Smart Board & Property Manager Legal Guide: Key Elements In A Repair Contract
Alan Tannenbaum, Esq.:
My name is Alan Tannenbaum, and our firm is Tannenbaum, Lemole & Hill, and we are giving a presentation today on key elements in a repair contract. Since the last Smart Board, we've had two lawyer additions to our firm. And you'll see today, Destinee Small and Jennifer Myers, who have joined our firm as associates and they'll be presenting a segment of today's presentation. So everybody, welcome Destinee and Jennifer to our team. As you can see on the screen, we're community association lawyers. We do general counsel work, but we also have specialization in the field of construction law. So for community associations, we both do general counsel work and we serve their construction needs, which include turnover claims and what we call repair consulting. And repair consulting is assisting groups in negotiating and perfecting contracts with both engineers and contractors and helping to enforce those contracts as your projects get completed.
We've been very busy on the construction side on the condo side, because of what happened in Surfside, the legislation that has emanated from that. Groups are getting their buildings inspected. Engineers are finding issues and major repair projects are being negotiated. The hurricanes from last year caused significant damage, which required a lot of repairs, both for HOAs and condominiums. So there's a lot of repair work going on. One of the things that occurred is that, especially in relation to the hurricane, is that there was a great influx of out-of-state contractors who came into Florida, some licensed, some not offering their services. There's also a significant group of, I call them brokers or marketers. They will sell you repair services, but actually somebody else is going to do the work. So there's been an issue there and one of the things that we're including today at the beginning, which is not on our list, is vetting your contractor.
So you may get a proposal from somebody who, may not be licensed in Florida, they may be assigning the work or subcontracting the work, and there's ways to vet them corporately. There's some great tools in Florida for determining licensing and sometimes an online search, you find lawsuits and so forth. So know who is coming in to do your work. So into the basic program, I'm going to turn it over to Jon Lemole who's going to talk about detailed and on-target plans of specification.Jon Lemole, Esq.:
Thank you. I'd venture to say that there's not a more stressful situation in the life of a condominium or a homeowner's, say a townhome homeowner's association, than having to do a major repair project. It makes owners unhappy. They're unhappy with not being able to move about as freely as they may otherwise be able to do it. The loud noises, the activity, the parking, the trucks. And so what today is going to be about is really taking a hard look at how an association can manage that process right from the very beginning by having a very good repair contract negotiated with that contractor. I'm, I'm going to steal something that Alan says. He often says, "Imagine that when the contractor shows up on your project and these employees and subcontractors start walking onto the job. Imagine it's a group of 17-year-old boys that are showing up." And so if you've had 17-year-old boys or 17-year-old sons, which I've had, you know that you have to be very clear with them on everything.
So that's where we're going to start. The first item on the agenda is detailed and on target plans and specifications. Why is that important? Well, think about it. If you've ever not had clear communication with your kids, and I have a kid who's like this, they will find all manner of reasons to poke holes and find the gaps in the communication. So we want to start every project, every major project with an investigation of what the project's needs are going to be and some details about how the work is going to be done. Take an example of painting. You're going to paint all the buildings. Well, what is paint? What does painting mean? Have you selected the type of paint? Is there going to be some sort of treatment of the building exterior before the paint is applied? Is there going to be stucco crack repairs, is there going to be caulking done? Is there going to be power washing done?
Not only that, how are you going to protect shrubs and plantings and landscaping and cars from paint splatter? Is that going to be part of the contract or not part of the contract? You can bet that if you don't specify things that you're not going to have very strong protection when you find out that the contractor maybe didn't do stucco crack repair well or maybe didn't provide adequate protection for landscaping and vehicles in the area. So, you always want to have a detailed and on-target plan and specification. Now where does that start with? The best way for the most part in any major project, take a big re-roofing project or maybe a structural repair project, they're going around and they're fixing concrete, falling concrete, or facade, stucco. It always makes sense to have a consultant come in first, like an engineer or some other consultant who can prepare, not only investigate what needs to be done, the scope of the repairs that need to be done, but how it's going to be done and be very specific about it.
Why is that important? Well, number one, if you've ever been in the middle of a project and you get faced with a bunch of change orders because all of a sudden there's a bunch of conditions that the contractor didn't foresee, you know that that's a real pain in the butt. Price escalations. Contractors love to put price escalation clauses in their contracts and if they come across something that they didn't anticipate in their proposal, that they're going to have to fix, like a bunch of roof framing or roof sheathing, then you're going to get charged for that. And it may not be at the prices that you expected to be charged for it for the materials when you executed the contract many, many, many months ago.
Unforeseen conditions cause delays, always. So it's always a very good thing to have an independent consultant come onto the project before you hire the contractors, take a look at what are the conditions, what's causing the conditions. Because you may not always know that. Maybe that requires a little bit of invasive investigation. Maybe they take a couple of roof cores and see what's the condition of the framing underneath, and then provide a very detailed set of plans and specifications that not only address what work is going to be done, how it's going to be done, what materials are going to be used, how the community's going to be protected, what are the hours of the work, where's the contractor going to park their vehicles? How are you going to protect landscaping? How are you going to protect the safety of residents in the community? All of those things should be specified.
And by the way, if you do that, that creates a much more competitive bidding situation for the owner, for your associations. Because now you're getting three contractors, let's say, who are providing you price proposals and they're all looking at the exact same specifications. And so instead of just going out and having three contractors come in and tell you well we're going to do X, Y, and Z, and this one's going to do A, B, and C and here's what we're going to charge for that, you may not have a really truly competitive bidding environment and competitive pricing on that project.
