You will often see in construction contracts terms directing the contractor to use “best efforts” or “reasonable efforts” or “commercially reasonable efforts,” but what do they mean?

Take as an example a project that is past the preliminary hurdles. The project is progressing in good faith, although not perfectly, on the critical path. Everyone wants to “make it work.” But as often happens, not everything in the supply chain and schedule works as the best laid plans outlined, let alone perfectly. In fact, the project is delayed. Where the cause of the delay is not force majeure, or other excusable delay by the contractor, and where the contractor has some fault, what types of actions must the contractor take to satisfy the ‘efforts clause’ under the contract?

First, it depends which jurisdiction governs the contract. Some courts do not distinguish between “best efforts” or “reasonable efforts” or even “commercially reasonable efforts,” while other jurisdictions do make distinctions. Therefore, evaluate the case law in the jurisdiction in which you are trying to enforce your terms.

Second, is your jurisdiction one that has concluded that “best efforts” language alone does not create a fiduciary relationship between the parties, or does it view that language as approaching or reaching a heightened obligation of performance by the contractor? And in what context will the court evaluate the contractor’s obligations?

For instance, courts will often evaluate a variety of factors, such as whether the contractor is a specialist, whether it’s financially strong enough to “do more” than another or even average contractor, whether it holds a particular expertise in the locale or subject matter, the material costs associated with expected performance versus the original benefit of the contract, whether additional performance is available in a reasonable time frame and cost, whether there are any “industry” or locale expectations or practices, whether the issue has arisen for this contractor in the past such that an expectation of performance is warranted, and whether any discussions of the subject performance or other negotiations by the parties occurred prior to the contract execution.

Many courts will very specifically evaluate the circumstances of the project and the parties’ positions, and not constrain interpretation to the express terms of the contract. Know if your jurisdiction views its analysis more broadly or will hold the parties to the corners of the contract in a more limited manner. Of course, as with any contract, even the “best efforts” or “reasonable efforts” or “commercially reasonable efforts” clause must be reconciled with other clauses in the contract, to the extent possible for a reasonable reading of the terms.

Third, courts have acknowledged that these clauses do not mean that the contractor must use every conceivable effort to perform, and most courts do not determine that a contractor must ignore its own interests or perform itself into bankruptcy just to satisfy its contractual terms. Contractors should be aware that diligence is absolutely required, but it is typically evaluated within the parameters of reasonable conduct for that contractor, for the project it agreed to perform. Or in the case of “commercially reasonable efforts,” a more objective standard may be used to evaluate the contractor’s performance.

Finally, most courts will also evaluate whether the contractor performed its own evaluation in “good faith” to meet the efforts clause requirements. Was the contractor objectively evaluating its performance and not taking any action that would undermine the owner’s benefit of the bargain? Though the contractor is not a fiduciary, it must do more than just promise to act in good faith; it usually must take demonstrative action to fulfill the contractual duties. The bottom line: Any dispute arising out of such efforts clauses is a question of fact for the arbitrator/judge or jury. If your contract includes any efforts clauses, consider including in the contract reasonable benchmarks to define the efforts each party is expecting of the other.

Tami Boeck is a Stoel Rives LLP partner and a member of the construction and design practice group in the firm’s Boise office. Contact her at 208-387-4256 or tami.boeck@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.

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Given, well, the state of everything, private owners should seriously consider requiring the contractor to secure a performance bond (a third-party surety guaranteeing the contractor’s performance under the contractor’s contract with the owner), when evaluating risks now inherent in construction projects.

Traditionally, private owners did not consider bonds (either payment or performance bonds by the general contractor) due to the additional cost. Naturally, all owners anticipate that all contractors and their subcontractors, suppliers and vendors will perform the obligations of the contract terms, and the owners will make payment for that performance. The current volatile market, much like the Great Recession, should cause owners to question that prior confidence.

Current risks, for large or medium projects, may well bear the cost of a performance bond to provide the owner with an additional tool for the guarantee that the project will be completed for the contract price, and more closely on time than if there were no performance bond. Given the market volatility arising from understaffed contractors and subcontractors due to labor shortages, unskilled labor, supply chain failures, unchecked inflation, value-analysis for alternative products if available, contractor threats to walk if the owner does not agree to questionable change orders, and excessive escalation of cost claims, none of which is covered by traditional project insurance, owners need to evaluate how they will manage these risks if the contractor should fail to perform despite demands to cure a default in performance.

