The Contractor's Compass April 2017

THE

ASA’s

THE OFFICIAL EDUCATIONAL JOURNAL OF THE AMERICAN SUBCONTRACTORS ASSOCIATION

WWW.ASAONLINE.COM

APRIL 2017

Documentation TM

A Winning RFI System Why Submittal Approval Does Not Get You Off the Hook Overcoming Safety & Health Documentation Challenges: Ensuring Legally Defensible Paper Trails Evolving Your Document Handling with Paperless Takeoff Legally Speaking: Most Dangerous Subcontract Clauses That Affect Payment

SAVE THE DATE! February 28 – March 3, 2018

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THE

ASA’s

April 2017

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EDITORIAL PURPOSE The Contractor’s Compass is the monthly educational journal of the Foundation of the American Subcontractors Association, Inc. (FASA) and part of FASA’s Contractors’ Knowledge Network. The journal is designed to equip construction subcontractors with the ideas, tools and tactics they need to thrive.

The views expressed by contributors to The Contractor’s Compass do not necessarily represent the opinions of FASA or the American Subcontractors Association, Inc. (ASA).

EDITORIAL STAFF Editor-in-Chief, Marc Ramsey MISSION FASA was established in 1987 as a 501(c)(3) taxexempt entity to support research, education and public awareness. Through its Contractors’ Knowledge Network, FASA is committed to forging and exploring the critical issues shaping subcontractors and specialty trade contractors in the construction industry. FASA provides subcontractors and specialty trade contractors with the tools, techniques, practices, attitude and confidence they need to thrive and excel in the construction industry.

FASA BOARD OF DIRECTORS Richard Wanner, President Letitia Haley Barker, Secretary-Treasurer Brian Johnson Robert Abney Anne Bigane Wilson, PE, CPC SUBSCRIPTIONS The Contractor’s Compass is a free monthly publication for ASA members and nonmembers. Subscribe online at www.contractorsknowledgedepot.com.

ADVERTISING Interested in advertising? Contact Richard Bright at (703) 684-3450 or rbright@ASA-hq.com or advertising@ASA-hq.com.

EDITORIAL SUBMISSIONS Contributing authors are encouraged to submit a brief abstract of their article idea before providing a fulllength feature article. Feature articles should be no longer than 1,500 words and comply with The Associated Press style guidelines. Article submissions become the property of ASA and FASA. The editor reserves the right to edit all accepted editorial submissions for length, style, clarity, spelling and punctuation. Send abstracts and submissions for The Contractor’s Compass to communications@ASA-hq.com.

ABOUT ASA ASA is a nonprofit trade association of union and non-union subcontractors and suppliers. Through a nationwide network of local and state ASA associations, members receive information and education on relevant business issues and work together to protect their rights as an integral part of the construction team. For more information about becoming an ASA member, contact ASA at 1004 Duke St., Alexandria, VA 22314-3588, (703) 684-3450, membership@ASA-hq.com, or visit the ASA Web site, www.asaonline.com.

LAYOUT Angela M Roe angelamroe@gmail.com © 2017 Foundation of the American Subcontractors Association, Inc.

Features A Winning RFI System.............................................................................8

by Anwar Hafeez

Why Submittal Approval Does Not Get You Off the Hook...........10

by Anwar Hafeez

Overcoming Safety & Health Documentation.................................12 Challenges: Ensuring Legally Defensible Paper Trails

by Adele L. Abrams, Esq., CMSP

Evolving Your Document Handling ..................................................15 with Paperless Takeoff

by Adam Khemiri

Departments CONTRACTOR COMMUNITY..... ........................................................... 4 LEGALLY SPEAKING............................................................................... 17 The Most Dangerous Subcontract Clauses That Affect Payment

by Timothy Woolford

Quick Reference ASA/FASA CALENDAR...........................................................................20 COMING UP............................................................................................. 20

Contractor Community ASA President: Association Remains Committed to Advocacy at All Levels of Government and Construction Industry “ASA is your advocate before every branch and every level of government and within the construction industry,” 2016-17 ASA President Robert Abney, F.L. Crane & Sons, Inc., Southaven, Miss., said in his “State of the Association” address on March 18. “At the federal level, ASA keeps its eye on the subcontractor ball regardless of who is in the White House or in the majority of Congress. While general business priority issues and challenges may change with each Administration or control of Congress, ASA’s priorities don’t change. Payment of subcontractors should never be a partisan issue.”

Abney delivered his “State of the Association” address during the ASA annual business meeting, held in conjunction with ASA’s annual convention, SUBExcel 2017. The convention took place March 15-18 in Denver. View images of SUBExcel 2017 in the ASA Facebook Photo Album.

“For decades,” Abney said, “the standard of payment in the construction industry has been contingent payment—that is, the subcontractor will be paid once the prime contractor is paid by the construction owner. Since 1988, when Congress enacted the ASA-initiated prompt pay for subcontractors, the subcontractor challenge—on both public and private work—has been to find out when the prime contractor gets paid.”

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Abney noted that for several years, ASA staff has been spreading the word how a few city and state government agencies have tackled that challenge. “ASA chapters, including ASA of Metro Washington and ASA of California, have run with the ball,” he said. “Yesterday, the ASA Task Force on Government Advocacy reviewed a draft model of payment transparency legislation for state and local governments that was prepared by the ASA staff.”

In addition, Abney announced, ASA staff has brokered an agreement among several construction and design professional associations on federal payment transparency legislation. “That agreement includes a requirement that a federal agency post on a Web site information about when, how much and for what the prime contractor was paid, a copy of the payment bond, as well as other key information,” he said. “The group already has identified a sponsor and we expect a bill to be introduced in the next few months.”

Another issue on which ASA has initiated action is how to help prime contractors and subcontractors get change orders approved and paid in a timely fashion. ASA has provided its members with educational materials on change orders, including a weekly educational article in ASAToday and two white papers. In April, Abney announced, ASA will publish another change order white paper on translating changes into dollars and time extensions. In the model contract arena, he said, ASA worked with ConsensusDocs to gain acceptance of a model contract clause that requires an owner to pay at least 50 percent of

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the estimated cost of a change order while negotiations are conducted.

“This at least keeps cash flowing,” Abney said.

On the legislative front, he said, two years ago ASA staff drafted state model change order reform legislation intended to force a construction agency to review and approve change orders in a timely manner. “Yesterday, our task force reviewed drafts of several other approaches to change order reform,” Abney said. “These include requiring a construction agency to include its change order policy in its RFP, a ConsensusDocsstyle partial payment scheme, and transparency on the status of change order processing.”

At the federal level, ASA and AGC have been working for several years to help Congress collect data on federal change order problems. Most recently, Abney noted, the two associations worked with the National Association of Credit Management to conduct a construction-wide survey on federal change order experiences. In addition, he announced, ASA staff has been brokering an agreement with other construction and design professional associations on change order reform legislation. “That effort is nearing a conclusion and we expect legislation to be introduced in the next several months,” he said. In the meantime, ASA chapters, including ASA of Metro Washington and ASA of California, have pursued change order reform legislation in their state legislatures.

Another payment issue on which ASA has been working for several years is subcontractor payment assurances on public-private partnerships. Unless specified in an authorizing statute or the contract

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documents, there are unlikely to be subcontractor payment assurances— neither payment bonds nor lien rights—on such projects. At least 18 states are considering P3 legislation this year, Abney noted.

At the federal level, Abney said, ASA worked with the surety industry to broker an agreement among construction associations to support federal legislation requiring bonding on federal P3 projects. “This is even more important since many advisors of the Trump Administration are advocates of financing infrastructure through P3s,” Abney said.

