The Contractor's Compass July 2018

THE

ASA’s

THE OFFICIAL EDUCATIONAL JOURNAL OF THE AMERICAN SUBCONTRACTORS ASSOCIATION

WWW.ASAONLINE.COM

The Three Stages of Construction Documentation

by Joseph L. Katz, Esq., Huddles Jones Sorteberg & Dachille, P.C.

The 5 Logs You Must Keep

by Anwar Hafeez, SDC & Associates, Inc.

Legally Speaking: How to Avoid the Pitfalls of Notice Requirements— Before You Sign the Contract

by Masaki James Yamada, Ahlers Cressman & Sleight, PLLC

JULY 2018

Documentation

SAVE THE DATE

March 6-9, 2019 | Nashville, Tennessee www.subexcel.com

© Sean Pavone

THE

July 2018

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.

Features The Three Stages of Construction...................................... 8 Documentation

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).

by Joseph L. Katz, Esq., Huddles Jones Sorteberg & Dachille, P.C.

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.

The 5 Logs You Must Keep.................................................12

by Anwar Hafeez, SDC & Associates, Inc.

Departments

FASA BOARD OF DIRECTORS Richard Wanner, President Letitia Haley Barker, Secretary-Treasurer Brian Johnson Robert Abney Anne Bigane Wilson, PE, CPC

ASA PRESIDENT’S LETTER........ ........................................................... 4 CONTRACTOR COMMUNITY..... ........................................................... 6

SUBSCRIPTIONS The Contractor’s Compass is a free monthly publication for ASA members and nonmembers. Subscribe online at www.contractorsknowledgedepot.com.

LEGALLY SPEAKING...............................................................................17 How to Avoid the Pitfalls of Notice Requirements—Before You Sign the Contract

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.

by Stephen Moore, Galloway Johnson Tompkins Burr & Smith

Quick Reference ASA/FASA CALENDAR...........................................................................19 COMING UP................................................................................................ 19

LAYOUT Angela M Roe angelamroe@gmail.com © 2018 Foundation of the American Subcontractors Association, Inc.

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ASA PRESIDENT’S LETTER Dear ASA Members, I am excited to serve you and our organization as the 201819 President of the American Subcontractors Association. It is humbling to look back over these years and see all the great leaders that I am following. I am proud to represent such a worthy and honorable organization. My time with ASA began as a Board member of the Central Arkansas chapter and evolved into two terms as the President of our chapter. When I was chapter president, I had the opportunity to attend a national ASA event in Washington, D.C., where I learned more about the work of the national organization and met legislators on Capitol Hill.

Over that week I also met a number of new friends who were leaders from other chapters who impressed me and were more than willing to share their stories and advice. I was hooked.

My parents started ACE Glass in 1986 and laid a great foundation for who we are today. We do everything we can to treat others as we would want to be treated. I grew up in the company starting from below the lowest position in my teens and had the opportunity to work for many of the people who still help me run the company today. After college and a couple of jobs in other industries, I returned to ACE as an estimator, project manager, and division manager. I realized through that process that I had never fulfilled a lifelong dream of practicing law. I left the company for several years to attend law school and practice law. In that time, I had a successful real estate

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and construction law practice, but our industry called me back.

I’m very thankful for the lessons I learned while helping others.

I’m taking the reins at a time that is both exciting and challenging for many reasons. One of which is the loss of a longtime officer of our organization that did so much to help us achieve our goal to advocate for the rights of subcontractors. Change can be hard, but it also provides opportunity. We have an opportunity to evaluate our goals for the next decade and beyond.

We also have the opportunity and responsibility to step into the advocacy role for the organization on a local and national level while we look for a replacement. Through this process, we’ll get a chance to educate ourselves and a new chief advocate and continue the good work that has been done. Although I wouldn’t choose any unnecessary challenges, I’m thankful to be taking this one on with our national Board and all of you.

A couple of things in the works this year are strategic partnerships and more peer interaction. ASA has a unique compilation of members and information that has been gathered over the last 50 years. Many, if not most, of our members belong to other trade specific organizations who educate and advocate for the specific skills and issues particular to those individual trades. ASA has educated and advocated for subcontractors as a whole for over 50 years. We address issues related to the business of subcontracting such as contract negotiation and payment protection. We’re working toward expanding our membership

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and reach by partnering with other trade specific organizations who can benefit from our work while growing our organization and reach. In that vein, we are also working to provide more intentional opportunities for our chapters and members to interact and share best practices.

One of the key values I get from ASA is the advice of others in our industry. Our members are typically the best of the best. I can’t think of a better group of peers and advisors to help us succeed. There are already several things in the works such Chapter Families, which are already sharing best practices and we’ll be announcing a number of other efforts in the future.

I’m very thankful for all of you as members and hope you are getting all you can from ASA. We tend to spend our energy where we see the greatest returns. It’s just our nature. Look at the number and quality of the people who are volunteering and leading at the local and national levels and you can see that ASA involvement has a great return for the time and money invested.

If you aspire to grow your business and the industry we share, then ASA involvement should be on your list of things to do. I have seen and heard many stories of success in our ranks that I wouldn’t know without my time in this organization. Those stories have guided me toward success and away from problems in many instances.

Our local and national Boards not only improve the environment in which we do business, their members share life and experiences that help. Watch how the Board members interact at the next event you

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attend. They have built great friendships and are usually succeeding.

I’d say this is in some part due to their involvement with ASA. Join us!

Lastly, I have heard it said that money is the muscle of ministry. ASA has a worthy mission and we do a lot with our resources.

