CONSTRUCTION CONTRACTS – TRAPS FOR THE UNWARY:
PART TWO


By Douglas Colville, Dymond • Reagor • Colville,LLP,
Rocky Mountain Chapter IEC Gold Industry Partner

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This is the second article of a two-part series that identifies some potential traps that subcontractors may find in a
contract. Part one examined payment terms, attorneys’ fees provisions and “incorporation” and “flow-down” clauses.
This article discusses contract provisions that require continuation of the work in the face of a dispute, that require
notice of certain events, and that place limitations one’s ability to recover additional compensation.

1. Continuation of Work
Contracts often have language requiring the subcontractor to continue work regardless of whether the parties are
embroiled in a dispute. This type of clause could impose a serious financial burden if the dispute involves change
order pricing, compensation for acceleration, delays or extras, or the contractor’s withholding of payments for alleged
deficiencies or delays. It essentially forces the subcontractor to continue work even though it is not getting paid.

2. Notice Requirements
The construction subcontract will also likely be filled with language requiring the subcontractor to provide written
notice of certain issues or events. It is extremely important to be aware of these notice requirements as failure to
comply with them can result in a loss of the subcontractor’s rights or a waiver of its claims, remedies and defenses.
The following highlights a few of the areas where a subcontractor is typically required to provide notice:
         
          A. Time Extensions

 
Subcontractors inevitably encounter delays on the project which are caused by the owner, the contractor or another
subcontractor. These delays sometimes make it impossible or unfeasible for the subcontractor to meet its performance
deadlines. Although the contract may give the subcontractor the right to obtain an extension of time to complete the
work, this right can be lost if the subcontractor fails to provide timely written notice of the delay or to make a timely
written request for extension. The following is an example of a notice requirement that impacts a subcontractor’s right
to seek an extension of time:
 
             “No allowance of an extension of time, for any cause whatever, shall be claimed by
             Subcontractor or be made to it unless Subcontractor shall have made written request to
             the Contractor for such extension within 48 hours after the cause for such extension
             occurred.”
 
          B. Prefatory Work
 
In most instances, the work of others must be completed properly before the subcontractor can perform its work.
Subcontracts commonly have language requiring the subcontractor to give written notice of unfinished, deficient or
defective preceding work before the subcontractor commences its own work. These contract clauses typically provide
that a subcontractor, who fails to give timely notice of the nonconforming condition, assumes all liability for correcting
the condition regardless of whether it was caused by others.
 
          C. Additional Compensation
 
Sometimes, a subcontractor will incur additional or unexpected costs as a result of acceleration of the work, changed
site conditions, extra work, or even delays or interference caused by the owner, contractor or other subcontractors. The
contract may contain language establishing a procedure for seeking additional compensation for such events.
However, the subcontractor is almost always required to provide timely written notice of its claim. Failure to do so
may preclude the subcontractor from receiving additional compensation. Consider the following example:

             “All claims which Subcontractor has or wishes to assert against Contractor must be
             presented in writing to Contractor not later than 10 days after Subcontractor is aware
             or should be aware that a claim will or does exist, even thought the exact nature of the
             claim and the amount of the claim may not be determinable at that time.”

3. Limitations on Recovery of Additional Compensation
The last topic covered in this two-part series relates to contract provisions that limit the amount of additional
compensation. These provisions typically apply when a subcontractor is forced to accelerate the work or perform extra
work, encounters changed site conditions, or is faced with delays or interference caused by the owner, contractor or
other subcontractors. The limitations can be implicit or expressly stated.
 
Contracts oftentimes implicitly limit the subcontractor’s recovery for claims or additional compensation to the amount
that the contractor may be able to recover from the owner. In this situation, contractors argue that the subcontractor is
not entitled to any additional compensation if the contractor was not successful in recovering from the owner.
Consider the following example:
 
             “Contractor shall present to Owner any reasonable claim for payment, time extension
             or any other reasonable item which Subcontractor in good faith chooses to submit.
             Subcontractor may not recover more from Contractor than the amount Contractor
             recovers from Owner in his recovery on claims.”
 
Express limitations, on the other hand, restrict a subcontractor’s ability to seek additional compensation on an
item-by-item basis. For example, the subcontractor may be able to recover additional compensation for extra work only
if a formal written change order had previously been issued. Similar provisions apply to overtime. A “no damages for
delay” clause attempts to limit recovery of costs arising from scheduling changes, delays, acceleration and interference
or coordination issues. Here is an example of that type of clause:
 
             “The Work shall be completed in accordance with the Construction Schedule
             maintained by Contractor as may be amended from time to time. Subcontractor shall
             not be entitled to additional compensation for performing work within the time
             requirements of this Contract. Subcontractor hereby waives any and all claims and
             releases Contractor from any delays, acceleration, and extra costs attributable to
             scheduling, interference or failure to coordinate.”

In summary, construction contracts often contain language that can trap an unwary subcontractor. The goal of this
two-part series was to make you aware of some of the pitfalls found in typical contract provisions. Our hope is that by
being aware of these “dangerous” provisions, you will be able to implement procedures to review, evaluate and
negotiate each construction contract prior to signing, and to handle disputes should they arise during the performance
of the work.


Douglas Colville is a partner at the law firm of Dymond • Reagor • Colville, LLP

 
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