While an owner must look realistically at how to negotiate a reasonable, financially realistic deal so that the risk of a completed project is objectively evaluated or tabled if financially necessary until there is greater stability, the owner may be able to pay the cost for the general contractor to secure a performance bond to hedge against a potential performance failure of the contractor, which may otherwise be ultimately at the owner’s financial risk.

Customarily, where there is no performance bond the owner’s only options in the event of a prospective or actual contractor default is to (a) demand performance, but often under project duress negotiate a resolution and possibly pay more to the contractor to continue performing (under protest, with the hope that the funds may later be recovered), or (b) move through the default and termination process with the contractor (delaying the project further and often without a good substitute), usually resulting in costly dispute and arbitration or litigation, and a stalled project.

If the contractor, however, has its contract covered by a performance bond for the full and faithful performance of the owner’s contract, based on the owner’s viable default claim, the owner will have the option to give notice of the anticipated contractor default to the surety. The notice to the surety on the bond often (a) incentivizes the contractor to properly complete the project under threat of the surety stepping in to perform and the surety then seeking indemnity from the contractor, which the surety has already secured by contractor assets, or (b) among other bond options, require the surety to step forward with a substitute contractor to complete the project for the remainder of the contract value and under the contract time obligations, subject to the contractual ramifications for delay. Therefore, rather than the actual substantive risk ending up with the owner by a contractor default, where there are often difficult and lengthy litigation or arbitration processes for a successful legal “win” by the owner on such a claim, the owner with a performance bond will have an additional tool to use promptly for leverage and better project management to completion at or near the contract time and at the contract value.

It is important to note, however, that surety performance is not automatic, as it does have a duty to the contractor to evaluate the claims made by the owner. In a factually contentious dispute, therefore, the surety may assume all contractor defenses and refuse to live up to the bond commitment, thereby still resulting in arbitration or litigation on the claim by the owner, but with both the contractor and the surety at the table.

Owners must realistically evaluate potential uninsured risks of a contractor’s failure to properly perform the work under the contract. That evaluation, in this volatile market, must include the cost-benefit analysis of hiring a contractor that can provide the owner with a performance bond to better ensure the project will be performed as agreed to and as represented by the contractor.

Tami Boeck is a Stoel Rives LLP partner and member of the construction and design practice group in the firm’s Boise office. Contact her at 208-387-4256 or tami.boeck@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.

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Congratulations! It’s no longer 2020! Yet 2021 begins as déjà vu for the present time. We should anticipate a slow vaccine rollout, ongoing COVID-19 disruptions and possible shutdowns, the need to keep projects under strict best practices, and scheduling and labor challenges for existing and new projects. To increase success in 2021, owners and contractors would be wise to review the following three tips.

Tip no. 1: Agree to reasonable contract terms

• Existing projects – One must live with what was negotiated, but stay diligent and perform obligations, and meticulously verify where each project stands while moving toward completion. Communication is key. Document appropriately to address potential or actual disputes promptly. Finishing a good project strong, or minimizing problems on a less-than-fantastic project, is far better for all parties than entering litigation on a stopped project. Delays or disputes rarely improve with avoidance, denial or time. Disputes are very expensive. A cost-benefit analysis must be considered when evaluating dispute outcome alternatives.
• New projects – Realistically negotiate for sufficiently certain terms and timing for project performance. Legitimate give-and-take will allow successful performance and completion of a project. A one-sided, heavy-handed approach by either owner or contractor will most often devolve into defaults, bankruptcies and expensive litigation. Project success is driven by reasonable terms, and not trying to be the “800-pound gorilla.” As much as possible, avoid being the stereotypical “outdated financials owner” or the “change-order-Charlie contractor.” Those strategies can drive a project to litigation, or bankruptcy, in uncertain economic times.

Tip no. 2: Evaluate insurance and consider bonds

• Existing projects – Verify ongoing compliance with insurance requirements in the contract, secure endorsements and required documentation, update any change in terms/parties during the project, and verify that the policies have not lapsed if a project schedule continues longer than anticipated. Consider whether labor needs or material/equipment scope has changed. In some markets, due to trade or labor shortages, there may be a necessary increase in self-performed work – something not covered by standard contractor insurance. If instability or uncertainty in contractor performance arises, consider whether a performance bond may be necessary, if available, to try to ensure work completion.
• New projects – The insurance evaluation is increasingly more complex, and usually includes a fully developed, multipage exhibit, or at least several pages in the body of the contract. Don’t presume “any” insurance provides coverage simply because the title of the policy is familiar. Verify that all reasonable scenarios for project risk are addressed. Ensuring project completion through a performance and payment bond may be higher on the consideration list in light of the continuing uncertain times for the industry. Also, consider whether less common insurance products might mitigate some risks, such as those caused by project location and the possibility of “protests” near the project site. In complex energy or manufacturing projects, special insurance for commissioning is required to address the risks of extended start-up and testing prior to operational functioning.

