Monday, August 17, 2020

Contract Enforcement vs Preserving Future Business Relationships



I recently observed a group meeting to discuss and approve a questionable Change Order Proposal from a  Contractor.

One of the group members and the group’s attorney floated the idea of ignoring the issue and approve the Change Order "as is" to preserve a future business relationship with the contractor.

Here are a few reasons why this eyebrow raising idea is not recommended:

      1.   All contractors should be qualified and selected at the beginning of all projects because all projects have different requirements, contractor ratings and credentials changes.

 2.     Any contractor left off the hook for a bonafide claim or construction document responsivity may loose respect for the owner causing a cavalier relationship during the remainder of the project and, if and when hired again, or with other clients.

 3.     Construction Contracts reference Construction Documents and Construction Documents are prepared by Architects or other Professionals.  Letting the contractor off the hook without the preparers approval could invalidate the construction documents and compromise any project warrantees, guarantees and/or any future discovered deficiency claims.

 Tip! Always keep hired professionals advised and/or involved with any construction document issues or concerns in writing.  Gives real meaning to the issues.

 4.     While the words “fairness” and “reasonable” often come up when discussing construction issues the contract and construction documents should prevail because they protect the interests of all parties. i.e., be guided by the respective Contracts and Construction Documents.

Source: Construction Management Made Easy Glossary

Contract

1. An agreement between two or more parties, especially one that is written and enforceable by law
2. The writing or document containing such an agreement

Construction Documents 

All drawings, specifications and addenda associated with a specific construction project. 

Source: Construction Management Made Easy Glossary

 Issues during the Course of Construction before making final Payment:

  1. When a Change Order Proposal is received and is not acceptable immediately REJECT it because this fair, timely, and reasonable notice allowing the contractor the opportunity to revise, discuss and/or resubmit the claim.  But if not mutually resolvable;
  2. Attempt to negotiate a settlement to resolve the issue. But if this fails;
  3. Be guided by the dispute provisions in the contract and/or construction documents

Issues after Final Payment:

    When an issue is discovered attempt to resolve the issue amicably, but if not possible;

  1. Make a written demand to the Contractor to resolve the issue, but if no response or resolution;
  2. File a complaint with the prevailing Contractor’s licensing board. But if that fails;
  3. Retain legal counsel specializing in Construction Contracts and Construction Documents law.

 Understanding Contractual Relationships and Methods:

 Here is the conventional method of construction through the general contractor.  The Architect may or may be contracted to take on managerial services. Using this method, the owner contracts directly with the general contractor (who is regarded, in law, as an "independent contractor" rather than an "agent").  The general contractor then enters into subcontracts for various aspects of the work. See Figure 1 below:

Source: Construction Management Made Easy

Here are available methods of construction using professionals, as “agents”, such as construction managers and/or architects to take on managerial services. Typically, there is no general contractor, and the owner contracts directly with the several trades’ contractors.  This arrangement can take any one of a number of forms.  See Figure 2 below for four such forms:

Source: Construction Management Made Easy

Possible Issue Remedies:

Regardless of the method used all parties of any project should be guided by and enforce/stand by their respective Contract(s)/Agreement(s) and the Construction Documents and avoid rationalizing and/or ignoring issues to preserve future working relationships.

Tip! Remember that requests for additional or deductive work or time alterations are actually Change Order PROPOSALS and subject to approval that should not be unreasonably withheld. 

Any more ideas how to handle QUESTIONALBLE Change Order Proposals?



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