We have very low administrative costs when you compare them to our reach. That said, we need to grow our membership dues revenue and donations to our foundations so that we can continue the good work ASA does. I don’t know many places where your money

goes further. Over the years the Foundation and the Subcontractor’s Legal Defense Fund have provided valuable education materials and very important legal support to guide precedent in courts across the United States. This has benefitted us all. We always want engaged and involved members first and foremost and we should ask others in our industry to join ASA and support the work we are doing because it benefits them, too. Our combined efforts have made important improvements to the construction industry. With more members and funds, we could multiply that effect

and those benefits for all.

Thank you for your membership and involvement. I look forward to working for and with you in the next year to continue to make the construction industry better for us all.

Please let us know how we can help you succeed.

Best Regards,

Courtney Little 2018-19 ASA President

2018 ASA CERTIFICATE OF EXCELLENCE IN ETHICS ASA will honor selected firms that demonstrate the highest standards of internal and external integrity during an awards ceremony at the ASA annual convention, SUBExcel 2019, March 6–9, 2019, in Nashville, Tennessee.

Online Resources: • Watch the Video.

• Download the 2018 ASA Certificate of Excellence in Ethics Brochure.

• Download the 2018 ASA Certificate of Excellence in Ethics Application.

• ASA provides useful model documents to help with your submission and your ethics program. View the 2018 ASA Certificate of Excellence in Ethics Resource Guide.

• Download the 2018 ASA Certificate of Excellence in Ethics Timeline.

• ASA’s Certificate of Excellence in Ethics Program Q&A LinkedIn Group—a forum for getting answers to your questions about the application process. This forum includes current recipients who have been through the application process and who are willing to help guide new applicants through their application process.

• Recipients of the ‘2017 ASA Excellence in Ethics Award’ may re-apply for the 2018 ASA Certificate of Excellence in Ethics using the Re-Certification Form.

• Learn more about this award from asaonline.com.

APPLICATION DEADLINE: DECEMBER 7, 2018 T H E

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CONTRACTOR COMMUNITY House Endorses Contractor Payment Protections On May 24, the full U.S. House of Representatives approved two important payment protections for contractors and subcontractors performing work on federal construction projects. The provisions were incorporated in the National Defense Authorization Act for Fiscal Year 2019 (H.R. 5515), which the House approved by a vote of 351 to 66.

One provision would freeze at $150,000 the automatic threshold increases for the federal government to require payment bonds on its construction projects. The second provision would require federal procurement agencies to be transparent about their change order practices.

Approval of these new payment protections set the stage for consideration in the Senate. ASA is working with the members of the Construction Industry Procurement Coalition to assure that the payment amendments and other construction provisions are included in the final law.

Once enacted, both of these provisions will add layers of protection to contractor and subcontractor payment on federal construction and will establish a precedent for public work at the state and local levels.

ASA’s Manual Charts State Anti-Indemnity Laws How does your state handle indemnity? You can easily find out with ASA’s Anti-Indemnity Statutes in the 50 States.

This manual is a resource for identifying which states have anti-indemnity laws and indicates which states prohibit indemnity for partial fault or sole fault of the indemnified party. Furthermore, the manual indicates in which states a party is prohibited from requiring a subcontractor to name it as an additional insured, thereby closing the additional insured loophole.

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Anti-Indemnity laws are important to subcontractors because too often contractors and owners shift risk to the subcontractors that subcontractors can’t control. Specifically, “hold harmless” and “additional insured” provisions in a construction subcontract seek to hold the subcontractor accountable for worksite accidents or other losses that are not the fault of the subcontractor.

These “hold harmless” and “additional insured” provisions are problematic to subcontractors because they may unfairly shift the financial responsibility for claims to the subcontractor or its insurance company. As a result, a party who is indemnified by the subcontractor may use less care to avoid injury or loss because the indemnified party is not liable for its own actions. This carelessness may result in more accidents on the worksite that could have been avoided.

Many states have enacted laws that address at least some of the issues in shifting the burden of liability to a subcontractor. Forty-one states have some form of law which prohibits a construction contract that requires a subcontractor to indemnify another party for its negligence (but some of these states limit the application of the law, for example, only to public projects).

Only 27 states prohibit a subcontractor from indemnifying another party for its sole or partial fault; 14 states only prohibit a subcontractor from indemnifying another party for its sole fault.

Only six states prohibit a party from requiring another party to name it as an additional insured under a policy of insurance.

The ASA-member law firm and ASA general counsel, Kegler, Brown, Hill and Ritter, Columbus, Ohio, prepared the manual. The ASA AntiIndemnity Statutes in the 50 States is available under “Insurance and Risk Management” in the Member Resources section of the ASA Web site.

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ASA Introduces White Paper on Masterin g Payment for Stored Materials Subcontractors that purchase and store materials in advance for their portion of a project face a special set of payment concerns. The ASA white paper Mastering Payment for Stored Materials reviews these risks, discusses industry practices, and recommends steps a subcontractor can take to protect itself. For example, if bid documents don’t address payment for stored materials, a subcontractor may want to condition its bid on language assuring timely payment.

The ConsensusDocs Form 750, Standard Form of Agreement Between Constructor and Subcontractor, provides that the subcontractor is entitled to payment for materials and equipment delivered to the site, or at another location if agreed in writing.

Contract terms permitting payment for materials delivered and stored either on-site or off-site universally use subjective terminology such as “suitably” to describe the way the materials must be stored, require that off-site locations for storage be approved in writing, in advance, and universally require subjectively-described “satisfactory evidence” that title is transferred and that the materials are properly insured.

Regular communication with the prime contractor, in advance of ordering materials for which early payment will be sought, is therefore vital.

