Be Alert to New AIA Construction Contract Forms
Contractors and owners used to the pre-2007 AIA document forms should know that the AIA has revised its most popular forms and that the AIA software no longer supports the older versions. You may still see the older forms in Word or similar formats, but you won’t be seeing the official AIA document that automatically highlights changes from the official forms. That means you need to be more cautious about form contracts you receive that appear to be based on the older AIA forms. Changes from the official AIA versions won’t necessarily be highlighted. Construction lawyers have mixed feelings about the new AIA forms. They correct some provisions that didn’t work well in the past, but create some new concerns. As always, you need to consider the specific circumstances of your project before using any standard form contract.
Oregon OSHA Clarifies That Employers Are Liable On Per-Employee Basis
Are Oregon contractors liable on a per-employee basis for failing to comply with OSHA personal protective equipment (PPE) and training requirements? Under a new administrative order issued by Oregon OSHA, the answer is yes.
Under this order, Oregon OSHA adopted a federal OSHA rule clarifying that employers are liable for violations on a per-employee basis. Until now, there was some uncertainty whether OSHA could impose penalties on an employer for each employee who failed to comply with OSHA’s PPE and training standards. Not now. This raises the stakes for any Oregon contractor that fails to make sure its employees follow these standards. Contractors should alert their safety managers that each PPE or training violation (for example, an employee not showing up with the right footwear) may result in a penalty.
Because the Oregon OSHA order is based on a federal rule, contractors working outside Oregon should find out whether the new federal OSHA rule applies in their states too.
The Risk of Builders Risk
Contractors and owners obtain builders risk policies to protect themselves from risks associated with construction. But a lack of care in understanding and negotiating the provision of the construction agreement governing the builders-risk policy and the policy itself may lead the parties to expose themselves to needless and significant liability.
What owners and general contractors should do to protect themselves
If a construction contract requires the owner or the general contractor to obtain a builders risk policy—and it should—then that party should in fact obtain the policy. This may seem painfully obvious, but sometimes parties do not obtain required policies.
Courts have held, unsurprisingly, that a construction contract calling for a builders-risk policy means what it says. If the party whom the contract required to obtain a builders-risk policy does not obtain a policy, that party assumes the risk of loss that ought to have been covered by the policy. So, if a construction agreement requires, say, the owner to obtain a builders-risk policy, the owner should obtain the policy, and the other parties relying upon the policy should confirm the existence of the policy and its terms.
The Builders-Risk Policy Should Allow for the Construction Contract’s Mutual Waiver of Subrogation
Construction contracts frequently include a clause in which the owner and the contractor, both covered by the builders-risk policy, waive their right of subrogation against each other regarding any damages covered by that policy. The owner should not be able to sue the contractor for a loss if the owner has already obtained builders-risk insurance that would make him whole (or vice versa)—the mutual waiver of subrogation prevents the owner or the contractor from recovering twice.
However, if the builders-risk policy itself contains a provision preventing the parties from waiving subrogation, the execution of the construction contract may violate the policy conditions and might prevent recovery under the builders-risk policy.
As the owner and contractor negotiate the construction contract and the builders-risk insuring agreement, they need to pay attention to the provisions in each agreement governing subrogation. Broadly, they need to pay attention to the effect that each agreement has on the other, and should ensure that the builders-risk policy does not prevent the parties from waiving their subrogation rights. Moreover, they need to pay attention to the interaction between a builders-risk policy and any property insurance policy the owner may have (see below). The waiver of subrogation should apply to claims brought under the property policy for a few years after termination of the builders-risk policy.
The Construction Contract Should Specify When and under What Conditions the Owner Can Terminate the Builders-Risk Policy
Builders-risk policies are, as their name suggests, designed to cover risk arising from building. Once the structure is built, though, the builders-risk policy usually terminates. Builders-risk policies also typically terminate on the occurrence of a number of other conditions.
For example, the builders-risk policy may end when the equipment in a plant is first energized, on the theory that once you fire up the plant, it is no longer under construction but is operating as a business and therefore presents different insurable risks.
Once builder-risk insurance terminates, usually the owner’s property insurance kicks in. Property insurance, however, does not usually protect the contractor because the contractor is not a named insured under that policy, and it will not protect against all the events that a builders-risk policy would. If an insurable event occurs that would have been covered by the builders-risk policy after the policy has been terminated, there may be no coverage, possibly causing the parties to argue about whether the policy was properly terminated. If the owner terminates the builders-risk policy without telling the general contractor—and yes, this does happen—the parties will then argue whether the termination actually occurred.
Simply, unexpected termination of a builders-risk policy can ruin your day. The term of a builders-risk policy, then, is a critical point to negotiate and to stick to. Owners should not terminate a builders-risk policy early, and contractors should ask for a provision in the policy requiring the owner to give them notice before termination of the policy so that the contractor can arrange for adequate coverage elsewhere.
Is your project's design work insured? Here's an insurance policy to keep in mind
With all the stuff to worry about during a construction project, one of the areas that’s commonly overlooked is insurance coverage. Owners and contractors often assume that the parties they’re contracting with have adequate insurance, or that the information on an insurance certificate (which, by the way, isn’t binding on the insurance company) is an accurate picture of a company’s insurance profile.
These assumptions are especially dangerous if there is a lack of professional liability insurance for design-build work. In design-build projects, the general contractor (GC) or one of its subs, rather than the owner, hires the architect and engineer to design the project. But even if your project isn’t 100% design-build, there’s a good chance that some of the design work – for example, fire sprinkler design – won’t be performed by the project architect hired by the owner. Either way, you can bet that the liability policies of the GC or its subs don’t cover the errors of architects or engineers hired by the GC or sub to design the work. So, without coverage through a designer’s insurance, and without coverage through the GC’s or subs’ liability insurance, there’s a hole in insurance coverage. And even if a design professional hired by the GC or a sub carries insurance, it may be inadequate to cover the potential loss.
One option is to acquire Contractor’s Protective Professional Indemnity and Liability Insurance, or CPPI. CPPI is insurance that a contractor can buy that indemnifies the contractor for negligent errors and omissions of a design professional hired by the contractor. If written properly, CPPI gives the contractor coverage for design errors if the design professional’s own insurance comes up short.
Like all insurance, CPPI isn’t perfect. CPPI will likely have exclusions that will limit coverage (for example, for mold), and, to shake out a policy’s weaknesses, the fine print should be carefully reviewed. And because CPPI doesn’t kick in until it’s determined whether the design professional’s own insurance applies, it may be months or even years until the CPPI policy responds to a claim. But if design work isn’t otherwise adequately insured, CPPI could help a contractor protect itself and the project owner.
