2023 Executive Insights From Leaders in Construction Law

Cohen Seglias is ranked as one of the top firms in the country by Construction Executive’s “The Top 50 Construction Law Firms® of 2023,” ranking 10th nationwide. In a feature of the publication providing insights from the leaders in construction law, Cohen Seglias founder Roy Cohen answered the question, “What are the key risks that should always be taken into consideration before any construction contract is signed?”

What Are the Key Risks That Should Always Be Taken Into Consideration Before Any Construction Contract Is Signed?

While there are numerous form contracts available to owners, construction managers and subcontractors on a project, every project and contractual relationship must be considered independently to protect a party from its specific risks in the construction food chain.

Owners must ensure that their banking/financing treaties are protected with provisions requiring construction managers to bond off liens from subcontractors. They should also seriously consider receiving payment and performance bonds from construction managers or have each major subcontractor provide its own payment and performance bond. Owners must also look to the state laws where the project is located to take advantage of registration provisions prior to the start of the project that will help prevent against liens.

Construction managers must feel comfortable that the owner has sufficient financing in place, is preferably not a single-purpose entity without other available resources and has protected itself against subcontractor defaults by requiring payment and performance bonds, using subguard products or inserting default provisions, such as liquidated damages or actual damages, that give them the best chance to make themselves whole in the event of default.

Subcontractors, who are most likely to be delayed, accelerated or compressed due to the failure of others up the food chain (including owners, design professionals and precedential trades) and bear the brunt of cost overruns, need to insist on a base schedule and monthly updated schedules in native format. This allows subcontractors to accurately track the progress of the project and the causes of delay and inefficiency.

Each party in the construction process must assess their risks through their own prism and cannot simply rely on a standard form contract.