When a specific acquisition of such materials or equipment is contemplated, talk to the prime contractor ahead of time to be certain that your arrangements will be “suitable” and “satisfactory.” A written document prepared by either yourself or the prime contractor, with the signature or initials of a person in authority, will serve as the best guarantee for any

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subcontractor’s expectation of being paid for materials not scheduled to be immediately incorporated into the work. Even an email exchange with the proposed arrangement and a response accepting the arrangement can serve this purpose.

A discussion with an insurance agent knowledgeable of the terms of the builder’s risk policy for the project may also save expense and time.

The white paper is available under “Contracts and Project Management” in the Member Resources section of the ASA Web site.

proposed rule as soon as possible, and I look forward to hearing from all interested parties on this important issue that affects millions of Americans in virtually every sector of the economy.”

DOL Announces Pilot Program to Expedite Resolution of Wage Violations

The Wage and Hour Division of the U.S. Department of Labor has announced a new pilot program, the Payroll Audit Independent Determination program, which experesolution of inadvertent overtime NLRB to Consider Rulemaking to dites and minimum wage violations under Address Joint-Employer Standard the Fair Labor Standards Act. Under this On May 9, the National Labor Relations program, WHD will oversee resolution Board announced that it has started the of potential violations by assessing the internal process necessary to consider amount of wages due and supervising rulemaking on the joint-employer stand- their payment to employees. ard. Any proposed rule would require WHD will not impose penalties or liqapproval by a majority of the five-memuidated damages to finalize a settleber Board, and the next step would be ment for employers who choose to the publication of a Notice of Proposed participate in the PAID program and Rulemaking. proactively work with WHD to fix and The joint employer policy determines resolve their potential compensation when one business can be held legally errors. Employers may not participate responsible for workplace violations at a in the PAID program if they are in litigacompany it has ties to. The NLRB’s new tion or currently under investigation for Trump-appointed majority has attempted the practices at issue. Employers also to reverse an Obama-era precedent that will not be able to use the pilot program vastly increased the potential liability of repeatedly to resolve the same potential corporations. violations, as this program is designed to identify and correct potentially non“Whether one business is the joint compliant practices. Settlements will employer of another business’s employbe limited in scope to only the potential ees is one of the most critical issues in violations at issue. labor law today,” said NLRB Chairman John F. Ring. “The current uncertainty The pilot program further requires over the standard to be applied in deteremployers to review WHD’s compliance mining joint-employer status under the assistance materials, carefully audit Act undermines employers’ willingtheir pay practices, and agree to corness to create jobs and expand business rect the pay practices at issue going foropportunities. In my view, notice-andward. These requirements improve the comment rulemaking offers the best vehi- employers’ compliance with their mincle to fully consider all views on what the imum wage and overtime obligations, standard ought to be. I am committed to which helps ensure employees’ rights working with my colleagues to issue a are protected.

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According to WHD, the new PAID program is intended to ensure that more employees receive back wages they are owed—faster. Employees will receive 100 percent of the back wages paid, without having to pay any litigation expenses, attorney fees, or other costs that may be applicable to private actions. WHD will implement the pilot program nationwide for approximately six months, after which it will evaluate the pilot program and consider future options.

For more information on the pilot program, visit the DOL Web site.

Immigration Services Launches New E-Verify Web Site Employers using the federal government’s E-Verify system have a new, more user-friendly Web site to assure that prospective employees are authorized to work. The U.S. Citizenship and Immigration Services’ E-Verify.gov is the authoritative source for information on electronic employment eligibility verification.

The new Web site provides information about E-Verify and Form I-9, Employment Eligibility Verification, including employer responsibilities in the employment verification process. -Verify.gov allows employers to enroll in E-Verify directly and permits current users to access their accounts.

Employers can access E-Verify anytime, anywhere directly from a Web browser. Nearly all employees are confirmed as work-authorized instantly or within 24 hours. The system, which has nearly 800,000 enrolled employers, compares information from an employee’s Form I-9 to records available to the Department of Homeland Security and the Social Security Administration to verify authorization to work in the United States.

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Feature The Three Stages of Construction Documentation

by Joseph L. Katz, Esq., Huddles Jones Sorteberg & Dachille, P.C.

Just as the three most important factors in real estate are location, location, location, successful construction has its own recipe for success: document, document, document! A good rule of thumb is the more documentation the better, both for timely and quality delivery, for capturing all compensable costs and change order opportunities, and for prosecuting (or defending) claims in litigation. Of course, pushing paper alone will not build the project, and many subcontractors feel that documentation gets in the way and detracts from their “real” work at the project.

This article will highlight which documents are the most critical at the various lifecycles of a construction project. Think of this as the “minimum best practices” of construction documentation.

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The Three Stages of a Project: Bid, Contract/Change Order, and Performance The Bidding Stage

Believe it or not, good documentation practices begin well before a contract is signed. A strong estimating sheet, accurately showing how the subcontract price was calculated, is crucial. First, it ensures against a bid-bust later in the project. Second, if time delays or other unexpected circumstances arise which drive costs up, the subcontractor must demonstrate that its original estimate was accurate, and that it was the fault of others that raised the costs to complete.

Pre-contract bid documents should include all necessary takeoffs, unit prices as may be appropriate, including both labor and

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equipment rates (with burden), subcontractor and supplier bids, and calculations showing overhead and profit mark-ups. Unless your subcontract is a cost-plus agreement, these documents are confidential and proprietary, for internal use only, seeing the light of day only if a claim for additional costs is presented.

