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Page 6 In previous articles, we have discussed “deadly” contract clauses. Recently, we have noticed a trend of “deadly” language moving from the contract itself into the addenda attached to the contract. In some cases these addenda combine with language in the contract to create potential traps for subcontractors. In other cases the addenda contain language which directly conflicts with the contract, but binds the subcontractor just the same. The three primary types of offending addenda are: lien waivers, payment applications and drawing lists. Below we address each type of addenda along with tips on what to look out for. Lien Waivers Lien waivers should always be approached with caution. They offer a unique opportunity for a subcontractor to waive its right to payment it is owed. Further, lien waivers are governed by strict statutes and case law which provide very little recourse in the event a subcontractor waives rights it did not intend to waive. The lien waiver process itself is typically addressed in the body of the contract. However, to understand the process in full, the contract must be read alongside any attached lien waiver addenda. Subcontracts deal with the lien DEADLY CONTRACT ADDENDA Potential Dangers Outside the “Body” of a Subcontract By: Durazzo & Eckel, P.C. Patric E. Durazzo, Neal Eckel and Eric Hawkins waiver issue in numerous ways. Many general contractors require that a subcontractor’s suppliers submit unconditional waivers indicating they were paid, prior to making payment to the subcontractor. Further, many general contractors require the subcontractor to submit lien waivers prior to being paid. There is nothing wrong with either requirement, as long as the lien waivers themselves are “conditional.” A “cond i t i o n a l ” Addenda contain language which directly conflicts with the contract, but binds the subcontractor lien waiver must include language stating that payment has not yet been made and that amounts are still owed. Conditional waivers should also clearly state that outstanding claims (change order claims, delay claims, material cost claims, etc) are not being waived. Once all the “conditional” items have been satisfied, unconditional waivers can be provided. Always check the body of the contract to make sure you are not promising to provide unconditional waivers, and then check the addenda to make sure the lien waiver form required is a “conditional” form. Payment Applications Payment applications should be simple, straightforward and designed to facilitate timely payment. Increasingly, they are not. In the last six months we have seen an increase in “fine print” on payment applications. Please remember when payment application forms are attached as addenda, this “fine print” is incorporated into the subcontract. The “fine print” often includes potentially damaging language. For instance, it often includes claim waivers, promises to indemnify the general contractor from suppliers, altered p a y m e n t terms, additional requirements, and even additional warranties. Such language should be deleted while the contract is being negotiated, rather than when work has started and payment is due. Drawing Lists When a subcontractor submits a bid, it is not often based on a full review of all project plans and specifications. In most cases, a subcontractor does not even have access to all project plans, specifications, addenda and updated drawings. Still, a majority of subcontracts include a “drawing list” and language requiring the subcontractor to perform all work related or incidental to its trade. Often, disputes arise over SPRING 2008 who was supposed to perform certain work. The lines between mechanical and electrical, site preparation and landscaping, and even concrete and finish work are not always as clear as they appear. By attaching a “drawing list” and requiring a subcontractor to agree to perform all trade related work on the list, a general contractor assures at least one subcontractor will be responsible for the work. From a subcontractor’s perspective this is a dangerous proposition, because its bid is based on a specific type and amount of work. When a drawing list is attached to your subcontracts, you should be sure to specifically identify the work you will perform and limit your obligation to the work identified in your bid. Often subcontractors overlook addenda because they appear to be standard, form documents, or are overly detailed. This is a mistake. The addenda are part of the contract. The general contractors know this and use the addenda to place additional requirements on subcontractors. Always review all addenda in detail, and do not agree to use forms which require you to waive rights, perform additional tasks or provide additional promises.
SPRING 2008 Page 7 GROWTH PAYS Cont. from p.1 road medians and solid waste. leading housing market research I sincerely hope this downturn in the market will cause local compiled monthly for builders, firm. Land and home sales are BUILDING government entities to question developers, realtors, financial institutions, government entities and DEPARTMENTS their desire to add new fees on a specific industry, and to understand others. Stobeck is a SAHBA Direc- that it is possible to kill any tor (520) 751-0676. goose that lays a golden egg. ket.” It goes on to say there may be a “stall in construction of new parks, buildings and roads.” How can there be a stall in the construction of parks and roads when impact fees pay for them? Where did the monies go? There are even ideas being floated to close some facilities, such as sports parks and scale back graffiti removal, landscaping on Written by John Stobeck of Bright Future Business Consultants. Bright Future Business Consultants is Southern <strong>Arizona</strong>’s Reprinted with permission from SAHBA (Southern <strong>Arizona</strong> Home Builders Association) 520-740-6506 Pima County Development Services Visit Pima County Development Services online at: www.pimaxpress.com 520-792-2424 City of South Tucson Visit City of South Tucson online at: www.ci.tucson.az.us/ sotucson.html 520-791-5550 City of Tucson Development Services Visit City of Tucson Development Services online at: www.tucsonaz.gov/dsd 520-382-2600 Town of Marana Visit Town of Marana online at: www.marana.com 520-229-4800 Town of Oro Valley Visit Town of Oro Valley online at: www.ci.oro-valley.az.us 520-648-1972 Town of Sahuarita Visit Town of Sahuarita online at: www.ci.sahuarita.az.us CONTACT INFORMATION
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