In the federal executive branch, he said, ASA’s payment priority is full implementation of the ASA-initiated law enacted in 2015 to further regulate the use of individual sureties on federal construction. “Publication of the implementing rule has been slowed down by the Trump Administration’s regulatory freeze, but we do expect it to be released in a few months,” he said.

“In addition,” Abney continued, “ASA staff has expressed concern that some federal payment protections that are not statutorily-required—including zero retainage on federal construction and subcontractor payment on state DOT construction—may be threatened by the new Administration’s directive to withdraw two rules for each new one implemented. ASA staff already has been in contact with key agency staff with these concerns.”

These payment issues may be ASA’s priority but they are not the only issues on which ASA is working, Abney said. ASA also gets involved in construction and general business issues which have a unique or inordinate impact on construction

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specialty trade contractors. “Right now this includes bidding procedures on federal construction, safety and health regulations, tax reform, and immigration reform,” he said.

“One issue to which I want to call your attention,” Abney added, “is ASA’s actions on OSHA’s rule on crystalline silica. More than 20 construction associations, including ASA, have united in opposition to this rule. With funding from its Subcontractors Legal Defense Fund, ASA is participating in a construction industry law suit to stop the rule.” Final briefs were submitted earlier this month and oral arguments will be made later in the spring. Earlier in March, the construction coalition asked the Trump Administration to delay implementation of the rule until June 2018 to give the lawsuit time to work its way through the courts.

ASA Members Elect Jeff Banker of Banker Insulation to Serve as 2017-18 ASA President ASA members elected Jeff Banker, Banker Insulation, Chandler, Ariz., to serve as the Association’s 2017-18 President. Banker’s term will begin on July 1. He will succeed Robert Abney, division president of the Southaven, Miss., branch of F.L. Crane. ASA members also elected Courtney Little, ACE Glass Construction Corporation, Little Rock, Ark., as Vice President; and Anthony Brooks, Platinum Drywall, Maumelle, Ark., as Treasurer.

During the ASA Board of Directors meeting, the Board appointed Brian Cooper, AROK, Inc., Phoenix, Ariz., as Secretary for 2017-18. These officers will serve a one-year term, July 1, 2017, through June 30, 2018.

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Banker Insulation was established in 1977 and is one of the Southwest’s largest, independently owned insulation contractors. Banker is a past president of ASA of Arizona and served on its Board of Directors from 2005 through 2011. He was recognized as the 2009-10 ASA Chapter President of the Year. Banker also currently serves on the Board of Directors of the Insulation Contractors Association of America, where he served as president in 2010. As ASA President, Banker will preside at meetings of ASA’s Board of Directors, Executive Committee, and the membership of the Association. He also will serve as the principal spokesperson for the Association and appoint the chairs, vice chairs, and members of ASA committees and task forces.

In addition, he will be responsible for carrying out any other duties prescribed by the Board of Directors.

ASA members elected to the Board of Directors: Jim Blauch, Blauch Brothers, Inc., Harrisonburg, Va.; Chip Mabus, F.L. Crane & Sons, Inc., Fulton, Miss.; Shannon MacArthur, MEMCO, Spring, Texas; Brad Miller, Midwest Crane & Rigging, Olathe, Kan.; and Patricia “Patty” Peterson, Tindall Corporation, Petersburg, Va. ASA members re-elected Cooper to the Board, where he has served since 2015. These directors will serve a three-year term, July 1, 2017, through June 30, 2020.

In his acceptance speech during the ASA annual business meeting on March 18, Banker was honored and humbled to have been chosen as the Association’s next president, and he praised previous ASA officers for their leadership. “First and foremost, I’d like to thank the incredible leaders that have led and given to this Association so vigorously and selflessly,” he said.

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In 2004, Banker said, he was invited to a subcontractor meeting in Phoenix to discuss industry issues.

“I remember thinking, they invited my competition. What the heck! Don’t they know him?” Banker said. “Well, once the meeting started, we really got into some serious discussions. I realized that this group was different.

They were special. I decided to make the investment in membership so I could hear more—so I could learn from these people that seemed to know more than I did.”

Over the next few years of attending chapter events, Banker got to know many people. “I had great conversations with industry leaders and developed many friendships.

I often asked them for opinions or advice on issues that arose in my business. They gave freely,” he said. “It became very clear that this Association was worth the investment of both time and money.”

Banker is committed helping ASA and its chapters grow. He said ASA will continue to support its members, its chapter executive directors, and its leaders. He said ASA will continue to monitor and influence legislative and regulatory issues that affect ASA’s members, and ASA will continue to lay the groundwork necessary to attract more residential trades into the Association. “There are literally thousands of residential subs that have the same or similar contractual and regulatory issues that our commercial subs face,” he noted. “As an insulation contractor, whose business is largely residential, unfair risk transfer and burdensome regulations are a huge concern.”

View images of SUBExcel 2017 in the ASA Facebook Photo Album.

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ASA Honors Individuals and Companies in Awards Ceremony During SUBExcel 2017 ASA honored several individuals and companies during an awards ceremony on March 18 at Red Rocks Amphitheatre in conjunction with SUBExcel 2017 in Denver.

Excellence in Ethics Award ASA presented its national Excellence in Ethics Award to 11 construction subcontractors for achieving “the highest standards of internal and external integrity for a subcontracting firm.” Recipients of the ethics award were: • Air Masters Corporation Fenton, Mo. • Banker Insulation Chandler, Ariz.

• Bazan Painting Company St. Louis, Mo. • EyeSite Surveillance, Inc. Chandler, Ariz.

• Haley-Greer, Inc Dallas, Texas • Holes Incorporated Houston, Texas • Kent Companies Grand Rapids, Mich.

• Markham Contracting Co., Inc., Phoenix, Ariz.

• Sorella Group, Inc. Overland Park, Kan. • South Valley Drywall Littleton, Colo.

• Western Engineering Contractors, Inc., Loomis, Calif.

Applicants of the ethics award are required to respond to questions concerning the firm’s corporate ethics, policies and procedures, its construction practices, and its

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general business practices. Each applicant is also required to submit detailed documentation, including sealed letters of recommendation from a customer, a competitor, and a supplier.

National Construction Best Practices Award ASA presented its National Construction Best Practices Award to three prime contractors: Alberici Constructors, Inc., St. Louis, Mo., Cornerstone Detention Products, Madison, Ala., and Southwest Abatement, Albuquerque, N.M., for demonstrating “an extraordinary level of commitment to best industry practices.” General contractors and specialty trade contractors that have signed a contract within the past year directly with a construction owner under which it performs construction services are eligible to apply for ASA’s best practices award. This award honors general contractors and specialty trade contractors for their commitment to such practices as safety management, prompt payment, prompt processing of change requests and claims, and effective project scheduling and coordination.

ASA President’s Award 2016-17 ASA President Robert Abney, F.L. Crane & Sons, Inc., Southaven, Miss., presented the ASA President’s Award to ASA Treasurer and Vice President-Elect Courtney Little, president and general counsel, ACE Glass Corporation, Little Rock, Ark. The ASA President’s Award is given annually by the current ASA president on a discretionary basis to an individual who has helped the president the most during his or her term.

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Contractor Community

ASA Chapter of the Year Under 50 Members ASA presented the Chapter of the Year Under 50 Members to ASA of Central Pennsylvania. Executive Director Loni Warholic accepted the award on behalf of the chapter.

The Chapter of the Year is presented to ASA chapters that exemplified outstanding achievement in chapter operations and member service. To be considered for this award, chapters were required to complete and submit the Chapter Bi-Annual Compliance Report and the Chapter Annual Best Practices Report. They also had to have achieved net growth in membership in 2015-16 over 2014-15.