The Contract/Change Order Stage Subcontract The subcontract is perhaps the single most important document in a construction project, and it should be given the care and attention it deserves. A common myth I encounter from subcontractors is that the general contractor’s boiler-plate subcontract form cannot be changed or modified—after

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all, the cover letter clearly stated no changes will be accepted!

Well, I regularly modify subcontract language—and have it countersigned by the GC—despite that “no changes will be accepted” line.

I don’t always get everything I ask for, but I make it a practice to ask for more than I (and my client) really need, so at the end of the day, everyone has given up something, and the playing field is more level then it was before.

For example, broadening an attorney fee provision to apply to the prevailing party, and not just the general contractor, dramatically shifts the home-court advantage previously in favor of the contractor. Coupled with a few other modifications and other insertions, such as the ability to stop work if invoices are not paid within 45 to 60 days even if payment is otherwise payif or when-paid, tort liability limited to the extent of negligence only, and no ability to force work in the absence of a mutually agreed price for change orders, a somewhat fair balance is ordinarily achievable.

If you have tried, and have not successfully scored, a few key changes to the boilerplate language on your own, hire an experienced construction lawyer in your area to negotiate more favorable terms.

ASA has an Attorneys’ Council and can likely make several referrals to lawyers in your state that specialize in representing subcontractors.

Consider that “an ounce of prevention is worth more than a pound of cure.”

Change Orders Change orders are, at their core, addendums or modifications to the subcontract, and should also be handled with extreme care.

Many general contractors use form change order sheets designed to work to the advantage of the GC and the detriment of the subcontractor. While providing additional funds on the one hand, a change

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order will often cut off all prior avenues to additional funds by certifying that other than the cost increase provided by this change order and any other previously signed change order, no additional costs are due, and/or are waived. This effectively forever releases the contractor from any then-pending claims or requests for change orders, and from any claim for delay even if a formal delay claim has not yet been raised. Because delay claims are usually realized in hindsight, it is important not to unintentionally waive recovery for delays prospectively.

While I’ve written it in these pages before, it cannot be overstated that the “do it later” approach does not work for change orders. Stopping to get written approval for every change during the construction process is sometimes seen by the subcontractor as potentially detrimental to his or her relationship with the customer, or otherwise perceived as not being a team player. Often, the mentality is to “just get the work done and we will negotiate the price and terms in good faith later,” or “we just don’t have the time to do it now.”

However, this “do it later” approach often leads to a huge amount of time (and lost profitability) spent on the back end of a job trying to resolve disputes that could have been avoided if changes were dealt with in writing before the work was done. Even more harmful, crucial notice or signature provisions of the subcontract will be missed, meaning you are no longer contractually entitled to payment for such extra work. As discussed more below, monthly “partial” lien releases will often not simply release lien rights for the current funds being paid, but will release all rights to lien for all work performed through the date of payment, which will include both unbilled and unapproved change orders. If your subcontract says no change order

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work is to be done unless a signed change order is in place, insist on this—simply do not do the work until a signed change order is in place!

I’ve seen too many subcontractors get burned by relying on verbal assurances from GC project managers and superintendents that the extra work they are performing will be paid as a change order. Once the work is done, however, the story changes. Abide by the simple rule of thumb that unless something is in writing, it does not exist.

Performance Stage Well-documenting the subcontract performance is both good offense and defense. This category of documentation will include such items as daily tickets or reports, job cost reports, employee logs and payroll records, schedules, notices of delay, requests for information, notice of changed conditions leading to increased cost and/or time, applications for payment, and partial lien releases. Email has become the top method of communication, and I can guarantee you that email will play a role in any construction litigation or arbitration today.

Learn to use email often and well, being careful not to write anything you wouldn’t want read in front of a judge and jury (and your spouse or significant other!).

Daily Reports At minimum, daily reports should track the weather, names of subcontractor employees on-site, hours worked and a brief description of the work performed and equipment utilized. However, the savvy subcontractor will also make it a habit to record in the daily report any hindrances, obstacles, delays or other obstructions to either the time or quality of his trade’s work that day. A play-by-play of the job, or a journal of sorts, written from the perspective favorable to the subcontractor can be a vital resource

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to both prosecuting claims for extra work or delay damages, and for defending against backcharges or a wrongful termination. The daily report or work ticket is a particularly golden opportunity to record and memorialize oral instructions, directions and even off-the-cuff comments by the general contractor’s superintendent, PM or other owner, A/E or contractor official that can prove invaluable down the road.

It may take time to develop a feel for what should be included, but many would never even think or consider including oral comments within a daily report. Once you are tuned into the strategic use of daily reporting to your advantage, you will find such opportunities everywhere. Consider the daily report as an outlet to tell the story of this job through your company’s vantage point.

Cost Codes Job cost reports, and cost codes, is another important methodology for tracking costs and catching cost overruns. Once a changed or differing condition is realized, all costs associated with the change should be tracked by a particular code, and segregated in real time. Courts do not award speculative damages, and absent a contemporaneous record of actual cost overruns, judges can be reluctant to use more imaginative cost accounting methods to establish the actual monetary loss.

Email Email is your friend—use it often.

Get in the habit of sending short emails confirming oral conversations or verbal assurances and direction given to you during the day. And now that everyone has email right on their phone, there is no need to let it wait until the end of the day, when you’ve forgotten the details or forgotten altogether— email right after an oral conversation, succinctly summarizing what

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was discussed. Email can also be used to document and memorialize daily delays, obstructions, hinderances, and virtually any other project or personnel situation for prosperity.

