Page 245 - Urban Construction Project Management

200 Chapter Nine
13. Termination
• Under what circumstances?
• Define payment

POTENTIAL ONEROUS CONTRACT CLAUSES

The CM/GCs should review certain clauses in the contract to make sure that any
potential risk involved is within acceptable levels, including, but not limited to the
following:
1. Payment
• Owner should make payments within a 30-day period.
• If payments will be made outside of 30 days, then the contractor and the subcon-
tractors must be aware of this delay, and bid accordingly.
• Be careful of states that refuse to enforce “pay when paid” clauses, thereby
requiring payments to subcontractors even when the contractor is not paid by the
owner in a timely manner.
• Check to see if the state in which you are working gives certificates of capital
improvements (usually means that you do not have to pay sales tax on the labor
portion of a capital improvement).
2. Retention
• Most owners require 10% retention. This means that when a subcontractor sub-
mits a monthly invoice, only 90% of the submitted costs will be paid. The
remaining 10% is held by the owner (or financial institution paying for the
project).
• The contract should define at what point in the project the retention will be
released or reduced.
3. Change orders
• May require the contractor to proceed with the work even when the cost is in dis-
pute. In this particular case, all involved parties must retain accurate cost, sched-
uling, and photographic information.
• Negotiating skills must be exercised so that the cost issue can be resolved as
expeditiously as possible. Many disputes and claims are based on change order
work that has progressed without resolving the monetary issues.
• Method for providing data for a change order should be spelled out in the
documents.
• Make sure that change orders will only precede after the owner’s authorized rep-
resentative signs a proposal.
4. Authorization
• The owner must assign one person who has the authority to make changes and
to approve change orders.
• Be careful of multi-approval process (i.e., architect and owner representation).