ASA Chapter of the Year Over 50 Members ASA presented the Chapter of the Year Over 50 Members to ASA– Houston Chapter. Executive Director Brianna Wright accepted the award on behalf of the chapter.

ASA Innovation Award ASA presented its Innovation Award to ASA of Metro Washington, citing the successes of the chapter’s innovative “Frontrunners” program, its “Industry Education Support Group,” and its “GC Meet and Greet” program.

Chapter past president Mary Whitlow, Wayne Insulation Company, Inc., Alexandria, Va., and Executive Director Ike Casey accepted the award on behalf of the chapter. The Innovation Award recognizes chapters that have developed creative or innovative programs and services that benefit their members during the previous fiscal year. To be considered for the Innovation Award, chapters were required to complete and submit the Chapter Bi-Annual Compliance Report, along with a report about the chapter’s innovative program or service, why that program or service was needed, how it was developed, the goals of the

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program or service, and the results of the program or service to date.

ASA Executive Director of the Year ASA presented the Executive Director of the Year to Carol Floco, executive director, ASA of Arizona, and Brianna Wright, executive director, ASA–Houston Chapter. This award honors executive directors for outstanding performance in overall association management. Applications for this award must specify the goals that the executive director was asked to achieve, the resources that were available, and how the executive director accomplished those goals.

ASA Chapter President of the Year ASA presented its President of the Year to ASA of Metro Washington Past President Mary Whitlow, Wayne Insulation Company, Inc., Alexandria, Va., for her accomplishments as president in 2015-16. This award honors chapter presidents for superior leadership efforts and service to his or her association. Applications for this award must detail what the president’s and the association’s goals were, how he or she accomplished these goals, and how his or her actions benefited the association.

Timmy L. McLaughlin Exemplary Leadership Award ASA presented the prestigious Timmy L. McLaughlin Exemplary Leadership Award to ASA of Arizona President Rita Lawrence, L&L Asphalt, LLC, Phoenix, Ariz. This award is presented periodically to an individual in special recognition of exemplary leadership and is named for Timmy L. McLaughlin, who passed away in 2011 during his term as 2010-11 ASA President. He was general manager of Austin Construction Company Inc., Summerville, S.C.

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ASA Task Force on Ethics in the Construction Industry Chair Shannon MacArthur, MEMCO, Spring, Texas, and Walter Bazan Jr., Bazan Painting Company, St. Louis, Mo., a member of the task force and an ASA past president, announced the awards recipients. View images of SUBExcel 2017 in the ASA Facebook Photo Album.

Reminder: Post OSHA Form 300A Through April 30 The Occupational Safety and Health Administration requires most employers with 10 or more employees to prepare and maintain records of serious occupational injuries and illnesses using the OSHA 300 Log. Employers who are required to keep the Form 300, the Injury and Illness log, must post Form 300A, the Summary of Work-Related Injuries and Illnesses, in a workplace every year from Feb. 1 to April 30.

Current and former employees, or their representatives, have the right to access injury and illness records.

Employers must give the requester a copy of the relevant record(s) by the end of the next business day. Construction employers also should be ready to comply with the new injury and illness reporting provisions in OSHA’s new rule, which took effect on Jan. 1. The rule requires employers in high-hazard industries, including the construction industry, to send injury and illness data to OSHA for posting on the agency’s public Web site. Specifically, construction employers with 20 to 249 employees must electronically submit information from OSHA’s Form 300A. Construction employers with 250 or more employees must electronically submit to OSHA injury and illness information from OSHA Forms 300, 300A and 301.

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Feature A Winning RFI System

by Anwar Hafeez

An RFI is a Request for Information System for asking questions that relate to problems encountered in building projects, such as: • Defective contract documents.

• Conflicts in contract documents.

• Omissions in contract documents.

• Ambiguities in contract documents.

• Differing site conditions.

• Verbal directions.

• Jobsite coordination.

• Constructive changes issues.

Back in 1973 on a men’s and women’s barracks project at Walter Reed Army Hospital, we had to devise a system to ask questions to the Corps of Engineers.

An RFI system was not widely used at that time and certainly I was not aware that anyone had such a system. We decided to call it a “CYA” system, which stands for Cover Your Anatomy.

Today, the RFI system is a standard operating procedure on most construction projects, as the contract documents and the design of most construction projects have deteriorated and the designers do not go out to the jobsite anymore, and thus they don’t learn on how things are actually built.

To show the vast magnitude of the problems I encountered when building the second biggest public library in the United States, the Los Angeles Central Library, we wrote as an average 20 RFIs per day, 100 per week, for three and a half years, resulting in five change orders being issued per day for three and a half years by the City of Los Angeles.

RFI is unique form of communication.

Unlike letters, emails, or field memos, you may or may not get an answer to the question that you asked, but the RFI is a question-and-answer system.

You ask a question, you get an answer.

Sometimes you may not like the answer to the question, but you get it anyway.

We use letters for writing about contractual matters, such as:

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• Notification of delays and additional

costs due to answers to RFIs, submittals, and clarifications.

• Sending in cost proposals for change orders.

• Notifying of filing a claim.

The RFI system is effective if it is prepared and implemented correctly.

You can write an RFI and try to get the answer that you want. There are times when you should not write an RFI, such as when you have installed everything correctly and you have an Order of Precedence Conflict problem, as discussed in a previous article on conflicts and commissions in the September 2016 edition of The Contractor’s Compass.

The RFI system has lately has been abused by the designers. They are allowing themselves too much time to respond to the RFIs, such as 15 days or 20 days. What is the purpose of that? The fact is that the designer’s budgets have been cut to pay for having construction managers on the project, and the designers do not have the same amount of time they used to have when they designed and were the construction managers on the project. Today, a lot of times, when subcontractors ask questions via the RFIs, the designers come back and ask what do you think we should do.

The only reason they are asking that question is that they have no clue on what the answer is. When you have never seen anything being built it is understandable that this affects the quality of the design and makes the design not buildable.

So, do the designers really have 15 or 20 days to answer the RFIs just because they put that in the contract?

The answer is a resounding no for the following reasons: • The CPM schedule has a critical path, and if this RFI relates to critical path activities and if the problem is defective contract documents, conflicts in contract documents,

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omissions in contract documents, or ambiguities in contract documents caused by the designer, then the designers have 15 to 20 minutes and not 15 to 20 days to respond to the RFI. It is not incumbent for subcontractors to find all the flaws in the contract documents 15 to 20 days early when the problem was just discovered. I have talked to a few construction attorneys about this and they agree with my assessment.

After all who caused the problem?

The designers.

For more about defective contract documents and the application of the Spearin Doctrine, see the article, “How to Win Defective Documents Every Time,” in the September 2016 edition of The Contractor’s Compass, which basically states that when the owner issues a set of contract documents for bid, he or she warrants that the contract documents are not defective and they are complete and suitable for building the project—so why should the subcontractors hunt for problems?

• We have a Time of the Essence Clause in virtually all contracts, which states that Time is the No. 1 bargain in the contract and not budget or quality. Not finishing a project on time is a material breach of the contract—this obviously applies to the designers as well. This makes the CPM critical path a much higher priority than the generous time that the designers are allowing themselves to answer RFIs. Suppose that, starting tomorrow, you decided that every question that you will ask is via an RFI and not through letters, emails, and field memos. What is the advantage?

• All your questions and answers that you have asked are in one system and not four systems.

• They are numbered and trackable.

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• You don’t have to wonder if

you asked a question during construction—you either did or did not.

• The information is easy to find and is all in one place.

• RFIs are great source of getting change orders and documenting delays on the project.