Notice As addressed at length elsewhere within this edition of The Contractor’s Compass, many subcontracts contain notice provisions for proposed change orders—use email for that, too. Get into the habit of documenting everything in real time, and your email will be a paper trail credibly demonstrating the project timeline and milestone events. Courts around the country are concurring that an electronic signature, i.e., your name at the bottom of an email, constitutes a legally binding signature (disclaimer: email is not recognized as binding in Texas). Depending on your jurisdiction, contractual notices and even change orders can be established simply through your email. Do not waste this golden opportunity.

Lien Releases These days, partial lien releases are anything but. Often they will release the GC and owner from payment for all work performed on the project through the date of the payment application, or even worse, through the date the lien release is signed. And, yes, this can readily become a legal obstacle to receipt of future payment for unpaid change work already performed but not yet billed, and/or accepted.

Many “partial lien releases” don’t even contain an exception for retainage, and by executing the “partial release” you have just signed away your legal entitlement to your retention, as well as any pending or unbilled/unapproved changes or delay damages.

It is best to modify the language of any payment release—be it for lien claims or any claims—to

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indicate the release is being provided “only to the extent of payment received” for the work performed. Better yet, ASA has a great sticker titled “Lien Waiver Reservation of Rights,” which you can easily slap on to every “partial” lien release. (The reservation of rights stickers are available to ASA members under “Contracts & Project Management” by logging into the ASA Web site, www.asaonline.com, at “LogIn/Access Member Resources.”) The sticker specifically carves out retention, unbilled changes and claims which are unknown or not yet asserted in writing. It also clarifies that the release is effective only through the date of the subcontractor’s last pay application. I have recently commissioned a rubber stamp I give my clients to stamp onto every release, making sure that the partial release is not a final release.

Learn to use the documentation process at each stage of a project to your advantage, and enjoy the success that savvy subcontractors know well.

Joseph L. Katz, Esq., is a senior associate at the construction litigation firm Huddles Jones Sorteberg & Dachille, P.C. in Columbia, Md. Katz regularly represents subcontractors and suppliers on federal, state and municipal construction projects and has specialized expertise in guiding his clients through the various regulatory requirements unique to government contracting.

He also frequently represents clients involved in private sector construction, including housing, commercial, retail and industrial projects.

He is experienced in all facets of construction litigation, including mechanic’s liens, Miller Act payment bond claims, arbitration, and civil actions in both state and federal court. He can be reached at (410) 720-0072 or katz@constructionlaw. com.

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Feature The 5 Logs You Must Keep

by Anwar Hafeez, SDC & Associates, Inc.

In order for a subcontractor to be Types of Submittals well organized and run a project effi• Approval ciently and increase their profits, they • Substitution needs to keep these five logs to track • As-Equal of information and find it quickly: • Samples 1. Submittal Log • Catalog Cuts 2. RFI Log • Shop Drawings 3. Change Order Log Substitution and or-equal submit4. Backcharge Log tals need to be flagged out on your 5. Letters Incoming/Outgoing Log Transmittal Form—it may involve providing a credit—otherwise the This article discusses the best methsubmittal is deemed to be in conforodology that should be used to premance of the bid design documents. pare, manage and track these Logs.

Otherwise you will get in trouble by submitting some products that the Submittal Log Why are submittals required by the two parties did not contract for, even if the submittal is approved. owner? Submittal logs are required A sample Submittal Log is shown in for subcontractors for: • Materials that conform to the con- Fig 1. tract 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, 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 should eliminate most of the submittals that have the stamp on the product that state what was specified.

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RFI Log

What is an RFI? An RFI is a Request for Information system for asking questions that relate to problems encountered on construction 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 The RFI system is a standard operating procedure on construction projects as the contract documents especially since design of most con-

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struction 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.

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.

So what do we use letters for? Writing about contractual matters, such as: • Notification of delays and additional costs due to answers to RFIs, submittals, 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 influence the answer that you want. Sometimes you should not write an RFI, see previous articles in The Contractor’s Compass I wrote on “Conflicts and Commissions.”

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.

• You don’t have to wonder if you asked a question during construction—you either did or did not.

C O N T R A C T O R ’ S

C O M P A S S

SUB NO.

SPECIFICATION SECTION

DESCRIPTION

SAMPLE

CAT CUT

SHOP OWG

CERT COMP

7

02225-2.01

Bedding Sand (SW or SP) - Comply with ASTMD2487

3

02233-1.05-B.2

Shoring Design Prepared by a Qualified Registered Civil Engineer

6

02233-2.01.A.1

Aggregate Base Course - Class 2 Materials

6

02233-2.01.A.1

Herbicide

5

02513-1.03./2.01

Asphalt Concrete Design - Mix

X

02513-1.03.B/2.01

Asphalt Concrete Weightmaster’s Certificates

X

02513-1.03.C/2.01

Certificates of Compliance for

REJ DATE

X X

X

5

Asphalt Cement

X

5

Asphaltic Emulsion

X

02513-1.03.D/2.01

Field Test Reports

X

6

02540-1.03.A/2.01

Paint

X

6A

02540-1.03.A/2.01

Paint Certificates

X

02720-1.03.A/2.01

Certificates of Compliance for

2

Pipe and Fittings

X

2

Pipe Joint Materials

X

2A

Pipe and Fittings

X

2A

Pipe Joint Materials

X

7

Precast Concrete Catch Basin w/ADA Compliant Grate

X

2

Geotextile Fabric

X

X

1

Waterproofing Materials

X

X

Manufacturer’s Catalogue Cuts

7

Precast Concrete Catch Basin w/ADA Compliant Grate

2

Geotextile Filter Fabric

1

Geotextile Prefabricated Drainage Panel

1

Waterproofing Materials

7

Sump Pump, Wet Well, Control Panel & Appurten.

