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Understanding and Negotiating Construction Contracts
The complexities of construction contracts are made easy with this thorough and readable guide
Construction contracts can be complex for both owners and contractors. For contractors, negotiating fair and balanced commercial terms in contracts is just as important as properly managing projects; a properly negotiated contract can mitigate unnecessary risk and unnecessary risk transfer. This, in turn, reduces exposure to financial liability for the contractor and for avoidance of contract claims and disputes.
Understanding and Negotiating Construction Contracts provides a comprehensive and readable introduction to the world of construction contracts. Providing, for example, coverage of the four most common types of contracts--lump sum/fixed-price, cost-plus, time-and-materials, and unit-pricing--it promises to reduce uncertainty and allow contractors to enter contractual negotiations with greater confidence to be able to achieve a fair and balanced contract. This updated new edition reflects the up-to-date best practices to understand how to better negotiate the commercial terms and conditions in construction contracts.
Readers of the second edition of Understanding and Negotiating Construction Contracts will also find:
* Updated information on indemnity, insurance, and negotiation
* An all-new chapter with a contract analysis checklist
* Real-world examples drawn from small residential, retail, large commercial, and international projects
Understanding and Negotiating Construction Contracts is essential for construction professionals and college students studying construction contracts and the liabilities arising out of them.
List of contents
Acknowledgments xiii
About the Author xv
Preface xvii
Disclaimer xix
Introduction xxi
The Goals of This Book xxi
What Are the Benefits of This Book? xxi
Contractor & Owner Conventions xxii
Private Contracts or Government Contracts? xxii
Key Contracting Concepts xxii
Two Types of Commercial Terms & Conditions xxiii
The Most Important Commercial Terms & Conditions xxv
The Contracting Process xxv
Terms & Conditions xxv
The Concept of Risk Transfer xxvi
This Is a Book Developed Just for Contractors xxvii
Three Final Suggestions xxvii
Chapter 1: Contracts: Basic Training 1
What Is a Contract? 1
The Steps to a Contract 1
Coming to the Party? 2
The Starting Point 3
"Here's My Proposal" 4
"Consideration," or Something of Value 5
The "Happy Test" 5
"Can That Person Sign This Contract?" 6
Call in the Enforcer to Close the Breach! 6
A Contract Example 8
Strange Words & Long Paragraphs 10
Contracting Myths 11
Contract Negotiations 12
Chapter 2: Types & Forms of Contracts 15
Fixed Price & Fixed Schedule Contracts 16
Reimbursable Type Contracts 16
Combined Fixed Price & Reimbursable Contracts 18
Cost Plus Fee Contracts 20
Guaranteed Maximum Price Contracts 21
Target Price Contracts 21
Contracts with Performance Incentives 22
Form of Contracts 23
Some Final Contract Housekeeping-- Definitions 30
Conclusion 32
Chapter 3: Scope of Work 33
The Scope of Work Matrix 37
Scoping Drawings 39
Conclusion 40
Chapter 4: Terms of Payment & Cash Flow 41
Cash Flow 42
Interest Rates 44
Periodic Progress & Milestone Payments 45
Conclusion 59
Chapter 5: The Schedule 61
Float 62
Time Is of the Essence 64
Extra Time, but No Money 66
Conclusion 68
Chapter 6: Assurances of Performance 69
Guaranties & Bonds 70
What Does "Failure to Perform" Mean? 72
What Is a Bond? 72
Forms of Assurances of Performance 73
Surety Companies 78
Some Language Considerations on Guaranties & Bonds 82
Types of Performance Assurances 82
Conclusion 101
Chapter 7: Insurance 103
What Is Insurance? 104
Claims Made vs. Occurrence 105
Types of Insurance 106
Important Issues Associated with Insurance 112
Additional Insured Status 120
Additional Insurance Basics 121
A Typical Insurance Clause in a Construction Contract 134
Safety 140
Chapter 8: Indemnity 141
Insurance & Indemnity 142
Indemnity Definitions 142
Transferring the Owner's Risks to Contractors 143
Fairness Is Not a Consideration 143
Is an Indemnity Required in a Construction Contract? 144
Anti- Indemnity Legislation 144
Examples of Indemnification Clauses 150
Indemnification, Additional Insured Status, & Contractual Liability Insurance 157
Owners Love CLAIMS! 161
Negotiating Indemnity Clauses 162
Knock- for- Knock Indemnities 165
Conclusion 166
Chapter 9: Changes 169
Some Ground Rules 170
Protecting the Project Manager 170
Owners' Directives 171
Constructive Changes 171
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About the author
Kit Werremeyer is owner and president of Southernstar Consultants LLC, Valrico, Florida, US, which provides training in construction contract negotiations and other professional services for engineering and construction companies both in the US and internationally. He has more than four decades' experience in negotiating fair and balanced construction contracts, sales, major project development, and construction contract dispute resolution.