Tip no. 3: Diligently address project events

• Existing projects – Engage your team to stay on top of the project deadlines, requirements and “looks ahead,” and determine what can or cannot be managed before a “project schedule slip.” For example, consider where there may be a gap in staffing due to COVID-19 or other labor shortages (ongoing or unexpected) and the need for readily available alternatives for “supplementation.” Question whether there are increased long-lead-time needs under current conditions, or whether there are new needs for alternatives for project requirements. The old adage “the squeaky wheel gets the grease” does bear out in handling potential or actual problems before or when they arise.
• New projects – If 2020 taught us anything, it’s that the normalcy bias can cause us to avoid evaluating all the risks the parties are undertaking because “it’s never been a problem before.” We no longer have that luxury. For instance, “boilerplate terms” must be negotiated. While there is no such thing as a “perfect” contract, negotiating for a proper risk allocation between the parties, or avoiding being saddled with risk a party is unprepared to manage, is less costly than project disputes or project failure.

As uncertainty persists in 2021, both owners and contractors would be well-served to invest time in realistically evaluating the challenges to existing and new projects. While there is a vast array of issues to consider, a few of which are highlighted above, you may find it helpful to review the advice from my Development Team colleagues. Visit and to learn more.

Tamara Boeck is a partner and Construction and Design Group member of Stoel Rives LLP. Contact her at 916-319-4678 or 208-387-4256 or tami.boeck@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.

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Volatile national and world events can unexpectedly alter the best-laid project plans. For the time being, previous fears of a steep slowdown or another recession seem to be put aside, but that “economic growth is slowing (even if it) is not anticipated to contract next year,” according to Dodge Data & Analytics. “Construction starts … will decline but the level of activity will remain close to recent highs.”

And despite the “slowing” economy, to a level that “remains close to recent highs,” the that strong demand for workers will continue in 2020.

According to responses received by the AGC, “81 percent of respondents say they are having a hard time filling positions. Almost two-thirds expect it will continue to be hard or become harder to hire personnel in the coming 12 months. Six of the eight top concerns among contractors relate to worker shortages, training and quality.” Significantly, these universal “staffing challenges are affecting project costs and completion times. Nearly half of respondents said costs were higher than expected, and almost as high a share of firms (are) now putting higher prices into new bids or contracts. Two out of five firms experienced longer-than-anticipated completion times, and more than one-fifth of firms are now quoting longer completion times in bids and contracts.”

These risks exist in all new projects, but they can reverberate through ongoing ones if the labor shortage and cost increases are too great for a contractor to withstand. Trade defaults in 2019 appear to be on the rise, and defaults of general contractors may rise, due to the inability to absorb labor problems and the unexpected cost of additional oversight and warranty work.

Contractors are often overextended due to the ongoing pace of the market. With less labor available and labor that may be under-qualified, the impact on quality, schedule, increasing overhead, and increasing general condition costs is exacerbated. Contractors without a pure cost-plus contract also have little or no ability to recoup these increased costs from owners, and may be hit with an extended schedule and associated overhead and general condition costs because they cannot staff the project on the contract schedule. And while this is a significant problem for contractors, owners may not be immune from the financial impacts of these challenges either.

Owners and general contractors should consider managing the above risks by utilizing the following:

1. Contract terms allowing the right to require trade acceleration at the delaying party’s cost to bring the project current, including supplementation of workforce at the cost of the delaying party, takeover rights for delayed work, and optional assignment of contract rights; and
2. Payment and performance bonds at the prime and maybe subcontractor levels, possibly including subcontractor default insurance. These tools may not be possible for certain trades that cannot be bonded or do not have adequate financial strength.