MCO #5

AAN DATE

X

Aggregates for Asphalt Concrete

4

APP DATE

X

5

02720-1.03.B/2.01

SUBMIT DATE

Drainage Panel

X X

X X

X

X X

X

X

Fig 1

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C O N T R A C T O R ’ S

C O M P A S S

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C O N T R A C T O R ’ S

C O M P A S S

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

1/3/2002

1/3/2002

1/12/2017

1/12/2017

2

1090

Existing electrical duct interference

1/12/2017

1/12/2017

1/19/2017

1/19/2017

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

1/23/2017

1/24/2017

1

AS

1090

Existing electrical duct interference

1/22/2017

2/1/2017

2/1/2017

2/1/2017

4

AS

AS

6 7

Fig. 2 AS = Answered satisfactorily

• 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.

ers are completing their design during construction.

• Keep the RFI Log Cross-referenced, such as shown in Fig. 2. 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. The following delays occurred:

Keys to a Winning RFI System • Use it as your primary form of communication • Set a Priority system at the PreConstruction Meeting: o Priority 1 – Need answer in 1 Work Day o Priority 2 – Need answer in 2 Work Days o Priority 3 – Need answer in 5 Work Days o Priority 4 – Need answer in 10 Work Days • Keep and monitor the RFI Log and write a letter complaining the prob problems with drawings and specifications and that the design-

day morning. You can program your Excel spreadsheet or if you use any Project Management software—all you have to do is hit the print button and send the following letter, stating: 1. Please be advised that the following RFIs are late in their response to us: RFI No.

RFI No.

Date Sent

Date Received

2

1/12/2017

1/19/2017

7

5

1/20/2017

2/1/2017

11

2&5

1/12/2017

2/1/2017

20

Date Sent

Date Answer Requested

Delays

Date Late

2. Please be advised that the following Submittals are late in their approval to us:

Combining the delays due to RFI #2 & #5 together you get a greater time extension.

Submittal and RFI Logs Follow-Up You should send the following letter to your contracting party every Mon-

PA = Partially answered

Submittal No.

Date Sent

Date Answer Requested

Date Late

The consequences of the late answers to RFIs and late approval of

Initializing Documents AFA

Issue Date

Subcontractor

Submitted Change Amount

1

Separate oversize rocks @ Stockpile B near gatehouse

2

8

11/08/02

Total Subcontractor ABC-Subcontractor

34,854.62 17,212.98 17,641.64

10

11/12/02

39,178.80 17,519.59 21,659.21

12/02/02

2

Remove & dispose debris within Stockpile A

3 5

9

11/11/02

Total Subcontractor ABC-Subcontractor

114,295.15 42,947.47 71,347.68

0

11/21/02

122,653.77 48,469.31 74,184.46

12/23/02

3

Haul remedied mobile dirt piles adjacent to Stockpile A

6

11/11/02

Total GC Subcontractor

15,570.90 2,208.52 13,362.38

15

11/21/02

4

Grub/dispose soil @ Stockpile A & transfer Stockpile A soils to Stockpile B

4

11/13/02

Total Subcontractor

5,317.79 5,317.79

16

11/21/02

11/15/02

Total Subcontractor ABC-Subcontractor

2,264.23 794.93 1,469.30

20

11/21/02

PCO

5

Description

Cut access road on stockpile

S-PCO

DELTA

T&M

RFQ

OWNER RFI

GC RFI

SI

10

1

Time Ext. Req.

Date to Owner

Revise & Resubmit Amount

Revise & Resubmit Date

Fig.3 PCO—Pending CO Number SPCO—Subsequent Pending CO Number—Sometimes, a CO is issued and then later more COs are issued to define additional or missed scope of work.

For example, if PCO #2 resulted in additional PCO #15, 25 and 26, enter into each SPCO column. You need to know how all four of the PCOs are interrelated and the combination of all four are going to give the maximum amount of time extension and in the final PCO pricing you can pick up any costs that you may have missed in the three previous PCOs. Initializing Documents—Enter where this CO originated from. All Other Columns are self-explanatory.

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C O M P A S S

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15

F

BC #

Description

BC Sub

1

Behind Schedule—Had to supplement crews with another sub and work overtime

ABC

2

Remove & Dispose Debris

ABC

3

Clean-Up

ABC

From Whom Sub

Date

Sub

Amount

Date

Approved Amount

12/2/2002

Total ABC

3,300.00 300.00

XYZ

3,000.00

12/3/2002

Total ABC

5,000.00 5,000.00

PENDING

12/4/2002

Total ABC

15,570.90

DISPUTE

Sub-Sub XYZ

ABC KLM

1/6/2003

C.O. No.

Status

3,300.00 300.00

17-1

APPRVD

3,000.00

20-5

2,208.52 13,362.38

KLM

Fig. 4 AS = Answered satisfactorily

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.

This is what I call “relentless followup,” which tells that the contracting party that you are active in trying to get the project built on time.

Change Order Log To keep track of your Change Orders (CO), assign your Project Manager (PM) to assign CO Numbers after other project personnel has convinced the PM that this is a legitimate CO to pursue otherwise your company will submit change order requests that have no merit and that deteriorates relationships with the contracted party. Your PM needs to maintain this Log. A sample CO Log is shown in Fig. 3.

Backcharge Log To keep track of your Backcharge Change Orders (BCO), assign your Project Manager (PM) to assign BCO Numbers after other project personnel has convinced the PM that this is a legitimate BCO to pursue otherwise your company will submit BCOs that have no merit and that deteriorates relationships with your suppliers/ subcontractors. Your PM needs to maintain this Log. A sample BCO Log is shown in Fig. 4.

