The older your association may be, the more likely it has engaged the services of a contractor, engineer, architect or other construction or design professional to perform a maintenance, repair, replacement or capital improvement project. The process can be very daunting. Even the smallest of projects can have unexpected and disastrous consequences, such as the electrician hired to make a small repair who accidently started a fire caused by an electrical short. In any contract review, the lawyer’s job is to help the association plan for the unexpected. Because most contracts will be prepared by the contractor and then presented to the association for execution, they will favor the contractor. The association should always rely on its legal counsel to review the contract and minimally provide an addendum whose terms are superior to that of the contract prepared by the contractor. Following are few contract terms that should be addressed in the addendum if they are not already addressed in the contract:
Scope of Work. The scope of work section of the contract is the core of the contract itself. It describes the work to be undertaken. It should be supplemented with specific repair protocols prepared by the requisite professional. A carefully drafted scope of work can help the association avoid later disputes.
Change Orders. In the event a change in the work is needed, such as adding or deleting aspects of the project or changing the selected materials, the construction contract should provide a mechanism by which the association and the contractor can make these changes. Change order provisions should minimally require that a change order be in writing, approved and agreed to by the association and the contractor and specify the effect the change order will have on completion of the work. It should also provide for any additional fees that will be charged as a result.
Authorized Contact. The contract should provide for a specific individual to act as liaison between the association and the contractor.
Payments. Any payment provisions should include “retainage” which allows the association to withhold a percentage of the monies due to the contractor from each payment until satisfactory completion of the work including the punch list. On the one hand, the contractor deserves to get paid, on the other hand the contractor needs to be sufficiently motivated to come back at the end of then job to compete the punch list. Five to ten percent is a reasonable retainage.
Notice of Commencement Process. To protect the association from paying twice for the same work, a Notice of Commencement must be completed and recorded so that those contributing services or supplies for the work must first give notice to the association. Before a construction or remodeling project may begin, the association must require the contractor to assist it with completing the Notice of Commencement process. Only by doing this can the association protect itself from subcontractors and suppliers who claim they have not been paid. The Notice of Commencement must be recorded with the county clerk of court and posted at the job site in the form of a certified copy. Prior to filing a lien, a lienor who does not have a direct contract with the association, must serve the association with a Notice to Owner before commencing, or within forty five (45) days of commencing, the furnishing of services or materials. A lien cannot be enforced unless the lienor has served the Notice to Owner. In order to prevent the filing of a lien against your property and to prevent having to pay twice for the same work, before making any payment (partial or full), the association must be sure to receive a Partial or Full Release of Lien from whomever and for whatever the payment is being made.
Indemnification. Imagine if your construction contract provided for a full indemnity for any damage and injury whatsoever that the contractor or anyone employed or contracted by the contractor caused – This has to be too good to be true… It is! Pursuant to section 725.06, Florida Statutes, any construction contract where the contractor promises to indemnify or hold harmless the association for liability for damages to persons or property caused in whole or in part by any act, omission or default of the contractor arising from the contract or its performance is void and unenforceable UNLESS the contract provides a specific monetary limitation (often not less than $1 million per occurrence) on the indemnification which must bear a reasonable commercial relationship to the contract. You should also be aware that disputes over the enforceability of the indemnification clause do not include prevailing party attorney fees unless the indemnification provisions also specifically provide that, in the event of a dispute concerning the applicability of the indemnification, the prevailing party must indemnify the other for its attorneys’ fees, costs and expenses in enforcing the right to be indemnified.
Termination. While most construction contracts provide that an association may terminate the contract for cause by providing the contractor with reasonable notice and the opportunity to cure, the association should strive for a without cause termination provision. A without cause termination may require the association to pay the contractor liquidated damages, which is an amount the parties agree upon during the formation of the contract for the contractor to collect as compensation. Minimally, the contractor will want to be paid through the date of termination.