NYCLA CONSTRUCTION LAW JOURNAL A publication of the NYCLA Construction Law Committee Volume III, Issue II FALL 2013 Letter From the Co-Chair I N S I D E “New York Stands Alone” ARTICLES Dear Colleagues, there are many things that are quintessential New York: Broadway; Bagels; the Statue of Liberty (sorry New Jersey); and, although you Top Ten Construction Contract Provisions To Be Negotiated With the probably don’t know this, I doubt you will be surprised Owner Pg. 2 By Frank A. Hess, Esq. and Richard S. Robinson, Esq. to hear that New York is also home to the only McDonald’s with three levels of seating. The Liability of An Owner, Contractor or Subcontractor Under Article However, it might surprise you to learn that New 3-A of the Lien Law May Last Long Than You Think Pg. 9 York is the only State in the Union with a so-called By Michael Silverstein, Esq. “scaffold law” which imposes strict liability on owners Frequently Asked Questions on Construction and Construction Law and contractors for gravity related injuries (in fact, the By Robert S. Peckar, Esq, and Michael S. Zicherman, Esq. Pg. 11 “scaffold law” is the only area of civil liability law in New York which does not contain a comparative Protection of Neighboring Property During Construction Pg. 15 negligence standard). New York has held this By Brian G. Lustbader, Esq. distinction since Illinois repealed its scaffold law in 1995. All other States which have historically enacted a When The Federal Government’s Hard-Line Claim Negotiations Are scaffold law had repealed their statutes by the 1940’s. Also A Breach Of Contract – Part One Pg. 16 By Christopher J. Brasco, Esq. and Adam Tuckman, Esq. With the School Construction Authority facing the loss of its wrap-up insurance policy at the end of this year (the SCA’s current annual premium is $100,000,000 and, if a renewal were to be offered – which it currently is not – the underwriter has estimated the renewal premium would cost around $125,000,000. CONSTRUCTION LAW COMMITTEE By contrast, to provide the same levels of coverage in New Jersey, the underwriter estimates the premium CO-CHAIR EDITOR Joel Sciascia, Esq. would cost only $25,000,000) and the prospect of many Sarah Biser, Esq. [email protected] [email protected] MWBE construction firms being unable to obtain replacement coverage at rates that would allow them to CO-CHAIR EDITOR remain competitive in bidding, there is presently a Ariel Weinstock, Esq. Ariel Weinstock, Esq. renewed effort to reform the scaffold law. [email protected] [email protected] ASSOCIATE EDITOR Our Committee has begun a review of the current Jill Bramwell, Esq. proposals with the aim of publishing an analysis/report [email protected] in the coming weeks. I would like to invite all Committee members and readers of this Journal to participate in our undertaking and to share your opinions on the latest reform efforts. If you would like to join this subcommittee and contribute to our report, please send me an email at [email protected]. I look forward to hearing from you. Yours truly, Ariel Weinstock 1 Top Ten Construction Contract Provisions To Be Negotiated With the Owner By Frank A. Hess, Esq. and Richard S. Robinson, Esq. After litigating numerous cases on behalf of unwillingness is a red flag. Alternatively, try to get construction contractors and reviewing and the owner to warrant the adequacy and negotiating hundreds of construction contracts, the completeness of all of the design with some minor authors are very familiar with the significant risks exceptions. to construction contractors arising from the contracts they sign. The good news is that it is (2) INDEMNIFICATION sometimes possible to avoid certain risks through awareness of key provisions during the negotiations Definition with an owner. By better understanding their own Indemnification means that one contractual contracts, contractors (and counsel) can identify, in party agrees to defend against and assume instances where negotiation is possible, appropriate responsibility for third-party claims against the changes that will clarify certain provisions, provide other party. One example is the indemnity clause additional protections or more fairly allocate risks. from the AIA A201-2007 (general conditions), paragraph 3.18.1, which states in part that “the (1) SCOPE OF WORK/ contractor shall indemnify and hold harmless the PERFORMANCE DUTIES owner…from and against claims, damages, losses and expenses…arising out of or resulting from Definition performance of the Work, provided that such claim, A critical contract term-scope of work-is often damage, loss or expense is attributable to bodily overlooked. Contractors usually trust their injury, sickness, disease or death, or to injury to or