This Log is different from the CO Log in that this keeps track of backcharges/internal-transactions between you and your own subcontractors and has nothing to do with the contract

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you have for the project. Use different series of cost code codes to track BCO costs—separate from costs from contract and CO costs.

Letters Incoming/Outgoing Log To keep track of your Letters Incoming/Outgoing, you should keep track of outgoing and incoming letters to the party that you are contracted with.

This way you do not lose any letters and you know what letters you have responded to and how and what letters you decided not to respond to.

You also, know if you get letters out of order, that you should follow-up to get the missing letters or find out that were voided. I do not recommend using this log on small projects as it is a lot of work to do so. Letters Incoming/ Outgoing Logs look as noted in Fig. 5.

If you use Project Management software or an internet-based proj-

PA = Partially answered

ect management system, customize it with the information provided in this article and/or add what works for your company. If anyone wants a copy of “5 Logs” in Excel format, please ask for a request via email.

Armed with this knowledge, subcontractors adopt, implement and maintain the 5 Logs You Must Keep that works which will make your work more efficient, save time and increases your profits!

Anwar Hafeez is president of SDC & Associates, Inc., a construction claims consulting firm that prepares and negotiates change orders/claims, CPM scheduling, and teaches seminars on project management and change orders/claims. For more information, visit www.sdcassociates.com, call (800) 732-3996 or email ah@sdcassociates.com.

Fig. 5 INCOMING LTR

Dated

Received

Description

Sta

Response

Dated

1

05/07/18

05/07/18

Notice of Award

2

06/04/18

06/04/18

Notice to Proceed

NR R

1

06/04/18

3

06/05/18

06/04/18

Scheduling of Pre-Construction Meeting

R

2

06/05/18

4

06/05/18

06/05/18

Scheduling of Partnering Meeting

R

3

06/05/18

5

OUTGOING Ltr. No.

Dated

Description

PCO

1

06/11/18

Notice to Proceed

2

06/12/18

Scheduling of Pre-Construction Meeting

3

06/12/18

Scheduling of Partnering Meeting

4

06/14/18

Problem with As-Built Information - Notice of CO

RFI

Response to GC Ltr. No.

Status

2 3 1

1

4

WR

5 CODES: WR—Waiting for Response

Fig. 5

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C O N T R A C T O R ’ S

C O M P A S S

Legally Speaking

How to Avoid the Pitfalls of Notice Requirements— Before You Sign the Contract

by Masaki James Yamada, Ahlers Cressman & Sleight, PLLC

The majority of construction contracts contain a notice provision detailing how and when the contractor must give notice of a claim or change. Increasingly common in these notice provisions is also a “forfeiture clause,” which states that if a contractor fails to strictly comply with the notice requirements, the contractor waives or forfeits its ability to recover the costs associated with the change or claim. For instance, a common notice provision requires a contractor to provide immediate oral notice of the event, followed by written notice within seven days of the event, identifying in detail the basis for the claim. Then, within 30 days of the event, the contractor must provide a written breakdown of all the elements and sub-elements of the claim, including the total increase in the contract amount or contract time being sought. The contractor’s failure to strictly comply results in a forfeiture or waiver of its claim (irrespective of the claim’s merit). These notice clauses serve a number of purposes, but the general rationale is that providing prompt and timely notice allows the owner to

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C O N T R A C T O R ’ S

be involved in the claim and change process (i.e., remediation efforts) from the very beginning rather than to be informed after the additional costs/delays are incurred.

Although, the notice provision seems like yet another contract provision that contractors can ultimately overcome by performing its work, the landmark case of Mike M. Johnson, 150 Wn.2d 375, 400, 78 P.3d 161 (2003) (“MMJ”) drastically changed the landscape of written notice in Washington construction contracts. MMJ likely made Washington State the strictest in the nation when it comes to written notice requirements in construction contracts. Under MMJ, the Washington State Supreme Court held that the notice requirements and claim forfeiture provision are strictly enforced, regardless of whether the claim has merit. In MMJ, Johnson encountered buried phone lines, which disrupted its work until the utility conflict was resolved. The contract contained a detailed written notice provision, which included a forfeiture clause.

Although the Court found that Johnson did submit several letters

C O M P A S S

claiming it was owed additional compensation, Johnson did not submit a formal “claim” as required in the contract. Ultimately, the Court upheld dismissal of the case on a summary judgment motion. The Court noted that as a general principal of contract law, procedural contractual requirements must be enforced absent either waiver by the benefiting party or an agreement between the parties to modify the contract. The Court rejected the contractor’s argument that, when an owner has actual notice of a contractor’s claim, the contractor is excused from compliance with mandatory contractual claim provisions. Rather, the Court held that, unless the party benefiting from the provision waives compliance, actual notice is not an exception to contract compliance.

While the MMJ holding may seem to make sense on its face (the parties must comply with the terms of their contract), the dynamic and schedule-driven nature of construction projects often makes these notice requirements anything but straightforward. Contractors regularly find themselves in situations

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where 1) the parties dispute whether an “event” triggering the notice requirements has even occurred, 2) the number and magnitude of the changes on a project make it administratively impossible to meet the notice time requirements, or, most commonly, 3) the owner has yet to provide the contractor with the information necessary to meet the requirements in the first place. In many instances, strict enforcement of the claim notice provisions is inequitable. The owner is in the best position to control the risk of a change (particularly a design change), yet it is the contractor who is saddled with the burden of fully assessing the time and cost impact of the change, and if it fails to do so, it forfeits an otherwise valid equitable adjustment to its contract. The dissent in MMJ foresaw this dilemma. While the dissent in MMJ agreed that actual notice is not an exception to contract compliance, it was reluctant to decide in favor of the county when the county had actual notice plus gave Johnson direction to proceed.

