Contract Review Checklist

The following checklist is a general list of concerns that are common in most construction contracts. This checklist is for general use only and by no means is a comprehensive listing of all important matters that must be reviewed in a contract. Each contract should be carefully reviewed by an attorney experienced in construction law-the checklist is no substitute for competent legal review specific to the client and the project.

IDENTIFICATION Correct names of the owner, architect, engineer, contractor, subcontractor(s). Correct name of the project. Correct address for the project-should get legal description of the property. Definition of Contract Documents-owner/contractor agreement, general conditions for the contract for construction, plans, specifications, etc. Also, confirm if schedule is a contract document as well as geotechnical reports. Do you have all contract documents? SCOPE OF WORK Review definition of scope of work-confirm client intends work to include all work as defined. Are proposals incorporated into the agreement? Conflicts? Will client install equipment or materials furnished by others? If so, consider addressing delivery schedule and acceptance issues. Confirm impact of any scope issues incorporated by reference from other contract documents. Beware general language regarding compliance with all state and federal regulations, codes and standards. Client should understand implications and consider limits. Beware any design obligations-client my not have qualified personnel on staff and also may not wish to perform design work on the project other than shop drawings or submittals, if applicable. PAYMENT Confirm basis-lump sum, cost plus a fee, cost plus with a guaranteed maximum, etc. Review pay application process. Date of submission, form of pay application, review process, date of payment, partial lien releases, bills paid affidavits, etc. Review each form and consider impact of bankruptcy of a party, representations of percent complete, parties required for approval, release of claims for extra or additional work, release of claims for delay, disruption and consequential damages.

Review right to withhold payments. Should define specific rights and amount to be withheld. Consider payment of undisputed amounts. Be mindful of the Prompt Pay Act. Review contingent payment clauses-condition precedent or covenant. Consider Tex Bus & Com Code Section 35.521. Review retainage agreement-percent to be withheld (Tex Prop Code Section 53.101), and timing of payment. Consider impact of performance and payment bonds (if any). Carefully review payment provisions upon substantial completion and final completion. Negotiate proper final payment provisions consider final waiver and release language and final affidavit of all bills paid from contracting parties as well as others. Understand situation of final payment release when outstanding issues exist regarding extra and additional work, schedule impact etc. SCHEDULE Identify party primarily responsible for submitting project schedule, and review right of input by other parties to the development of the schedule. Review form and format-bar chart, critical path, etc. Is schedule a contract document? Review definition of time-calendar days, working days, work hours, make up days, overtime, rain days, etc. Review schedule update procedures and notification requirements. Determine if contract contains a no damage for delay clause. If so, understand operation and impact. Also understand scope of clause. Review process to revise schedule due to changes in the work, weather impacts, delay or disruption, etc. Confirm documentation required for change order. CHANGES IN THE WORK Determine if there is a time limit to request a change order. Confirm that all changes must be agreed upon in writing. Review method of calculation of change order, and documentation required, and plan accordingly. Determine if changes can be directed without agreement on change in contract sum or extension to schedule. If changes can be directed without agreement, make sure there is a mechanism for payment of the undisputed sum as work progresses. Beware of release language if full extent of impact is unknown. CLAIMS AND DISPUTES Ascertain time limits to notify of a claim. Modify unreasonably short time limits.