The keys to a winning RFI system are: • Use it as your primary form of communication.

• Set a priority system at the pre-construction meeting: • 1—Need answer in one work day.

• 2—Need answer in two work days.

• 3—Need answer in five work days.

• 4—Need answer in 10 work days.

• Keep and monitor the RFI log, and then write a letter complaining how bad the drawings and specifications are and that the designers are completing their design during construction.

• Keep the RFI log cross-referenced, such as shown in Fig. 1. below.

You can see that RFI #2 has been cross-referenced to RFI #5, as only a partial answer was received on RFI #2 and RFI #5 completes the answer.

As shown in Fig. 2, the following delays occurred: Fig. 2 RFI No.

Date Sent

Date Received

Delays

2

1/12/2017

1/19/2017

7

5

1/20/2017

2/1/2017

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2&5

You can see that when we combine the delays due to RFI #2 & #5 together we get a greater amount of delay days. This is another reason for cross referencing.

• If no pending change order is issued when the owner or the general contractor added work to your bid scope of work, what should you do?

Write a notification letter: [General Contractor’s Name and Address] Re:...........................................................................

[Add project name and description] PCO NO. 14 – RFI #46 – Added Light Fixtures and Receptacles Dear [General Contractor’s name]: I am writing to advise you that your response to R.F.I. No. 46 constitutes a changed condition to the original Contract Documents, thus resulting in additional costs and/or delays to this project.

Be further advised that XYZ Construction Company, Inc. (“XYZ”) is unable to proceed with the work associated and/or impacted by this Contract Document revision until the terms of [Part III, Article 18.0] have been satisfied.

XYZ will initiate its review of the changed condition and will submit costs and time impacts as soon as possible.

• Follow-up with weekly letter to owner about additional costs and delays: Rockford Corporation Attn: Jim Smith P.O. Box 111706, Anchorage, AK 99511-1706 Reference: Kodiak USCG NORESCO (JCI Job No.: A07017) Subject: Project Submittal Approvals and RFI Responses

Dear Jim, Please be advised that the following RFIs are late in their response to us: RFI No.

Date Sent

Date Answer Requested

Date Late

Please be advised that the following submittals are late in their approval to us: Submittal No.

Date Sent

Date Answer Requested

Date Late

The consequences of the late answers to RFIs and late approval of our submittals is that there will be additional delays and/or costs to this project.

We urge you to please expedite the answers to RFIs and approval of our submittals listed above as well as other RFIs and submittals in your possession.

If you have any questions regarding the above, please call me immediately.

Sincerely, Greg Jones, Project Manager Armed with this knowledge, subcontractors can go out there and write winning RFIs and adopt a winning RFI system that works and saves time!

Anwar Hafeez is president of SDC & Associates, Inc., San Diego, Calif., a construction claims consulting firm that prepares and negotiates change orders/ claims with 99.999 percent success rate; CPM scheduling; and teaching seminars on project management and change orders/claims, www.sdcassociates.com.

He can be reached at (800) 732-3996 or ah@sdcassociates.com.

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Fig. 1 CONSTRUCTION, INC. — AIRPORT BUILDING PROJECT — RFI LOG RFI No.

Related RFI

1 2

5

3 4 5

2

Activity No.

Description

Date Sent

Date Requested

Date Answered

Date Received

Priority

Status

1050

Footing interference at footing E.2

1/5/2002

1/6/2002

1/12/2017

1/12/2017

2

AS

1090

Existing electrical duct interference

1/12/2017

1/12/2017

1/19/2017

1/16/2017

1

PA

1095

Rebar at footing G.6

1/15/2017

1/20/2017

1/25/2017

1/26/2017

3

AS

1050

Footing interference at footing H.8

1/20/2017

1/20/2017

1/22/2017

1/23/2017

1

AS

1090

Existing electrical duct interference

1/20/2017

2/1/2017

2/1/2017

2/1/2017

4

AS

6 7 AS = Answered satisfactorily

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PA = Partially answered

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Feature Why Submittal Approval Does Not Get You Off the Hook

by Anwar Hafeez

Owners require submittals for general and subcontractors for the following reasons: • Materials that conform to the contract documents • Coordination with other trades especially electrical and mechanical • Fabrication drawings for structural steel, rebar, millwork, etc.

• Embed location needed • Loop drawings, Control panels, etc.

• Mock-ups Certain submittals are absolutely necessary, such as rebar, structural steel, and millwork shop drawings, because contract drawings for these are schematic in nature and the shop drawings are prepared to show all the intricate details and become the fabrication drawings. The owner could prepare a materials board and state that the general and subcontractors conform to the quality of the materials that are shown—this would eliminate most of the submittals.

What Are the Different Types of Submittals?

• Approval • Substitution • As-equal • Samples • Catalog cuts • Shop drawings

Substitution submittal needs to be flagged out on the transmittal sheet as a “Substitution Request,” which may involve providing a credit— otherwise the submittal is deemed to be in conformance of the bid design documents.

Federal Reserve Bank (1979) raised interest rates high to fight the super inflation. Owners had to borrow money for construction projects at over 30 percent interest rate. The owners cut the building and design time on projects, so they will pay the high interest rate

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for the shorter duration and generate revenues sooner and cut the designers fees. As a result the subcontractors ended up with: 1. Incomplete plans and specifications 2. Sloppy, uncoordinated documents 3. Copy and paste from other projects 4. Using supplier written specifications verbatim 5. Tremendous increase in document errors 6. Lower quality 7. Fewere drawings 8. Confusion (more RFIs) 9. Contractors exposed to L.D.s sooner Regarding Item 4, it used to be that when the designers specified a product, a few manufacturers could meet those requirements. But when the designers copied one manufacturer’s specifications, these manufacturers tweaked their product and specifications such that they became the only supplier that could meet their own specifications. In other words, the designers inadvertently created thousands of monopolies throughout the United States. What is wrong with that?

1. Prices were raised for the owner.

2. Delivery times are dictated by the supplier.

3. It is against the law to have proprietary specifications on public work projects because it stifles competition, unless the owner gets a variance from the state to use one vendor, like a fire alarm system on all their schools in that district.

When the designers realized that they had created this problem they started to use the words “or equal” in the specifications to try to get around the proprietary specifications. The words “or equal” mean, it is very subjective, on two claims: 1. Air Force disapproved “or equal” submittal because the manufacturer it wanted had a 6-inch vs. 7-inch long

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light in the modular furniture from the other manufacturer.

2. City project, subcontractor bid pump manufacturer specified. After the bid, another manufacturer states that the designer agreed to approve its pumps prior to bid verbally, subcontractor submits its pumps as an “or equal.” City disapproved it, stating it had bad experience with the subcontractor even when it offered one additional year’s warranty.

To resolve this problem, I asked the city who the “or equal” manufacturer was. The city responded, it didn’t have to tell me who that is, that I could submit another manufacturer for approval. I stated that since the city specified that there is an “or equal” product, we would submit that, which I am sure you will approve. The city stated it didn’t have to tell me the “or equal” product, that I could submit something else and it would review it for approval.

I stated that the city had a proprietary product for which there is no “or equal,” thus, the city had three choices, besides providing us with a one month time extension for submittal delays: 1. The city approves the “or equal” manufacturer, problem is resolved.

2. We provide you with the manufacturer you want for an additional $250,000 difference, problem is resolved.

3. If the city doesn’t provide the “or equal” manufacturer, the project will be shut down, as we do not know which manufacturer we will be using and don’t know where to stub out our connections.

Next morning the city calls stating that it talked to its specified manufacturer, who dropped its price by $200,000, and would the subcontractor settle for a change order for $25,000 and absorb the other $25,000, to which the subcontractor agreed because he

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going to make $225,000 extra instead of $250,0000.