The owner and the general contractor must be persistent and diligent in documenting the project schedule and performance on a daily basis to stay on top of trade compliance, or they must trigger the necessary notifications to allow an early resolution to a potential or actual default event. They must also consider the impact of a potential default on the project insurance as well. For example, is the project insured by an owner-controlled insurance program or wrap that may have a long tail or allow additional trades to be included? Are individual policies that have exclusions for incomplete or abandoned work by a defaulting trade provided? What risks exist if the defaulting party no longer secures insurance in subsequent years after project completion or abandonment?

The fewer contractual protections you have in place, the more diligent you must be to keep the project on schedule and on budget. Resolving delays and conflicts quickly is usually better than letting them fester for the remainder of the project.

Increasing market challenges in 2020 will require greater diligence to protect project success for everyone involved.

Tamara L. Boeck is an attorney in the construction and design practice group of Stoel Rives LLP. Contact her at 916-319-4678 or 208-387-4256 or tami.boeck@stoel.com.

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While you work on your personal New Year’s resolutions for 2019, or dust off your 2018 … 2017 … 2016 resolutions, this year resolve to start with a review and solid implementation of legal compliance and financial goals for construction projects.

Verify compliance with new laws

Each year, laws or regulations or ordinances related to construction projects seem to commence on Jan. 1. Verify that you’re aware of anything new, and that your practices and contracts are in compliance. One place to look is at state license board websites, which often provide a brief summary of the key laws generally related to construction. Did an aspect of the mechanics’ lien laws change? Were any contractor licensing notification requirements modified? Were any mandatory notifications implemented? For example, take a look at Oregon’s Equal Pay Act, , and Washington’s Paid Family Leave Act. Speak with experienced counsel regarding the changes in the law due to court or administrative decisions during the prior year that may impact your obligations. For example, the Washington Supreme Court expanded contractor notice requirements, the of wage and hour laws, and the in construction defect insurance cases. Of course, any changes in law in any form should be promptly addressed. Contractors and design professionals, be aware that regulatory agencies may also impose administrative fines against you if illegal or improper clauses are discovered in your contracts.

Verify insurance coverage is sufficient and up-to-date

After you’ve reviewed the applicable new laws, regulations or ordinances that may apply to your business or profession, speak with an experienced insurance coverage lawyer and knowledgeable insurance broker to verify that you have the protection to cover your business, and that existing coverage has not changed, been reduced, or been limited by the policy or by how you are doing business. These counselors familiar with construction projects will assist you in navigating any changes in the nature of the work you are performing, or the scope of work changes for the types of projects you plan or work on, and can highlight actual or potential coverage gaps or limitations in your insurance coverage to avoid the “Murphy’s Law” situation of finding out after the fact that you have insufficient protection for your company and assets from future claims and litigation. And be sure to evaluate any primary or secondary implications related to the contract and insurance changes in your flow-down clauses to contractors, subcontractors and other vendors or providers that are retained. Among the key issues to review are indemnification obligations, insurance provisions and alternative dispute clauses.

Analyze activities in 2018 to address issues in 2019

Performance can always be improved. While we cannot achieve “perfection” on an entire project, we should learn from our past gaps, gaffes and errors so that we do not repeat them by default, or worse, intentionally not change past problems. Virtually every owner, design professional, contractor and subcontractor can easily name their top 10 repeat problems and expenses. Knowing this, take the next step and select the top three problems: claims, warranty callbacks and expenses, and consider modification of your contracts, work, practices or methods that could reduce or eliminate these issues. For instance, could there be payment disputes? Verify that contract terms are aligned with expectations, document and use processes that result in prompt payment or prompt rejection of payments in a timely fashion, and utilize contract terms that require prompt resolution of disputes. Will there be repeat warranty claims? Isolate the cause and mitigate or eliminate the factors that led to the claim.

Ultimately, improving our companies, like improving ourselves, is up to us and our own diligence and persistence in identifying and implementing improvements on an ongoing basis. Use this opportunity while the market remains strong to position your company to gain the benefits of such diligence and persistence before the next down cycle arrives.

Tamara Boeck is an attorney in the construction and design practice group of Stoel Rives LLP. Contact her at 916-319-4678 or 208-387-4256, or tami.boeck@stoel.com.

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A review of the headlines suggests that anyone connected to the real estate and construction industries is cautiously watching the markets for a new “boom.” Those of us who have been around for more than one economic swing, however, are also thinking about the corresponding “bust” that comes with a rapid increase in projects: the real possibility of widespread claims and lawsuits.

