oftentimes means that smaller construction firms are unable to work on larger projects because they don't have the capital necessary to front bonds that have high premiums.

• Failing to maintain required surety bonds results in considerable penalties.

     When contractors are caught without proper surety bond coverage, a number of different penalties might be implemented. Contractors that fail to maintain surety bonds as required by law face legal action, penalty fines and even license revocation (http://www.liconstructionlaw.com/construction-law-blog/bid/88438/If-You-Want-a-Construction-Contract-Enforced-You-Need-Your-License). With these penalties on a record, getting additional surety bonds in the future could be more difficult since surety providers are wary of working with contractors who have had past bonding issues.

     Danielle Rodabaugh is the editor of the Surety Bonds Insider (http://www.suretybonds.com/blog/), a publication that provides in-depth analyses of developments within the surety industry. The publication is sponsored by SuretyBonds.com (http://www.suretybonds.com/), a nationwide surety bond producer that helps contractors understand the legal implications of the surety bond process.

     Your comment and future article topic suggestions are invited in the field below.

 

This is a general information article and should not be construed as legal advice or a legal opinion.  Readers are encouraged to seek counsel from a construction lawyer for advice on a particular circumstance.