So, you want to start a construction project? Long before you cut a ribbon, top out your building, or even put a shovel in the ground, you’re going to need to put together a mosaic of contracts to set your project up for success.

The contracting phase can be a long, arduous process — but if done well, the early investment and effort can protect your interests down the road, deliver significant savings, and save you from the hassle of major disputes.

Here are three important tips for a successful contracting phase.

1. Assemble your legal team early

Over the course of a project, an owner will enter several contracts — in many instances more than a dozen — as well as seek other permits and approvals. The owner may have to acquire land, arrange for financing, address environmental issues, bring a construction manager on board, engage an architect, hire a contractor, put together condominium organization documents, and potentially much more to get its project off the ground.

Many of these contracts and approvals, all of which can be critically important, call for the engagement of lawyers in different disciplines. A real estate lawyer is best suited to assist acquisition of property. An environmental lawyer is best positioned to help work through any environmental issues at the project site. A corporate lawyer can help with project financing and setting up the project corporate entities. A construction lawyer can help negotiate contracts with the architect, contractor and others.

But many of these contracts can also interrelate, and late-stage surprises for lawyers who may be experts within their niche but might not always know the broader context can throw a wrench into the works. As a result, bringing together the full team of lawyers at the earliest stages of a project for a kickoff session can help ensure that everybody on the team understands the broader picture and knows who is handling what — and that early coordination is critical to making sure contracts aren’t just a collection of tiles but rather form the mosaic that will best position the owner for success.

2. Give yourself the gift of time

Many of the contracts that an owner needs to activate a project are long and complicated. A contract with a general contractor can easily run over 100 pages — and that’s even before the exhibits. Although parties rarely draft these contracts from white paper, it’s critical for an owner to make sure there is plenty of time to negotiate and memorialize them — for two important reasons.

First, negotiating under time pressure can warp leverage dynamics. If one party to a contract knows that the other needs to sign on the dotted line immediately, that party knows that it likely can leverage more favorable terms than it otherwise would. Allowing plenty of time for the process, on the other hand, makes sure the owner has the power of “no” if its negotiating partner wants terms that are out of alignment with the market.

Second, many of the contracts that make up a project mosaic are long and complicated for good reason — they have a lot of terms that can be critically important in the countless contingencies that can arise over the course of a project. It takes time and careful negotiation to get them right. Some clients hesitate at the expense that can go into carefully negotiating these deals, but that investment frequently delivers big returns.

A good, carefully crafted contract can win litigation, to be sure. But any experienced construction litigator will tell you that a good contract can do something even more valuable — avoid litigation altogether. And in many circumstances a dispute avoided is even better than a dispute won.

There are countless moving parts in a construction project. Taking the time to make sure both parties to a contract clearly define their rights and obligations and have a full understanding of the allocation of risks can save considerable time, money and heartache when — and it is usually “when,” not “if” — something goes awry.

That, too, is the value of making a mosaic instead of just collecting tiles.

3. Sweat the small stuff

Many owners plan to put time and effort into their architecture and construction contracts. And this is for good reason — on the construction side of a deal, those will usually be your two biggest contracts.

But the small contracts are important, too. Don’t assume that a contract’s terms are unimportant just because the agreement has a small dollar figure on it. Small project scopes can still have big impacts.

As just one example, hiring a surveyor is usually far from the biggest line item on an owner’s pro forma. But if the architect and the general contractor are relying on the survey, a mistake by the surveyor can create a big headache. And that big headache can turn into a costly big headache if, for example, the surveyor’s contract has a low limitation of liability or a clause that prohibits parties other than the owner from relying on the survey.

So, make sure lawyers working on the architect and general contractor agreements can also review and, if necessary, revise the small contracts before they’re executed. Even small tiles can ruin a mosaic if they’re not the right size, shape or color.

The beauty of investing early in the mosaic of agreements in a construction project lies in the time, money and inconvenience saved. In the end, the goal is to finish the project and put it to good use. A well-crafted mosaic of project agreements and approvals maximizes one’s chances of enjoying a smooth road to that outcome.

Chris Rifer is a Stoel Rives LLP associate and a member of the construction and design group in the firm’s Portland office. Contact him at 503-294-9502 or christopher.rifer@stoel.com.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

The post Making a mosaic: tips for a project’s contracting phase | Opinion appeared first on Daily Journal of Commerce.

When it comes to selecting a general contractor for a construction project, owners’ typical considerations are clear: the contractor’s experience, its vision for the job, the quality of its work, and — of course — price. Likewise, when a subcontractor is deciding whether to bid for a scope of work on a project, it primarily thinks about the general contractor’s skill in coordinating trades, its ability to be the sub’s advocate with the architect or owner, and — of course — price.

These are all critically important considerations.

But when something goes wrong on a project, the thoughts of owners and subcontractors invariably turn to something they perhaps weren’t considering carefully when they entered into the contract: the general contractor’s solvency.

For owners, a solvent general contractor can often serve as the first — and a powerful — line of defense if one or more subcontractors claim that they are entitled to additional compensation. The general contractor will often have a contractual obligation to post a bond to release a subcontractor’s claim of lien on the owner’s property — protecting the owner’s property interests and often its source of financing. And many states, including Oregon, have legal rules that require subcontractors to first seek to recover from the general contractor and show that the owner has not satisfied its obligations to the general contractor before the subcontractor can seek to bring a claim for unjust enrichment directly against the owner.