The purpose of this story is to attack the “or equal” problem by asking the designer what the “or equal” product is. They are now stuck, because usually there is no “or equal” product. This is an easy way to solve this type of a problem and make money.

Another project, Subcontractor had to install an underground sewer pipe main line: • Specification—PVC pipe 13-foot-long ASTM F-794, Owner Army Corps of Engineers (ACE).

• Eventual owner City of San Diego (SD).

• Amendment #4 changed to ASTM F-679, still 13-foot-long, but a thicker wall PVC pipe.

• 05/15/16—Subcontractor submitted ASTM F-794 pipe.

• 05/20/16—ACE approved ASTM F-794 pipe.

• 05/27/16—Installation starts.

• 06/09/16—SD on site, informs subcontractor, it has installed the wrong pipe; subcontractor states see its approved submittal, inspector agrees the right pipe is being installed. SD states that it is installing the wrong pipe. Subcontractor asks who are you? We are SD. Why are you are here? Even though the COE is building this sewer line SD are the eventual owners, SD wants to make sure that the installation is correct.

The GC throws SD off his project and asks the COE to get SD off his back.

• 06/09/16—COE to GC Letter—ASTM F-794 sewer pipe installed is not acceptable and must be removed

immediately. m Subcontractor asked if it has a

good claim to pursue. I informed the subcontractor that it has a

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loser of a problem on its hand, because: p When a submittal is not in conformance with the specifications and even if approved, the subcontractor is in breach of contract because it did not furnish what the two parties contracted for.

Therefore, it has to furnish and install the required product, even if it means that the subcontractor must tear up what it has already installed.

First offer a credit to keep what is installed (cheapest option). The basic assumption in making a submittal is that you are in conformance with the specifications. The moment you make the wrong submittal even if approved it or not does not let you off the hook by submitting a product that was never part of the contract.

If your submittal is not in conformance with the contract documents, what should you do? Submit a Substitution or an Approval for As-Equal Request.

• 6/11/97 letter from SD to COE states new sewer main will be owned and maintained by SD upon completion and acceptance, subcontractor must follow what has been approved by SD. • 6/13/97 letter to the Corps states “we will remove the installed sewer pipe and install per ASTM F-679. We reserve the right to file a claim.” SDC note: You should reserve your rights to file a claim because sometimes the owner pays this type of claim due to lack of knowledge, sympathy, feels liable for approving the wrong product, but the moment the owner states that it is not going to pay for, take us to court, you have to drop

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this claim like a hot potato.

• 06/20/97—Coordination meeting,

both GC and subcontractor are now gun shy and they both know now that SD is a player. SD looking at the same drawings they looked at many months prior to bid state that they did not realize that 96 percent of the pipe was to be installed below 20 feet. Therefore they need to change the type of pipe from ASTM F-679 to F-700 (Clay pipe which is 6 feet long with hand packed joints) because the ASTM F-679 will get crushed with

20-plus feet of soil backfill.

• Subcontractor got lucky getting

a huge change order, which included costs for pipe differential, unloading, distributing, bigger equipment, shoring, hand packed vs. glued joints, breakage of more brittle pipe, extended field and home office overhead, etc.

Lessons Learned

• Paste the amendments into the contract documents.

• Submittal approval does not change

the contract.

Armed with this knowledge, subcontractors can go out there and better handle the submittal process that works, saves time, and makes more money!

Anwar Hafeez is president of SDC & Associates, Inc., San Diego, a construction claims consulting firm that prepares and negotiates change orders/ claims with 99.999 percent success rate; CPM scheduling; and teaching seminars on project management and change orders/claims, www.sdcassociates.com.

He can be reached at (800) 732-3996 or ah@sdcassociates.com.

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Feature Overcoming Safety & Health Documentation Challenges: Ensuring Legally Defensible Paper Trails

by Adele L. Abrams, Esq., CMSP There are a multitude of reasons why employers create safety and health-related documentation.

These include compliance with mandatory paperwork requirements promulgated by the Occupational Safety & Health Administration, which range from injury/illness records to documentation of training provided to workers (both formal courses and less formal “toolbox talks”), as well as workplace examinations, equipment inspections, industrial hygiene monitoring, and exposure control plans to guard against health hazards associated with asbestos, lead, silica, and other toxic chemicals.

There is another universe of documents, which are routinely created and maintained in the course of business voluntarily or as a matter of “best practice.” These include: employee handbooks, safety and health audits, safety and health programs, incentive and disciplinary programs, safety and health committee minutes, Job Hazard Analysis, or other standard operating procedures, job descriptions, safety and health management systems, environmental compliance handbooks, occupational health programs, medical surveillance programs, and internal training materials.

OSHA often asks to examine complex construction project agreements, staffing agency contracts and similar documents between an employer and agencies, union hiring halls, or different tier subcontractors, to see if they specify each party’s responsibilities for aspects of safety training, hazard controls, provision of personal protective equipment, and more. Employers must remember

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that all of this non-mandatory documentation is discoverable by OSHA even prior to the issuance of citations by the use of a subpoena duces tecum, to obtain such materials. OSHA has even used these subpoenas to gain access to audits conducted by third-party insurance companies.

The wealth of information contained in committee minutes, disciplinary records, near miss records, safety audits, and even JHAs can be used against the employer to show hazard recognition under OSHA’s General Duty Clause (Section 5(a)(1) of the OSH Act), or an admission of a violation (e.g., a disciplinary record where the worker was counseled for not wearing mandatory fall protection equipment can be the basis for a fall protection PPE citation if the violation occurred within the previous six months).

In addition to records created by the employer directly, there will also other correspondence and other memoranda and materials created by third parties including outside counsel, safety and health consultants, general contractors and subcontractors, equipment manufacturers and other vendors. All of these records can play critical roles in both incrimination during an initial OSHA inspection, or in the ensuing litigation, depending upon what is at issue.

A big game changer occurred on Dec. 1, 2016, when OSHA put into effect new anti-retaliation rules that require “reasonable” procedures for reporting injuries/illnesses (should be documented), and workers must be trained on those procedures (more documentation). The same rule also

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bars employers from disciplining workers who are injured more harshly than non-injured workers for safety infractions, and from drug testing injured workers in many situations (absent legal requirement to test or where the employer has reasonable suspicion that the injured worker’s impairment was a causal factor in the accident). Therefore, incident reports and worker’s comp forms documenting an occupational injury in an employee’s personnel file, coupled with a decision to select that worker for layoff, could give rise to a whistleblower action under Section 11(c) of the OSH Act, plus civil penalties of up to $126,749. The safety department and the HR department must have clear communication about a worker’s potential protected activities before making any adverse employment decision.

OSHA has a published policy that it will not use safety and health audits against an employer in most circumstances, as long as the violations identified in the report have been corrected prior to the commencement of the OSHA inspection. However, this safe harbor is not absolute and OSHA reserves the right to use these documents against employers to show prior knowledge or patterns of violations to show “what the employer knew and when he knew it” for purposes of sustaining willful violations.

Therefore, to the extent possible it is helpful to privilege audits through counsel if they can be directed to be performed “in anticipation of litigation.” For other classes of documents, the nature and purpose of the material being created will dictate to a large extent whether

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it is eligible to be protected from disclosure in litigation under a legal privilege.

Documents that must be maintained by law and shown to investigators or government agencies (e.g., OSHA Form 300/301 logs, training and workplace examination reports) cannot be privileged because they are mandatory documents. Other voluntarilyprepared documents may be covered by attorney-client privilege or the attorney work doctrine privilege, depending on the circumstances and timing of its creation. The issue of privileging correspondence and other communications can be critical, given an increasing trend toward criminal prosecution of CEOs and other agents of management under the OSH Act, environmental laws, and various other federal statutes.