A fixed economic reality was borne out during the recent Great Recession, when many longtime contractors either did not survive or barely survived by working lean while marketing their skills and niche effectively. Those contractors that have made it through are balancing the need to ramp up more quickly than anticipated. This is happening when many senior-level employees or well-experienced field personnel may have retired or moved on to more secure paychecks in other fields or other states.

So, where does this leave the parties that are looking to start a new project? With less-than-optimal staffing, fewer skilled personnel, and less experience as to how to realistically bid and perform the work than they had a decade ago. And there is greater competition for the reduced number of subcontractors that did survive the downturn (many are facing the same issues at the lower levels).

Therefore, both owners and contractors must look not just to the current project or short-term effort to get and complete “this job,” but view the long-term protection of their entities and assets in a cost-effective manner to sustain growth and survive the next inevitable lull. So, how does one use “lean and mean” recession-developed skills? By following these five core points with diligence:

1. Pick the right partner. Nothing is more important than selecting a project partner with integrity. All must view the project as a true, united team effort: design and build it well, for a fair cost and profit, and know goals for delivery. The idea is for all parties to keep the reasonable profits they rightly have earned through their diligent work. No shortcuts. No one makes a quick buck. Through well-set-out expectations and balanced contracts, everyone makes the project “pencil out.” Partnering should be with a long-term view. If the parties perform well and fairly, everyone benefits and does well. Trust is critical.

2. The devil is in the design details. As the market moves to different trends in projects and designs to accommodate sustainability, demographic desires and needs, and provides protection for entities in the legal liability structure, it is ever more critical to vet the designs for both constructability and to ensure they have reasonable maintenance and operational expectations. Also, the design should consider from available historic information in light of the type and nature of the project what potential claims may arise in the two- and five-year window as well as within the statute of limitations period.

For instance, has the project/design been built in this locale and this climate (including microclimate), and what lessons were learned during prior construction of this type of project? If it involves residential spaces, what have been the top 10 complaints or concerns during the sales/leasing period and/or the common warranty claims? Have livability issues – such as sounds, smells and interactions with demographics (common walls/floor/ceiling) – been addressed? On all projects, has facilities management or O&M responsibility been properly laid out in writing and disclosed (with training where appropriate)? Is there an ability by both the contractor and the owner or subsequent owners to reasonably maintain and repair the project?

3. Determine the risk assessment for the project. How does the risk affect the nature and type of insurance coverage or other asset and entity protection? Do the parties need to consider risk based on the entity model that owns the project? Is entity windup considered? Where will the risks go, or where will it try to follow if there are claims and lawsuits? Is there a need for bonding, and is that consistent with the contract terms?

4. Consider contract integration and flow-down. Too often projects are put together piecemeal, and a global “front to back” view of the component parts, which includes the field-level daily operation, is not performed. Are the contracts integrated for coordination and flow-down obligations from the owner to the contractor to the subcontractors?

Are there state restrictions to the terms? How does that impact the contract expectations and course of construction management of the work, documentation and warranties? Who is obligated to determine the cause and repair for a claim or defect? As to third parties that could be harmed, does the state law have differing liability standards as against the owner and the contractor? How is that risk addressed in the contract and insurance/bond structure?

5. Don’t neglect post-construction coordination. The partnering must continue through the completion of construction and into operation in order to ensure proper transition, reduction of claims, and correct operation and maintenance of the project. Have the owner and the contractor established a course of construction and post-construction risk management process and QA/QC? How do the owner and the contractor verify that the project is built properly, and is there an incentive to report and remedy the natural challenges that arise during construction? Or is there a pervasive practice to avoid or cover up the problem (e.g., “not my scope,” “just get this finished”)? It is virtually always less costly to do it right and fix it during construction than to do so after the fact.

Risk rarely disappears; it just gets managed or moved. Each of these core points is intended to translate into an integrated project program designed to give the owner and the contractor (as well as the subcontractors and the project investors) confidence that reasonable risks are properly and economically managed to protect the entities and assets, both short term when it is more economical and post-project, by significantly mitigating against manageable claims.

Tamara Boeck is an attorney in the construction and design practice group of Stoel Rives LLP. Contact her at 208-387-4256, or tami.boeck@stoel.com.

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No one doubts the adage “time is money,” particularly in regard to completing construction projects on time and on budget. Spend any time within spitting distance of a project and you’ll instantly feel the vibe; the crush of time pressures affects those involved in varying ways with multiple ripple effects.