estimating teams to fairly and adequately estimate destruction of tangible property (other than the the scope of work shown on the owner’s drawings. work itself), but only to the extent caused by the However, later (and vehement) disagreements about negligent acts or omissions of the contractor, a the contractor’s expectations for quality, subcontractor, anyone directly or indirectly completeness of design documents and employed by them or anyone for whose acts they nature/scope of duties are not uncommon. may be liable.” Explanation Under 3.18.1, if a subcontractor’s employee is injured because of actions or omissions of the Subjects not adequately evaluated during contractor, the contractor must defend and “hold negotiation of contract terms often include “gaps” harmless” the owner against resulting claims. In in scope of work, adequacy and completeness of addition, the contractor may be asked to indemnify design documents, coordination responsibility the owner against claims for property damage, IP during construction and responsibility for infringement, liens and hazardous materials. correcting incomplete/deficient designs created by contractors are also frequently required by owners the owner’s design professionals. These problems to “flow down” such provisions in subcontracts. are amplified in complex, fast track or design-build projects that often commence with incomplete Explanation design/performance specifications and by “design While the contractor ideally wants to “flow creep” (i.e., an owner/designer attempts to abdicate down” the indemnity obligation/risk to design responsibility to the contractor during subcontractors, that strategy does not always construction). provide protection. Because multiple subcontractors Negotiation Strategies may be working in the same area, it can be difficult to assign degrees of fault for a given act of Will the owner expressly warrant that the negligence. design/construction documents are complete, fully coordinated, without defects, and ready for As examples, New Jersey law (N.J.S.A. construction? If yes, include this express warranty §2A:40A-1) prohibits a solely negligent owner in the contract for contractor protection. If no, this from seeking indemnification from a contractor for 2 property damage or injury. However, a partially upon the owner’s use of the particular system, negligent owner may seek indemnification from the equipment, or product (especially in HVAC contractor if other parties have contributory equipment warranties). negligence. New York law (NY Gen. Oblig. §5- Explanation 322.1) similarly prevents an owner from seeking indemnification from a contractor for property Warranties allow the contractor to “flow down” damage or injury to the extent such damage is owner complaints to Subcontractors and Suppliers. caused by the owner itself. However, due to various warranty limitations, the contractor may not receive complete protection Negotiation Strategies from a warranty alone. The contractor must guard Whenever possible, the contractor should strive against failures in coverage that may result in to limit its indemnity obligations to items for which default and non-payment by the owner. The it can obtain insurance. Another possible contractor’s workmanship warranty and negotiation strategy is to seek mutual maintenance bond, if required, may expand indemnification. If a claim involves design, the responsibilities and, typically, will not include contractor, by obtaining a mutual indemnification warranty disclaimers such as those provided by provision, retains the ability to recover from the manufacturers. Awareness of warranty terms is owner (who bears responsibility for its design). important since, after a product warranty expires, the contractor’s workmanship warranty may be Because state laws regarding the enforceability called upon instead. of indemnification clauses differ, contractors should consult with legal counsel regarding the Negotiation Strategies enforceability of indemnification clauses in The contractor should attempt to establish unfamiliar jurisdictions. definite commencement/end dates for all warranties. Negotiate for a general warranty on (3) WARRANTIES AND BONDS materials/labor of one year. The contractor should Definition also consider whether to characterize repairs as “punch list” or “warranty” work. If the contractor AIA A201-2007, Paragraph 3.5.1 (Warranty) performs punch list work prior to final acceptance, states in part that “the contractor warrants to the the contractor may still have lien rights as to owner and architect that materials and equipment retainage withheld by the owner. On the other hand, furnished under the Contract will be of good quality if the contractor characterizes the same