The attorney-client privilege protects communications between a client and the client’s attorney that are intended to be, and were actually, kept confidential for the purpose of obtaining or providing legal assistance. This privilege is often applied where outside counsel are retained in litigation, but it was found to be applicable as well to communication between managers and in-house counsel by the U.S. Supreme Court in 1981 but, to be protected, the information must be provided by employees to counsel for the purpose of the company obtaining legal advice. The fact that an investigative report was prepared by or for company counsel does not mean that the attorney-client privilege necessarily applies. The primary or dominant purpose of the communication must be to seek legal advice, and not simply to prepare

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records created and maintained in the normal course of business absent litigation threat.

When properly invoked, the privilege can also extend to documents created by nonattorney consultants who conduct investigations at direction of in-house or outside counsel for the purpose of representing the employer in future litigation with OSHA. However, the privilege will not apply to communications with the client that are in furtherance of fraud or other criminal acts. Even if the attorneyclient privilege is inapplicable, documents may still be protected as counsel’s work product—prepared by or under the direction of counsel in anticipation of litigation. Significantly, work product protection can extend to materials created even before the events giving rise to litigation, if the documents were created with an eye toward anticipated litigation.

Normally, however, an attorney must direct the person creating the document to privilege it in advance of its preparation.

Regardless of which type of privilege is involved, employers and counsel must guard against inadvertent waiver or the need for disclosure of otherwise privileged statements or reports to make the affirmative defenses of a thorough investigation. Documents intended to be privileged that are written by or to counsel from a client will generally be bullet-proof. Documents that fall under the “work product” doctrine of privilege must have a controlled circulation (to senior management level personnel) and cannot be left unprotected on a server that can be accessed by rank-and-file workers or union personnel. Moreover, if a

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collective bargaining agreement, for example, requires that copies of all safety and health audit report must be shared with the union, then these documents would lose their privilege once disseminated, even if they were originally prepared by or initially distributed through an attorney.

Perhaps the most potentially incriminating documents are those arising from internal investigations, whether pertaining to accident and near miss incidents, to hazard complaint evaluations, or vetting of discrimination complaints (either of the EEOC variety or arising from claims of discrimination under Section 11(c) for safety whistleblower actions). Where possible, before any documents are drafted, counsel should be consulted to determine which, if any, privileges may be applicable and to set up the infrastructure for controlled circulation of key materials prepared under legal protection.

Complaints of possible safety or health hazards or OSHA violations, or infringement of whistleblower protections under the OSH Act or environmental or DOT hours of service laws (all of which are enforced by federal OSHA—sometimes in concurrence with state occupational safety agencies) must be handled with care. Those also mandate immediate internal investigations to ensure that workers are protected and to avoid having the complainant file a formal hazard complaint with OSHA (which will bring inspectors to your door). The investigative actions and abatement of hazards must be documented in order to avoid OSHA prosecutions.

Personnel who create documents germane to these investigations

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will become witnesses in any litigation as the records custodian or developer of policies and procedures.

Supervisors who conduct safety and health evaluations, or write up disciplinary reports, must be clear on how to consistently and effectively document the good, bad and ugly as these records may be the only rebuttal evidence of “business necessity” or “due diligence” to defend the company against OSHA action. Determining the appropriate person(s) to conduct and receive information about internal investigations will largely depend on the nature of the matter under scrutiny, and will also impact to some extent whether attorneyclient privilege or attorney work

product privilege will apply to all, or some, documents relevant to litigation matters.

Commencement of any complaintrelated actions, OSHA inspections or accident investigations should be a signal to alert managers and counsel that a litigation hold should be considered on all relevant documents until the complaint is resolved internally or through litigation, arbitration or mediation. Absent a litigation hold, following a written document retention/destruction program is normally helpful in defending against claims of spoliation of evidence.

Documentation of safety and health training and related activities, investigations, and audits can be

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Your order includes access to the on‑demand video any time, and as many times as you’d like! This is just one of the on-demand videos available through the FASA Contractors’ Knowledge Depot to meet your business management training needs.

useful, but also has the potential to be damning. Documents, whether formal written policies, disciplinary reports, or even informal emails, that concern safety and health practices or actions, must be written with an eye toward being read in court by the trier of fact.

Adele L. Abrams is an attorney, Certified Mine Safety Professional and trained mediator who is president of the Law Office of Adele L. Abrams P.C. in Beltsville, Md., Denver, Colo., and Charleston, W.Va. Abrams provides consultation, safety audits and training services to MSHA- and OSHA-regulated companies. Abrams can be reached at (301) 595-3520 or safetylawyer@aol.com. Visit safetylaw.com for more information.

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“OSHA Silica Rule—Applications for Subcontractors” (Item #8101)

The Occupational Safety and Health Administration’s new rule on crystalline silica requires construction employers to limit worker exposure to silica and to take other steps to protect workers. Construction employers must comply with all requirements of the standard by June 23, 2017, except requirements for laboratory evaluation of exposure samples, which begin on June 23, 2018. In this video-on-demand, Gary Visscher, Esq., Law Office of Adele L. Abrams, P.C., examines the OSHA rule and explains what subcontractors need to know, including general information about performing construction work on silica containing materials, how the rule will affect the construction jobsite, and what is necessary to comply.

This webinar is free for ASA members and nonmembers.

ORDER ONLINE AT www.contractorsknowledgedepot.com

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Feature Evolving Your Document Handling with Paperless Takeoff

by Adam Khemiri

The perks of an electronic takeoff software are well documented, but the subliminal benefits of “going paperless” are rarely discussed. While the notion of working “paperless” may seem like a strategic gimmick, the inherent benefits, frankly, stretch far beyond the label of being just another environmentally conscious organization. Electronic takeoff is, in essence, the stimulating catalyst for the end of the obsolete and money siphoning physical storage era.

There is no doubt physical documentation has aided companies in organizing their documents for decades. As we move into the digital age, however, one does question how reliable or even relevant physical documentation is. Sure, back in the day contracting and estimating firms would have a dedicated zone where an archive of neatly stored drawings and documents could be found. With the exponential growth of technology and data, however, the quality of physical archives has disintegrated the more that are amassed—not to mention the ridiculously inflated costs just to maintain them. Much like how people have moved from using landline

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telephones to using mobile phones, physical storage of documentation is becoming obsolete as people move toward using electronic takeoff software.

It seems like electronic takeoff is still not as commonly used as one might think, with more than half of firms entering the purchasing funnel revealing that they are still solely operating on manual takeoff. Manual takeoff, as most can attest, can at its worst consist of plowing through masses of indistinguishable paper.

A single drawing may be printed multiple times to be represented on varying scales, and an adjustment or error may potentially lead to the whole set of drawings requiring reprinting.

Did you know that the worldwide consumption of paper has increased by 400 percent over the last 40 years with an estimated 18 million acres of forest loss each year—if this continues, all the rainforests in the world will be demolished in 100 years.

Presently, an average of 90 percent of all information in business is held on paper. The reliance on paper has become a routine, and its usage is so familiar that it is loosely managed

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and never questioned. However, this “tradition” not only results in companies hanging onto an outdated regimen, but the cost accrued transcends the initial purchase price of the paper itself. This can include the costs for storage, maintenance, postage and labor, and of course printing—ultimately incurring wasted overheads and deferring from the doctrine of a lean and contemporary organization.

