Contractors and subcontractors frequently consult with their attorneys in the negotiation of construction contracts before they are signed, but counsel’s involvement generally ends at that point until and unless litigation arises down the road. Nevertheless, additional consultation with attorneys after execution of contracts can ensure that contractors and subcontractors meet their respective obligations and may confer savings that far offset the costs.
To give one common example, contractors are served with litigation involving its subcontractor, only to discover that the subcontractor lacked commercial general liability insurance in the amount required by their subcontract. Just because a subcontractor may agree to obtain required coverage does not ensure that it will do so, and Without compliance to confirm, the contractor may be exposed to liability to its surprise. As the focus moves from legalities to. Additional input and coordination from counsel can prevent the fumbling of major compliance issues once the contract is signed. The cost savings and potentially improved bonding capacity that can be achieved in exploration of contract compliance and risk management procedures can be critical to long term business planning.
As a consequence of lacking a procedure to ensure that its subcontractor maintained adequate insurance coverage, the contractor in my example was faced with a significant gap between the subcontractor’s coverage limit and the prospective judgment, which in turn threatened the goodwill between the contractor and the project owner. Situations like this are often preventable with some guidance regarding risk management procedures.
Construction law attorneys frequently deal with issues of risk management and can provide contractors and subcontractors with valuable guidance. In the case of the insurance coverage gap I just discussed, legal counsel can help firms establish procedures to ensure that insurance policies are received, verify adequate coverage, and schedule follow ups prior to policy expirations. Consequently, the risk of insufficient coverage or lapsed policies can be eliminated.
The costs of any Post-execution consultation with an attorney should not be excessive, and the benefits can substantially outweigh the costs in addition to scenerios as well. Aside from ensuring the quality of your services, which translates into goodwill and repeat business, you can also anticipate financial benefits. Insurance carriers encourage clients to implement procedures that minimize risk—after all, it saves them money when clients are more careful—so developing internal risk management practices may result in lower insurance and bonding premiums.
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) 608-1346.
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