On December 28, 2018, the Michigan legislature passed Senate Bill 671 (“Bill”) which amends the Marketable Record Title Act (“MRTA”). The Bill took effect on March 29, 2019. The “Amendment” to the MRTA provides for a 2-year grace period (until March 29, 2021) for...
Contracts and Terms
Contractors and subcontractors should be aware of their lingering liability under contractual indemnity provisions that might currently be overlooked. These obligations and the potential for liability can outlast other types of contract claims because they might not accrue until long after the project is done.
Every 10 years, the American Institute of Architects (AIA) releases updated editions of its flagship design and construction agreements, the most recent of which AIA published in 2017. The 2017 revisions were unexceptional. For the most part, commonly negotiated...
By Benjamin H. Hammond and Jill Kaufman Miller, Esq. Every real estate contract must, unless agreed to otherwise, convey what is known as “marketable title”. The courts have defined marketable title as title that is free from encumbrances and assures the purchaser of...
By Stephen Hilger, Esq. This is part 1 of a 15-part series on the changes to the AIA A201 General Conditions. This part deals with section 1.1.8. In the 2017 changes, particularly section 1.1.8, there are some additions to the Initial Decision Maker clause. The...
Indemnification provisions frequently appear in construction and commercial contracts. They operate to shift risk from the party being provided indemnification to the party providing indemnification. The principle behind such risk shifting is to shift potential risks onto the party or parties that are best able to prevent, mitigate, or insure those risks. In that respect, indemnity provisions do not necessarily need to be a source of disagreement during contract negotiation.
Consider, for example, indemnification provisions that require one party to indemnify and defend other parties from the risks relating to personal injury and property damage. At first blush, the party who is to provide such indemnity may feel that they should not assume those risks. However, agreeing to a well-drafted provision requiring indemnification for personal injury or property damage can be a benefit to all of the parties—including the party providing the indemnity. Here is how that can occur.
Many insurance sections of construction contracts contain language whereby the parties involved in the construction project waive all claims against all other parties involved in the project for insurable losses such as property damage and personal injuries.
Owner and Contractor waive all rights against each other and their respective officers, directors, members, partners, employees, agents, consultants and subcontractors of each and any of them for all losses and damages caused by, arising out of or resulting from any of the perils or causes of loss covered by such policies and any other property insurance applicable to the Work; and, in addition, waive all such rights against Subcontractors and Engineer, and all other individuals or entities identified in the Supplementary Conditions as loss payees (and the officers, directors, members, partners, employees, agents, consultants, and subcontractors of each and any of them) under such policies for losses and damages so caused.
A conversion clause arises in the context of contract termination. There are generally two types of termination; termination for cause and for convenience. Each type of termination differs with respect to the basis for termination, as well as the limitations on payment rights the terminated party retains post-termination. A conversion clause operates to convert a wrongful termination into a termination for convenience. The following is an example of a conversion clause.
If it is determined, by litigation, arbitration or otherwise, that termination for default was unjustified for any reason, the termination shall be deemed a termination of convenience and Subcontractor’s remedies shall be limited to those provided for as a termination of convenience.
An express trust clause can be used in a construction contract to create a trust over payments received by a contractor or subcontractor. The effect of establishing a trust is that it creates property rights in construction project payments and obligates the contractor receiving such payments to fulfill the fiduciary duty of using the trust funds to pay the named beneficiaries. The following is an example of an express trust clause:
All payments made by Contractor to Subcontractor shall be held in trust for the benefit of the Contractor and those persons having contracted with Subcontractor to provide materials or labor to the project.
In April 2017, the American Institute of Architects (AIA) released the 2017 editions of its flagship agreements, including the Owner-Contractor Agreement (A101), Owner-Contractor Agreement, Cost Plus a GMP (A-102), the General Conditions of Contract (A201) and the Contractor-Subcontractor Agreement (A401). Significantly, AIA also created a new comprehensive insurance and bonds Exhibit (Exhibit A) to be used with these agreements.
Some interesting changes to note:
Liquidated Damages. Liquidated Damages are now expressly identified with a new provision. In prior revisions, LDs were merely suggested in a “prompt” as an insertion. Furthermore, the Owner is not required to file a Claim to impose liquidated damages. Prior AIA versions were silent on whether Owner was required to file a formal claim; courts addressing the question reached differing results.
Captive Insurance Costs. Contractor must obtain Owner’s prior approval of Contractor’s costs for insurance provided through a captive insurer owned or controlled by Contractor.
Allocation of GMP. Adopting a revision commonly made by the parties, if a GMP is given, allocation of the GMP does not constitute a separate GMP for each individual line item on the Schedule of Values.