Public improvement contracts involve many different kinds of contracts – from architect, engineer and consultant agreements to contractor, construction manager, bond and insurance agreements. Often, city officials don’t fully know or appreciate what terms or obligations are contained in the contracts which they send or recommend to their councils.
Not only should city officials carefully review all public improvement contracts, they should also strongly consider having their legal counsel and insurance advisor review them for any legal or insurance coverage concerns or for any revised language that could better protect the city’s interests before recommending them to their councils for approval. With construction contracts, in particular, make sure you have the contractor agreement and bid documents sent to legal counsel and your insurance advisor for review before bids are let. After a project is bid and awarded it is too late to change contract terms absent the contractor’s mutual agreement.
While the following are general things to consider when reviewing or looking at public improvement contracts, remember that every contract is different, and one size doesn’t usually fit all.
Scope of Contract Review
- The business elements of a contract should be reviewed by you. “You” and “your” mean the entity you work for and on whose behalf the contract is being negotiated.
- Business elements of a contract include all of the details associated with the particular arrangement that is subject of the contract and include items such as price and payment terms, contract term and timelines, and products/services specifications. You should ensure that the contracts reflect the city’s timeline, budget and other project expectations.
- The business elements of a contract are often more important than the legal elements of a contract.
- The legal elements of a contract should be reviewed by your legal counsel. Insurance requirements should be viewed by your insurance advisor.
- Legal counsel can ensure the document constitutes a binding and enforceable agreement and advise you about the meaning and significance of the legal elements of the contract.
- Legal elements of a contract are the terms and conditions that are part of the contract and include items such as indemnification, limitations of liability and disclaimers as to warranties.
- Certain legal elements of a contract often include standard, or “boilerplate,” language. “Boilerplate” sounds like something unimportant, but it is not. Boilerplate language can many times “save you”. For example, you always want to ensure your contracts are governed by Iowa law and can only be modified by agreement of the parties.
Specific Contract Language Provisions to Consider In Public Improvement Projects
- Commencement: Project should not start until all required documents are in order and executed by the parties.
- Substantial Completion and Final Acceptance: Make sure you have time requirements for both listed in your contracts.
- When do you want/need your project done? Know the answer to these questions before you start. It can impact other contractual decisions you may need to make.
Standard of care and relationship between parties
- Include professional ethics standards and conflicts of interest in your contracts.
- Insurability issues can arise here, so be certain that you know what language will have insurance coverage.
- Make sure the professional service providers have the city’s best interests.
Scope of work and responsibilities of contracting parties
- Be specific and carefully define (Basic Services v. Additional Services).
- Ensure no holes or gaps between various contracts.
- Eliminate ambiguity in expectations.
Statutory and contractual limitations
- Professional service contracts do not need to be competitively bid under Iowa law (there are still questions out there as to what is a professional service contract—so don’t assume).
- Know which projects must be bid or quoted. Use appropriate statutory language in contracts (“lowest responsive, responsible bidder”).
Make sure it is clearly outlined in the contract not only the amount and types of insurance to be required, but also who will be responsible for obtaining the requisite insurance. For example, sometimes the owner will acquire the builder’s risk insurance instead of the contract. Examples of insurance to consider:
- General Liability/Umbrella
- Workers’ Compensation
- Professional Liability
- Builder’s Risk
Fees and payments
- How will fees be determined (lump sum/percentage of construction costs)?
- How will payments be made (Iowa law controls contractor payments for public improvement projects)?
- Reimbursable expenses should be defined and capped with no markups.
- Consultant fees markups should be eliminated if possible.
- Include clauses on how to initiate claims.
- Include notice and other procedural requirements.
- Mandatory v. Non-Mandatory/Binding v. Non-Binding Mediation
- Attorneys and other fees for owner
- Include with or without cause termination provisions.
- Avoid termination fees for without cause termination.
- Make notice requirements clear and not burdensome.
- Define what constitutes a breach (or cause).
- Define the responsibilities of the parties upon termination.
- Direct damages.
- Do not waive consequential damages.
- Determine before contracting whether to include liquidated damages, and how much per day.
Change order process
- Outline process (how prepared, presented and approved/ denied).
- Change orders v. field orders.
- Change orders v. construction change directives.
- Define substantial completion and final acceptance.
- Discuss how retainage will be dealt with.
- Discuss how Chapter 573 claims will be handled.
- Discuss warranties and any post-completion inspections and commissioning work.
- Outline documents required for closeout.
- Governing law/venue
- Limitation of liabilities—Available insurance
Concerning Language in Standard AIA Contract Documents
Arbitration clause/dispute resolution
- Don’t elect binding arbitration as the preferred dispute resolution process.
- Elect for litigation in the owner’s jurisdiction.
- Make sure consistent across all contracts.
Reimbursable and consultant markups
- Most architects, engineers and construction managers will markup these by 10-20 percent.
- Reimbursable expenses should not contain a markup, and consultant markups should be limited.
“Assist” & “endeavor” type language
- Assisting and endeavoring is not doing or taking full responsibility.
- Try to remove this language, when possible and reasonable to do so.
Insufficient on-site representation
- Make clear what you want as part of basic services.
- Define the number of on-site visits or the amount of on-site supervision you expect as part of the base fee.
Additional services v. basic services
- Many items listed as additional services should really be part of basic services. Additional services involve more fees above the basic contract amount.
Statute of limitations
- Generally, statute of limitations starts at substantial completion.
- Make the statute of limitations start at final acceptance or have none at all.
- Delete these penalty expenses for termination so the owner has options if termination may be needed. Often termination expenses can be so high that it precludes termination as a viable option.
- Standard language provides no ownership of the documents for the owner.
- Modify to ensure owner has ownership and use of the documents as needed in the future.
The purpose of this outline is to identify issues. It does not purport to be exhaustive or to render legal advice. You should consult with qualified counsel or other professionals in developing responses to specific situations.
Content provided by Danielle Jess Haindfield, a shareholder at Ahlers & Cooney, P.C