Determine if there is a progressive resolution process beginning at the job site and ending up at the VP level. If not, suggest such a progressive system. Understand method of pricing claim and modifying schedule, and the documentation required. Include mediation. If appropriate, add a technical mediation process for technical disputes. Delete arbitration clause unless there is a good reason to arbitrate. If you have to include an arbitration clause, do not agree to use the AAA. Design an arbitration program that names the number of arbitrators, addresses discovery and sets out whatever parameters are appropriate for the circumstances. If ADR is preferred, consider bench trial with a retired judge as allowed by the Texas Civil Practice and Remedies Code. Review choice of law and venue provisions. INDEMNITY AND INSURANCE Before reviewing the contract, you must understand the clients entire risk allocation program. Additionally, understand clients business and the risk involved with the type of work that is the subject of the contract. Understand how all contract documents interact. Understand type of indemnity clause you are dealing with, and how it interplays with the insurance provisions and applicable law. Reciprocal or Knock for Knock Indemnity- sometimes described as no-fault indemnity. o Understand purpose-your people and property and the other partys people and property-your mistakes and the other partys mistakeswhat are you trying to accomplish? o Narrow-each party responsible for its own employees and property. o Broad-includes contractors and subcontractors. Consider pass through provision for back-up indemnity (contractually assumed liability for negligence). o Other-modified reciprocal, fault-based reciprocal and hybrid. o Insurance should provide for contractual liability, waivers of subrogation and each party should be named as an additional insured under the other partys insurance policy (other than workers compensation schemes where employer is the only insured), contract should provide indemnifying partys insurance is primary, insurance should provide severability of interests. o Beware of liability cap-review to determine if knock for knock indemnity would be frustrated. Fault Based Indemnity o One party agrees to indemnify another party. Identify and confirm the indemnitors and the indemnitees.

o Identify the items for which the indemnitor agrees to indemnify the indemnitees, including claims arising out of: Personal injury, bodily injury and death Property damage The partys sole negligence Intentional torts Environmental issues Strict liability Subrogation claims Third party claims Defective construction Consequential damages or actual damages that stem from the occurrence on the project which might not be unintended (loss of use, lost profits, lost production, lost rent, etc.) Design professional liability, including claims arising out of defective plans and specifications Mechanics and materialmens liens Underground or subsurface conditions Existing site conditions Schedule erosion-delay and disruption. Attorneys fees-whos? Expert fees-whos? o Review causation provisions-arise out of or resulting from.? o Determine if insurance exists to cover the types of indemnities requested. o Determine risk/ damage potential for certain indemnities in relation to the value of clients contract. o Does the clause pass the express negligence test and the conspicuousness test? o Is there a duty to defend? Insurance o Have required coverages reviewed by clients insurance professional to determine if client has the coverage requested. o Is there a rating requirement? o Is there a notice of cancellation requirement o Is there an additional insured requirement? If so, what type and form? o Is the clients insurance primary? o Is there a waiver of subrogation? o Is there a severability of interest clause? o Is there an other insurance clause?

WARRANTIES The doctrine of warranty imposes strict liability without fault or negligence-either implied (implied in fact or implied in law) or express (basis of the bargain). Beware of UCC implied and express warranty provisions. Review scope of warranty obligation and determine if acceptable. o Warranty of title. o Quality of materials, good quality and new. o Work will be defect free. o Work will conform to the requirements of the contract documents. o Work will perform in a certain manner or achieve a certain result. o Operation of completed facility will be satisfactory. o Term o Warranty related to accuracy of plans and specifications. Determine if enforceable under state law. Review warranty disclaimers and limitations. Review form to determine if enforceable under state law, including UCC. LIMITATION OF LIABILITY Review for limitations of liabilities-duties, damages and defenses. Duties-are the limitations on fiduciary duties or certain aspects of the duty of care? Warranties-are certain warranties eliminated or limited-express or implied? Are certain damages defined, eliminated or limited-actual damages, consequential damages, liquidated damages. Is there a no damage for delay clause, or other schedule related clauses that limit recovery? Is there a contingent payment clause? Are there time provisions for payment that are in effect a paid when paid payment clause? Is liability limited to insurance proceeds that are recoverable? DEFAULT AND TERMINATION Review definitions and actions that constitute default. Determine if there is notice and opportunity to cure that is reasonable and clear. Determine rights of terminating party-reasonable? Is there a termination for convenience provision? Can wrongful termination be converted to termination for convenience? How is compensation determined? Are damages defined? Is there a force majeure clause?

o Are all conditions that may occur included? o Is there a definition of when the condition ends? o Is there a time period wherein the contract is terminated if the condition still exists? Is compensation addressed? o Does the clause define what happens to the schedule, existing agreements related to the project? o Does clause consider unusual price escalations as a result of the event?

MISCELLANEOUS Review choice of law provisions. Review venue provisions. Review shop drawing and submittal process-what is required and is there a time limit for review? Underground conditions-how handled when different from plans or different from conditions commonly found in the area? Are surety bonds required?