An estimated cost associated with storing 2 million paper documents (which, while seems excessive, can often be the norm for an estimating firm) may range anywhere from $40,000 to $60,000 on the equipment alone. When including the physical space required, the cost will inevitably increase and recur until paper is taken out of the business model. Other than the storage cost, the accumulative costs associated with printing also incurs a hefty expenditure. The cost per print can be broken down to infrastructure costs (hardware, software, maintenance, paper and power), management costs (IT support, IT infrastructure, administrative) and workflow costs (end user labor, document management). When all these are factored in, it is estimated that on average it costs 70 cents to print an A4 page. So, one can imagine, with the sheer number of projects and plans that one organization may work on per year, and the fact that many of these are printed larger than A4, the cost can become astronomically huge—into the several thousands per year. With the same monetary value, an organization could opt to purchase a super computer with the latest configuration, and an electronic takeoff software, allowing them somewhere to store all the files and still have plenty of money and space to spare!

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Even when having the most modern filing cabinets installed, it is still necessary to commit labor into managing and maintaining the files.

Using one four-drawer file cabinet, for example, (holding 15,000 to 20,000 pages of paper), it costs $20 in labor to file a document or $25,000 to fill it up—on top of an estimated cost of $2,000 for yearly maintenance.

Labor itself is expensive and should primarily be dispatched for cognitive tasks with the aim to deliver true value within an organization. Needless labor exhausted into physical storage is profoundly inefficient, expensive and growth prohibiting.

Even with the best intentions, not to mention the high and redundant labor costs involved, physical filing systems are prone to human error. To begin with, drawings and related documents are rarely placed in one centralized location. Furthermore, project files or binders can be habitually pulled from their locations and never returned by the same person. To make matters worse, project managers may develop their own set of tracking and logging methods that is counterintuitive and not easily repeated by others.

Such document logging can even involve separate files, contributing to a further unreliable system of filing and tracking where thousands upon thousands of other documents are marched away into dark cabinets. It is estimated that roughly 3 percent of all paper documents end up being misfiled, while 8 percent of all paper documents are eventually lost or damaged. Research conducted on

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U.S.-based companies revealed that managers dedicate three hours per week searching for misfiled or lost documents. Consequently, it can cost around $120 to retrieve a lost document or $250 to recreate and refile a lost document.

With today’s technological aptitude, uneconomical labor costs and human error costs associated with physical documentation are problems that we shouldn’t have to be dealing with.

Implementing even the simplest electronic takeoff solution can dramatically reduce or even cut out some of the costs associated with keeping physical documentation while greatly diminishing the risk of lost or damaged documents.

With all of these issues incurred due to the incompetence of physical documentation and storage, it’s clear that implementing an electronic takeoff software will allow you to start streamlining your work. For starters, takeoff software not only allows a company to electronically store their drawings, it also facilitates and sets the foundation for good project management practice.

Electronic takeoff enables the seamless collaboration of drawings and plans between stakeholders digitally, rather than having stacks of papers that can only be reviewed by one person at a given time. Fostering an integrated and collaborative project delivery approach, communication between stakeholders is simplified which ultimately enhances accuracy, speed and responsiveness.

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Furthermore, digital takeoff software also supports the logical breakdown and coordination of a project. For example, a plan can be broken down into specific sections, such as toilet, office or floors. With these smaller sections, a project manager could instantaneously retrieve data from a particular section. Setting up the job properly from the outset allows easier management once the job has begun, and greatly increases the chance of it being completed successfully.

Finally, leveraging takeoff software will standardize your documents and put everyone onto the same page.

Manual takeoff can look different depending on the various methods and presentations among estimators.

Conflict and incoherency will arise as the plans are bounced between teams.

By using a unified approach, less time is spent on deciphering and disputes while more time can be allocated to the actual work.

Overall, implementing electronic takeoff software is not exclusively beneficial just for extracting quantities, but is actually a way to streamline and reshape your way of working to integrate people, systems, and business structure to reduce waste and maximize efficiency. To ensure you are organizing your documentation as efficiently as possible, it may be time to look at the avenue of digital takeoff and help bring your business into the future.

Adam Khemiri is the business development manager at eMeasure.

The latest software offering from Exactal Group, eMeasure is an onscreen measurement solution intended for those who want rapid and accurate Excel®-linked takeoff at an affordable price. eMeasure allows estimators to takeoff quantities with a few clicks.

Users can load in digital plans, calibrate and rotate, measure up, and then drag and drop the quantities straight into their spreadsheet with the Excel® add-in. eMeasure is pleased to be a Bronze sponsor of ASA. For more information, visit www.emeasure.com or email sales@emeasure.com. Use the code ASA211 when purchasing to get your licence for only $990 plus first year’s maintenance free.

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Legally Speaking The Most Dangerous Subcontract Clauses That Affect Payment

by Timothy Woolford Most of the disputes attorneys handle on behalf of subcontractor clients are payment-related. In almost every payment dispute, the terms and conditions of the subcontract control the outcome. Consequently, identifying the subcontract provisions that are most likely to come into play, if there is a payment dispute, is essential. Being able to do so quickly and efficiently is also necessary because general contractors often afford subcontractors little time to review and sign subcontracts, sometimes only a few days or less.

Since the subcontracts of many GCs are getting longer and more complex, thorough subcontract review can be a time-consuming task. Can you spot the provisions most likely to come into play in a payment dispute?

1. Contingent Payment Clauses.

Clauses that condition your right to be paid on events you cannot control—such as payment by the owner or a lender—are very risky. The most dreaded of such clauses is the “pay-if-paid” clause, which conditions your customer’s duty to pay you on its receipt of payment. These clauses should be

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aggressively resisted. You should only rely on the creditworthiness of your customer, not some third-party with whom you have no contract. Your customer is in a much better position to evaluate the creditworthiness of its own customer and if it decides to enter into a contract with a risky customer, you should not share in that risk. If your customer refuses to strike the clause altogether, ask for a compromise in which you customer agrees that if the owner falls behind in payments, the customer agrees to pay you after a certain specified time (such as 60 days, 75 days, or even 90 days). Having an outside date by which the customer must pay you no matter what is much better than a conditional payment clause like “pay-if-paid” in which your customer is never obligated to pay you if it does not receive payment from the owner. Note that in some jurisdictions, conditional payment clauses are not enforceable. If you are in such a jurisdiction, you may not need to focus as heavily on this type of clause. (See the ASA Contingent Payment Clauses in the 50 States.)

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2. Contingent Payment Clauses for Change Orders. Many subcontracts also contain clauses providing that the GC does not have to pay you for change order work unless the owner approves and pays for the change order. These clauses are problematic for the same reasons as those above. Your right to be paid is in the hands of a third party. Tell your customer your subcontract is with him/her and if you are required to perform work outside the scope of your subcontract, you must be paid for it. If the GC is relieved of the obligation to pay you for change order work unless the owner pays, it reduces the GC’s incentive to aggressively pursue payment for your change order work. Whether or not that work justifies a change order under the prime contract between the GC and the owner is often a separate and distinct inquiry from whether you are entitled to a change order under the subcontract. (See the ASA Contingent Payment Clauses in the 50 States.)

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3. Ability to Stop Work If Not Paid.

Many GCs realize that the ability of a subcontractor to stop work if it is not paid is a very powerful tool— perhaps the most powerful of all—for a subcontractor to enforce its payment rights, For that reason, many GCs include provisions requiring you to continue working in the event of a dispute. Agreeing to continue working despite not being paid is a prescription for disaster. Understandably, the first impulse of subcontractors who are not paid on time is to stop work. They are often surprised to discover that they signed a subcontract with a “continuing work clause” that prohibits them from stopping work. Make sure your subcontract is clear that if payment is not made when due (or within some grace period such as seven days, 10 days, etc.), you will be stopping work until payment is made. And, you should be afforded additional time to complete your work on account of the delay due to your work stoppage. (See the ASA Subcontractor’s Negotiating Tip Sheet on Inability to Stop Work for Nonpayment.)

