June 2014

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MCN Podcast 130x130 Brown

“Construction Subcontracting – Practical and Legal Tips, Part 1″

In this episode of the Maryland Construction (Network Part 1 of a 2 Part Program) we welcome Joseph Kovars, an attorney with Ober|Kaler. Joe is a co-chair of Ober|Kaler’s Construction Group. His practice is concentrated in construction and public contracts law, representing contractors, subcontractors, sureties and owners in contract formation and construction disputes involving many types of construction projects. Mr. Kovars is a co-editor and co-author of the recently published book – “Construction Subcontracting – A Comprehensive Practical and Legal Guide” – available here.

The book helps break down and explain sometimes complex subcontracting issues. The Book is divided into 6 parts:

  1. The Subcontract Document
  2. Subcontract Performance Issues
  3. Insurance, Bonding and Licensure
  4. Disputes
  5. Special Project Issues
  6. Other Contracting Arrangements.

Part 1 – The Subcontract Document

  • Every subcontract must address price and a scope of work.
  • Most also have clauses involving things like timing of payments, flow down obligations, changes, disputes, termination, insurance and indemnity.
  • The subcontract is where risks are allocated. Subs who don’t read the subcontract until a problem arises can get into big trouble.
  • Standard Industry Form Contracts (AIA, ConsensusDocs) vs. Manuscript Contracts
    • No form contract should just be signed “as is.” Every project is different and deserves a contract adapted to reflect the specific deal worked out by the parties for that specific job.
    • Industry forms have certain “positives”.
  • Important Contract Parts
    • Time for payment
    • Most controversial term: Pay when paid vs. pay if paid clauses
      • MD – Valid to have a pay if paid clause. But clause must be very clear. If not clear, then court will say it is a pay when paid clause
      • But MD statute says “pay if paid” clause is not a defense to a mechanic’s lien or payment bond claim.
    • Retention
      • Private contracts – typically 5 to 10%
      • Federal jobs – often 5% or even 0%
      • MD statute – jobs over $250,000, where contractor gives 100% P&F bonds, then retention can’t be more than 5%. And amount of retention by contractor against a sub must be same % as between owner and contractor (unless there is a reasonable performance dispute).
    • Flow-Down Clause
      • Flow down clause makes sub responsible for all of G.C.’s obligations to Owner.
    • Indemnification Clause
      • Standard clauses – sub agrees to indemnify G.C. and owner for sub’s negligence that results in personal injury or property damages to third parties.
      • 3 Types – Limited Indemnity, Intermediate Indemnity, Broad Form Indemnity.

For additional information about the book please visit Ober|Kalers website www.ober.com where you can view an article about the book (under the News Tab) with a link to ABA’s site. You can also go directly to the story – here. You may also reach Joseph Kovars at – jckovars@ober.com.

Part 2 of this podcast will be available in a future episode.

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