Pressure also is put on contract negotiators to quickly tie everything up: ink the deal and get going. The risk, however, is that many of the more mundane aspects of the contract don’t get the vetting they should, to the level they should.

Don’t overlook these four “standard” terms:

Scope: Is it sufficiently detailed and allocated?

A significant majority of disputes arising during and after construction projects relate to the scope of responsibility among the numerous parties involved. Developers/owners: Have you vetted the overlap or conflicts that may have been provided by your designers? Have you unwittingly assumed responsibility for some scope of the project that you never intended? Did you intend to have the general contractor assume responsibility for the entire project, including the design services? If not, do your agreements with the architect/engineer clearly define the obligations, including level of design and scope of liability, or mutuality of obligations?

Is the general contractor only responsible for building what was expressly provided in the design, with no liability for a failure of the ultimate performance or construction? Have you, as the developer/owner, implicitly or expressly warranted the plans and specifications? Will your architect/engineer verify the fieldwork by on-site inspection, and if so, how often and to what level?

Who is handling the payment application and verification of schedule of values? Are you qualified to oversee the general contractor’s scope of work and payment applications in a timely manner? Is your lender providing payment application review to a level of work quality satisfaction or more superficially?

Consider carefully who is responsible for what area of work so that proper sequencing, work, responsibility, warranty and liability will not end up in finger-pointing. Insurance and indemnity obligations should parallel the scope.

Insurance: Are the various coverages properly aligned to address the risk?

We all conceptually appreciate that risk does not disappear if it is not allocated (we just wish it would go away). But are you ensuring that the risk is either fully allocated or insured to your business risk level of comfort? Do you, as the developer/owner, have sufficient levels of insurance for course of construction, particularly business loss or failure to start the business or complete the project?

Is a bond more appropriate? If bonded, is the project adequately bonded past substantial completion, and does the bond termination coincide with the length of the warranty or statute of limitations?

Are there sufficient levels and scope (as well as duration) of completed operations insurance coverage for the project by the designers, general contractor and subcontractors/suppliers? Is there is a limitation of liability, waiver of consequential damages, or some other cap on risk?

Do you have any or adequate business interruption or other property or casualty insurance to cover the bare risk that you’ve been allocated? Having a qualified broker and agent and experienced counsel is highly recommended.

Indemnity: Is it limited and capped?

The language and scope of indemnity provisions can be daunting to read and decipher. Have you considered each of the potential applications of the provision? Does the provision cover only items for which insurance would normally provide coverage?

What if there’s a breach of contract, but no personal injury or property damage? What if you or your agents contribute to the cause for the indemnification in whole or in part? Did you consider whether there is an obligation to defend even if the obligation to indemnify is not clear early on?

What is the indemnity obligation interplay with the insurance obligations? Do you have any say in choosing the counsel that defends your company? What if consultants and experts are necessary in your defense – is that included in the indemnity language? Does the language cover the costs and expenses of an appeal of any action?

What if the cause of a defect is a vendor’s product? Does the vendor contract waive liability, cap liability, or include any indemnity obligation if the claim against another is greater than that limit or cap? Does that limitation flow down to the subcontractors?

Have you verified that the applicable state law allows the provision? Many laws have changed in recent years and severely restrict terms in construction contracts.

Lien waivers: Are they valid, and do you have a process?

The bad economy revealed gaps in both the lien documentation waiver process and lack of compliance with good contracts. Do you have a detail-oriented staff person to manage the monthly paperwork?

Do you have current release waivers, both conditional and unconditional, for progress payments? Do your contract and/or state statute permit withholding payment until proper paperwork is received? Do you require full payment applications and releases as a condition precedent to any payment?

Do you require unconditional releases for progress payments to avoid surprises at the end of the project? Are you permitted to contact contractors and suppliers to verify payments or make joint payments if there’s any doubt as to compliance?

Have you considered requiring sworn statements with payment applications, and waivers or releases on payment applications that there are no outstanding claims or disputes for payments? Does your contract include immediate action by the contractor to protect the project from liens, stop notices, or other claims? If you have to remedy any claim and “chase,” are your fees recoverable?

While there’s no way to protect against every eventuality, proper advance consideration of known and common disputes will go a long way to mitigate these risks.

Tamara Boeck is a partner in the construction and design practice group of Stoel Rives LLP. Contact her at 916-319-4678 or 208-387-4256, or tlboeck@stoel.com.

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