Construction Law Outline

Construction Law Outline
Fall 2010
Professor William Allensworth

1. Main Players in the Construction Industry
a. Owner
b. Contractor
c. Design Professional
d. Lender
e. Engineers
i. Geotechnical
ii. Civil
iii. Structural
iv. Mechanical
f. Builder
g. Supplier
2. Project Delivery Systems
a. Turnkey
i. Simplest project delivery system for the owner
ii. Key characteristic: One entity performs both the design and the build functions and responsibilities
iii. Owner gives the turnkey contractor some general directions and the turnkey builder is expected to provide the design and construction which meets these desires
1. In theory, the owner can return at the end, turn the key, and take over the project
2. Ex. Tract home
3. Directions can be much more specific and detailed
iv. Obligations of the turnkey builder may depend on the owner providing the builder with certain information
v. Payment
1. Home is likely to be cheaper
2. When do you pay for the house?
a. In most turn key project, you pay when the project is complete
b. Before construction starts, they might want to see the color of your money (how are you going to get your funds, do you really have the ability to pay)
c. Potential protection — may be able to withhold your payment if things aren’t up to your expectations (or it is at least easier to have a conversation about it)
vi. ADVANTAGES
1. Simple system
2. Frequently, Owner is not required to pay until completion
3. Avoid Impulse buying or “feature creep” which avoids escalating costs because of small details
4. Single point of responsibility
a. Owner only has a contract with the Builder and the Builder has a contract with everybody else
b. Behooves the owner to work with a builder who is responsible and financially solvent
vii. DISADVANTAGES
1. Lack of quality control
a. Owner suffers a lack of flexibility to dictate who the subcontractors are
b. Owner has little control over the design
2. Cannot negotiate individualized contracts
3. Very limited information regarding the design, excluding how the rooms are laid out
4. Risk of insolvency; if, after purchase, the builder goes belly up and there is a problem, who do you go after
b. Traditional System
i. Also called Design-Bid-Construct — see p. 8
ii. Most common system in the United States; typically used for a high end custom home or a commercial structure
1. Great choice if you want a more original design
iii. 3 party arrangement with 2 principal contracts
1. One between the Owner and the Architect
a. Architect may require that it have a certain number of site and certain points during the construction process to ensure that its plans are being sufficiently fulfilled (ex. of Architect from site visit)
2. Other between the Owner and the General Contractor
3. Purpose: take advantage of separate expertise
4. Note: General Contractor and Architect do not have a direct contractual relationship
iv. ADVANTAGES
1. 2 points of responsibility; owner has a direct contractual relationship with the Architect and the General Contractor
2. Build in checks and balances
a. Architect may act as the Owner’s agent during the construction process
b. Contractor may serve as another set of eyes to examine designs and plans
3. Owner can select from a wide rage of design professionals
a. Will have a design team complete a design according to your specifications
b. An interactive process of figuring out exactly want you want and how much money it is going to cost you to get there
4. More predictable cost; contractor does not bid on project until the design ins complete and therefore can more accurately estimate costs
v. DISADVANTAGES
1. Contractor is frozen out of the design process
a. As a result, design professionals seek to exculpate themselves from any liability for the contractor’s work
b. Anticipates that the design will be completed before the contract gets involved
2. Difficult to deal with claims- “finger pointing”
a. Owner may find itself at the center of claims between the Architect and the General Contractor as they each blame each other for problems
b. Adversarial nature of relationship between players
3. Linear and Sequential Process
a. Cannot start construction until the design is complete
b. Time frame is longer and therefore greater opportunity for price escalation
4. Interest of Owner and General Contractor conflict; GC is focused on meeting the budget while the owner is focused on quality and fulfilling its goals
5. During the construction phase, the contractor is required to build the house according to the plans
a. Plans might require a judgment call BUT the contractor is not the one who makes this decision- the Owner is (probably with the advice of the Architect)
b. Creates a great deal of friction

Owner

Architect

General Contractor

Subcontractor

Subcontractor

Subcontractor

Subcontractor

Subcontractor

Owner-
Architect
Agreement

Construction
Contract

Subcontracts

c. Design-Build System
i. Transaction in which a party, a design-builder, employs both construction and architect personnel, or the architect or contractor both designs and builds
ii. Key Factors:
1. 2 principal participants; the owner and the design-build entity
2. 1 prime contract between the owner and the design-build