In these circumstances, the general contractor’s solvency — whether through its ability to post a bond to discharge a lien, to obtain a payment bond sufficient to compensate its subs, or its own financial ability to pay a judgment — can provide powerful protection to the owner against liability to subcontractors.

Likewise for subcontractors, because the general contractor will often serve as the first — and sometimes only — avenue for recovery if the subcontractor is entitled to additional compensation, making sure that the general contractor with which they’re partnering on a project has adequate financial resources can be the difference between a smooth resolution and a protracted and risky legal battle. If something goes wrong, a subcontractor cannot always count on being able to recover from the owner — particularly if it hasn’t strictly followed statutory prerequisites for the lien procedure.

There are two key steps that parties can take at the beginning of a project to make sure they have these protections in the unfortunate event of a dispute.

First, ensure contracts contain sufficiently robust bond terms — and requirements that the general contractor provide proof of obtaining adequate bonds — to guarantee the general contractor’s performance on the job and its payment of subcontractors. If something happens to the general contractor, payment and performance bonds can be a safety net both for the owner and the subs. Payment bonds provide additional protection to ensure that the general contractor pays subcontractors and vendors on the project while performance bonds can provide an additional pool of resources to call upon if the general contractor is unable to finish the project. Although sureties have defenses that they can invoke to try to defend against paying out on the bonds, both performance and payment bonds can provide an added layer of protection from financial risk on projects.

And second, pay close attention to your contract’s insurance terms. Insurance exhibits aren’t the juiciest parts of construction contracts and they’re all too often recycled from one project to the next. There are many different types of policies and coverages that can protect the parties when things go awry, so it is well worth spending the time with your insurance broker to make sure you select the options that are best suited for your project. Making sure the contract’s insurance terms are properly tailored to the project can be the difference between having a viable pool of recovery if something goes wrong and being left out in the cold.

Part of a general contractor’s role on a project, then, is often to sit at the fulcrum of liability when things get difficult. A strong general contractor — of which there are many — can be the key to making sure everybody’s interests are protected, and all parties can work through a dispute to move to the next project.

Chris Rifer is a Stoel Rives LLP associate and a member of the construction and design group in the firm’s Portland office. Contact him at 503-294-9502 or christopher.rifer@stoel.com.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

The post General contractor solvency: the fulcrum of liability in disputes | Opinion appeared first on Daily Journal of Commerce.

Arbitration agreements have become commonplace in construction contracts. As a result, a significant portion of construction disputes are resolved privately through arbitration rather than in public courts.

Arbitration has many benefits ranging from cost savings and faster resolutions to a private forum that keeps disputes from spilling out into the public arena to adjudication by an experienced construction practitioner. There is good reason why most construction lawyers recommend arbitration to their clients and why those clients regularly come away satisfied with that recommendation.

But for all the considerable benefits of arbitration, there is a downside: the increasing prevalence of arbitration has contributed to a slowdown in the development of construction law.

Construction law is an amalgamation of principles from various sources of law. Common-law contract and tort doctrines, statutes passed by Congress or the state legislature, and regulations issued by federal and state agencies all have important parts to play. But how those common-law doctrines work in the construction context isn’t always clear. And even the best-worded statutes and regulations can’t possibly provide clear answers for every scenario that will arise.

As a result, construction case law provides an important good to the industry as a whole — it fills in the inevitable gaps left by other sources of law. Case law, which is the product of opinions written by judges addressing the lawsuits before them, provides valuable guidance about how legal doctrines, statutes, and regulations apply to real-world circumstances. And parties can use those judges’ opinions to help predict how those same doctrines, statutes, and regulations will apply to their circumstances. That, in turn, delivers greater certainty to the industry and helps owners and contractors alike realize the considerable savings that can flow from that certainty.

Arbitration, however, does not generate case law. So, if an arbitrator issues a well-reasoned decision interpreting a statute and applies it to that case in a way that could guide the industry’s conduct in the future, the industry usually can’t benefit.

This isn’t a hypothetical issue. Take Oregon’s prompt pay statute, ORS 701.630, as one example. Prompt pay statutes are often at issue in construction litigation. And yet, in the more than two decades in which Oregon’s prompt pay law has been on the books, it has never once been cited — let alone analyzed — in any reported case. So how “material” must a contractual provision be to justify withholding billing under ORS 701.630(4)(h)? Do the “costs and reasonable attorney fees” authorized by ORS 701.630(7) include expert witness fees? Courts have not provided clear answers.

Although arbitration isn’t the only factor holding back the development of construction law, it is undoubtedly a meaningful contributor. Fixing this, however, presents a collective action challenge for the industry. The benefits of arbitration to industry participants are real and significant, so many can and should consider arbitration as an option. But the industry as a whole benefits from well-developed case law.

The challenge, then, is to find a way to advance the law while keeping the benefits of arbitration available to industry participants. Should the industry consider opening avenues for publicizing arbitration orders that address novel legal issues — perhaps on an anonymized basis? Should the industry support a more robust body of scholarly work to provide persuasive authority to fill some of the gaps left by the absence of case law? Or is a slowdown in the development of construction case law an acceptable industry-wide price to pay for the many party-specific benefits of arbitration?

Whatever the path forward, the conversation about the use of arbitration in the construction industry should consider the costs to the development of construction law along with the benefits of arbitration.

Chris Rifer is a Stoel Rives LLP associate and a member of the construction and design group in the firm’s Portland office. Contact him at 503-294-9502 or christopher.rifer@stoel.com.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

The post The collective cost paid for arbitration’s numerous benefits | Opinion appeared first on Daily Journal of Commerce.