4. Schedule Compliance Provisions. GCs often provide in their subcontracts that the subcontractor agrees to comply with any schedule provided by the general contractor without additional compensation including any schedule revisions. These provisions are dangerous and can be costly because they require the subcontractor to absorb the cost of delays, accelerating work and second shift and/or overtime work. In most cases, your bid price estimates the amount of required labor based on the schedule and a reasonable expectation of work sequences and activity durations.

You should agree to work in accordance with the bid schedule, which should be expressly

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identified in the subcontract, and the subcontract should be clear that if you are required to deviate from that schedule as a result of delays or disruptions caused by others, additional costs apply.

(See the ASA Subcontractor’s Negotiating Tip Sheet on Project Schedule.)

5. Subcontract Documents. Many subcontractors incorrectly assume that their proposal is part of the subcontract and is the controlling document regarding their scope of work and other terms. However, in most jurisdictions, the proposal is not part of the subcontract unless the subcontract itself expressly incorporates the proposal.

Consequently, your obligations will be controlled exclusively by the GC’s subcontract. Many subcontractors’ proposals contain important limitations, exclusions and clarifications. In all likelihood, the subcontract will not contain the same exclusions, limitations and clarification. Therefore, insist on making your bid, quote or proposal a part of the subcontract in order to ensure that your proposal controls. Also, include a provision that if there is an inconsistency or discrepancy between the proposal and any other term of the subcontract, the proposal controls. Don’t just staple it to the subcontract because physically attaching it will not be sufficient to make it part of the subcontract. There must be language expressly incorporating it. (See the ASA Subcontract Documents Suite.)

6. Advance Notice of Proposed Backcharges. Too many subcontractors learn for the first time when they requisitioned for final payment or retainage that the customer intends to offset or reduce the final payment based on previously undisclosed backcharges. Understandably,

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subcontractors are frustrated when they learn that charges are being assessed after the costs have been incurred without having been given an opportunity to address the situation themselves. To avoid this problem, insist that before the customer can backcharge you, it must provide you with written notice of the condition or alleged deficiency and a reasonable period of time to address it before the GC spends money to address it and backcharge you. Although these provisions are often absent from subcontracts, many or most reasonable GCs will accept this language. GCs are usually strict in requiring advance written notice before you perform additional or changed work, so it is equally fair that subcontractors get advance notice before charges are assessed to them. (See the ASA Subcontractor’s Negotiating Tip Sheet on Contractor Backcharges.)

7. Liquidated Damages. Liquidated damages are always risky and you should seek to limit, reduce or eliminate them. An emerging trend is to assess liquidated damages for multiple interim completion dates or milestones during the project as opposed to just the completion date. Liquidated damages are assessed for failing to achieve any of these milestones or interim completion dates.

Consider pushing back on these damages for interim dates and agree only to liquidated damages for an inexcusable failure to achieve substantial completion on time. Also, watch for special requirements for substantial completion. Many subcontracts have long lists of work that needs to be complete and/or documentation that needs to be submitted in order for your work to be considered substantially complete. If you cannot eliminate these additional requirements,

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make sure you comply with them so that you don’t incur liquidated damages for technicalities, such as late submission of O&M’s or written warranties. Know the requirements for substantial completion and eliminate those that will delay the substantial completion date as it will delay your final payment. (See the ASA Subcontractor’s Negotiating Tip Sheet on Limitation on Damages.)

8. Dispute Resolution. If the payment dispute requires you to invoke the subcontract’s dispute resolution procedures, make sure that the process is not unnecessarily burdensome, expensive or timeconsuming. Subcontracts often require you to “stay” (or suspend) pursuit of all dispute resolution efforts during the pendency of a dispute between the GC and owner. These provisions are dangerous. Disputes between the owner and GC can drag on for years depending on the method of dispute resolution required by the prime contract. If you agree to stay your claim for payment against the GC until the owner/GC dispute is concluded, you lose all power to enforce your payment rights and might have to wait years to be paid. To make matters worse, these clauses almost always provide that you agree to be bound by the outcome of the owner/GC dispute. Thus, if the GC recovers only half of what you are owed, you are bound to accept that amount on your claim. Plus, the GC usually can further reduce that by a portion of the attorney fees it incurred on your behalf.

These provisions are known as liquidating agreements because they liquidate or settle the amount you are entitled to receive to the amount recovered by the GC. Additionally, consider insisting on arbitration as the method of binding dispute resolution, or

T H E

C O N T R A C T O R ’ S

some other procedure that is faster and less expensive than litigating the dispute in court. (See the ASA Subcontractor’s Negotiating Tip Sheet on Mediation as Preferred Dispute Resolution Method.)

Be wary of subcontracts that require you to resolve disputes in an inconvenient forum. Some jurisdictions will not enforce such provisions, so check your jurisdiction to see if a contract clause that requires disputes to be resolved in another state is enforceable. If so, insist on the dispute being resolved in the state (and preferably the locality) in which the project was constructed.

These “forum-selection” clauses are often designed to create a strong disincentive to subcontractors to pursue payment rights by imposing unreasonable costs upon them to do so. (See the ASA Anti-Forum Selection Clauses in the 50 States.)

9. Avoid Waiving Mechanic’s Lien Rights. Be vigilant about retaining mechanic’s liens rights. The ability to threaten or file a mechanic’s lien is one of the most powerful weapons a subcontractor has in its arsenal to enforce its payment rights. Many GCs are well aware of this fact, so they will seek to require subcontractors to waive such rights in advance, if such waivers are legally permitted in the jurisdiction. By threatening or filing a mechanic’s lien, you can put pressure on the owner of the property who, in turn, may pressure the GC to pay you to eliminate the threat of the lien, or cause it to be withdrawn. (See the ASA Subcontractor’s Negotiating Tip Sheet on Lien Waivers.)

10. Retainage Reduction. If your customer insists on holding retainage, request that retainage be reduced to 5 percent when your work is 50 percent complete and that half of the retainage

C O M P A S S

then being withheld be released at that time. Another option is to insist that if the owner reduces the GC’s retainage at any time during the project to less than 10 percent, your retainage is reduced to the same extent. Some GCs’ standard subcontracts call for retainage of 10 percent throughout the entire project even though under their contracts with the owner, retainage is less than 10 percent from the outset or is reduced during the project. It is unreasonable for the GC to hold a greater percentage on you than the owner is holding on the GC. (See the FASA Retainage Laws in the 50 States the ASA Subcontractor’s Negotiating Tip Sheet on Retainage for Sub is More than for GC.) An experienced construction attorney can assist you in revising the subcontract. There are many attorneys who are affiliated with ASA and are well-equipped to work with you.

You might also consider preparing an addendum to be attached to all subcontracts. Subcontracts are filled with risks that can interfere with your payment expectations. Don’t wait until a payment dispute arises to find out what the subcontract says—devoting extra time and effort during negotiation can make all the difference in ensuring a profitable project. (See the ASA Subcontract Documents Suite.)

Timothy Woolford of Woolford Law, PC, is a construction attorney in Pennsylvania that represents subcontractors and other construction professionals. He is also an Adjunct Professor of Law at the Penn State Law School where he teaches Construction Law to 2nd and 3rd year law students.

A P R I L

2 0 1 7

19

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in the May 2017 Issue of ASA’s

April 2017

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Contact information for all ASA and FASA events/programs: www.asaonline.com education@ASA-hq.com

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