The dissent believed this amounted to compliance with the contract by the contractor. Confirming the dissent’s fear, today the first step in analyzing a construction claim has moved from the merits of the claim to the threshold issue of whether the contractor strictly complied with the often intricate notice provision. MMJ illustrates why so many states and entities have chosen to adopt the prejudice standard. However, the complexities of a prejudice standard are not the topic of this article. Rather, this article is a reminder as to why giving proper and timely notice is the key to preserving claims and why provisions in the contract that involve notice deserve a closer look, not during the project, but before entering into the contract. The following are practical tips during contract negotiations

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to help avoid dealing with notice issues after it is too late.

Strike Forfeiture Language.

While it is not unreasonable for the general contractor to require early notice and an opportunity to address potential change orders and claims with reliable information, it is not reasonable to strip a subcontractor of an otherwise valid claim for extra time or compensation simply because the subcontractor has not strictly complied with the often complex, overly technical, overlapping, and sometimes conflicting provisions governing written notices and claim documentation. To avoid this result, a subcontractor should search for and strike terms such as “strict compliance,” “condition precedent,” “waive,” and “forfeit,” and consider adding a provision such as the following: Notwithstanding anything to the contrary, a party’s failure to provide any notice strictly in the time and form required shall not result in a waiver of an otherwise valid right or claim unless, and only to the extent that, the party entitled to receive such notice demonstrates actual harm resulting from such failure.

Require Executed Change Orders for Extra Work. A strict pre-work Change Order requirement protects the general and owner against claims for extras after the work is completed. It also protects the subcontractor from being directed to perform extra work without prior agreement on the cost and time adjustments. However, it can also be a trap where the subcontractor performs time-sensitive extra work in good faith based on clear direction, but the contractor later denies the requested Change Order.

As a subcontractor, this means it is important for you to be firm in requiring signed Change Orders before you perform any extras.

If you cannot agree on your entitlement or cost, demand a formal

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Change Directive.

Include a Clear “Change Directives” Procedure. A good “Change Directive” process will require a written Change Directive when Change Order terms cannot be agreed, specify how interim compensation will be determined, and dovetail with the Claims provision. Again the key for you as a subcontractor is to demand that the general follow its own procedures and issue a formal directive before you commence any extra work.

Remove Advance Change Order Limitations. Does a signed Change Order automatically waive all related rights and claims? What about cumulative impacts, which might only arise or are only identifiable when change orders become excessive? Is there any limitation on the time or money you may receive for certain types of changes? As a subcontractor, you should any such advanced limitations in the subcontract documents where possible, and instead address specific issues in the individual Change Orders to be issued during the work.

The aforementioned changes to your subcontract should help ease your attempts to comply with your subcontract’s notice requirements.

Masaki James Yamada is a partner at Ahlers Cressman & Sleight PLLC. His practice focuses on matters involving complex construction claims, construction contracts, construction L&I issues, construction defects, and related insurance matters. His practice also includes commercial real estate and communications law (i.e. cell towers).

Yamada regularly represents general contractors, subcontractors, developers, business and property owners, and design professionals.

He can be reached at (206) 529-3015 or masaki.yamada@acslawyers. com.

C O N T R A C T O R ’ S

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ASA/FASA Calendar

Coming Up in the August 2018 Issue of ASA’s

14 — Webinar: “High Times—Navigating a Drug Free Workplace in Light of Marijuana Use Laws and Restrictions on Post-Accident Testing” presented by Philip J. Siegel, Esq., Hendrick, Phillips, Salzman & Siegel

THE

August 2018

September 2018 11 — Webinar: “Electronic Takeoff Software Solutions” presented by Justin Hobby, Exactal October 2018 9 — Webinar: “Group Captive Insurance for Construction Companies“ presented by Ed Kushlis, Insurance Associates

Theme: Back to “School” • Lean Construction • Employee Training and

Development

November 2018 13 — Webinar: “The Soft Side of Scheduling: Improving Communications Between GCs and Subcontractors” presented by Steve Groth, Chiaramonte Construction

• California Independent

Contractor Test

• E-Verify • OSHA Inspections and

December 2018 11 — Webinar: “Improving the Change Order Process” presented

by Ron Churchey, Shapiro & Duncan

Defending Citations

• Distracted Driving • Legally Speaking: Are

January 2019 8 — Webinar: “Work-In-Progress Reporting” presented by Stephen Blankenship, Ennis Electric February 2019 12 — Webinar: “The Best—and Worst—Construction Legal Decisions of 2018” presented by Adam Harrison, Harrison Law Group March 2019

Arbitration Awards Final?

Look for your issue in August.

PAST ISSUES: Access online at www.contractors knowledgedepot.com

6–9 — SUBExcel 2019, Nashville, Tenn.

April 2019 9 – Webinar: “Avoiding Predatory OCIPs, CCIPs and Builders Risk Insurance Flow-Downs” presented by Jonathan Mitz, Ennis Elecric May 2019 14 — Corporate and Individual Tax Planning Under the New Tax Law, by Thomas B. Bailey, CPA, CVA, Councilor, Buchanan & Mitchell, P.C. TM

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

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J UA LY Y 2 20 01 18 8 M TM

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Certain CNA Financial Corporation subsidiaries use the “CNA” service mark in connection with insurance underwriting and claims activities. Copyright © 2018 CNA. All rights reserved.

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