So that is a critical first step in any major repair project. We get called in the middle of projects that have gone sideways and a lot of times we see A, a really poor contract, and B, that there has been no effort on the front end to control the work on the project by use of independent consultants and engineers who've determined what that should be. So with that, I'm going to turn it back over to Alan and he's going to talk about a balanced draw schedule.Alan Tannenbaum, Esq.:
Money is power on a construction project. And what's the goal for an owner? It's pretty simple. Always have the contractor if you can have more invested in the job than they've been paid. And that's the greatest assurance that you're going to have your contractors stay on time and stay on goal and complete your project. The worst scenario is when the contractor is 60% completed with the contract and they've been paid 80% of the contract price. They will now look at your job or have the possibility of looking at your job as a loser. And they would prefer to send their crews out to another project that they're not ahead on. So that's the basic premise. I have a real problem with deposits. Contractors more and more are requiring deposits. They will tell you that it's to purchase materials, but most good contractors have good credit with the supply houses. They don't need your money to buy materials, but they say they will.
A lot of times I think they're just taking their profit upfront. So we either like to eliminate deposits or reduce them considerably. Retainage is holding money back until the end of the job. If you can negotiate that into your contracts, you're better off. And there's also a key, and sometimes the engineers are not really discerning about this, but it's making sure that draw schedule's balanced so that you're ahead of the game financially near the end of the project or at least it's an equal playing field. We see too many contracts where by three quarters through the project, the association is upside down and it's very difficult to get the contractor out under those circumstances.
I'm going to next talk about insurance requirements. Real problem these days in Florida. So here are some basics. Number one, when you're using industry contracts, industry form contracts, which frankly are intended for the construction of a 50-story high-rise in Chicago and New York and not intended for a Florida repair project, but because of the way those contracts are designed, they have owner insurance requirements that often require coverage that's not even available for condominium and homeowner associations in the Florida market. So be very careful on the requirements in the standard form contracts for the owner insurance that you don't sign a contract that has requirements that exceed what your agent is actually going to be able to secure coverage for.
On the contractor side, there's a whole slew of insurance that the contractor's going to need. Most of the standard contracts do contain decent insurance provisions, but it's really important, especially on the commercial general liability, GCL policy for the association to be named as an additional named insured. That gives you direct rights against the insurance company. It allows you to be notified if in fact coverage is being canceled as an additional named insured, you have protection on that. But in the current market, in order to be an additional named insured, there has to be an endorsement issued by the insurance company that's either a blanket endorsement that says anytime a contract requires it, that additional named insured status is granted, or it's a specific endorsement that names the owner or names the association as that additional insured. So you have to get that endorsement. Oftentimes a contractor has to pay at least a few hundred dollars to secure that endorsement. So they resist it, but it's really important to get.
The other part of it is making sure that the subcontractors who enter the job have workers' comp and that they have their own insurance that names you also as additional named insured if you can get that. So you want to include in your general contract that they're only bringing in insured subcontractors to your job. And again, sometimes we find laborers doing subcontracting work, it protects against comp claims, liability claims. So you have to look carefully at those provisions. So I'm going to move back to Jon who's going to talk about damages for delay.Jon Lemole, Esq.:
So I want to start by dispelling a common myth that I run into quite frequently. People I think have this expectation that contractors are these well-capitalized companies that have many, many employees at the ready to go out and work on your project. It's just not true. You ought to assume in most instances that a contractor probably is going to sub out most of the work that is being done. They're probably relying on leased labor, leasing laborers. The people working on the job are not necessarily going to be direct employees of the company, of the contractor. And keep in mind that the contractor, they're a for-profit business, they're in business to make as much money as they can. And so every day when that owner of that business wakes up, he's got to decide how he's going to staff the projects that he's currently got underway. And those decisions are going to be influenced by a couple things. They're going to be influenced. Well, which one is he or she making the or most money on?
And secondly, if they're not making the most money on a particular project, the contractor/owner is going to think, well, what's my risk on any particular project? Am I getting a lot of headaches from this project versus another project? So one of the big things that you need to be thinking about when you're having any kind of major repair project is how am I going to stay on that contractor's radar? How am I going to position this project to be that project that that contractor wakes up every morning and says, "I got to make sure that I've got that one adequately staffed and on-target." And on-target for completion on time. And so there are two ways apart from the money aspects which Alan kind of talked about a second ago, but there are two other ways to control that.
Number one are damages for delay clauses. Folks, I get called into the middle of disputes all the time and a lot of times the disputes are the project was supposed to be completed in three months, we're now at five or six or seven or a year out, and this is a problem. And I look at the contract, and there's very, very little in the contract which provides any kind of hammer over the contractor to completed on time. And I scratch my head and I wonder, well, why wasn't that, and generally the reason is that nobody looked at the contract or they didn't have a lawyer look at the contract before they executed it, the owner didn't. So damages for delay clauses are important. You need to insist on them, but they have to be drafted correctly in order to be enforced.
If you want a damages for delay clause to have teeth in it, you have to know that if it goes to the mat and you have to bring a claim, a delay claim, that that damage for delay clause is going to be enforceable in court. And they're not all, they have to be drafted properly. So number one, make sure that you have a properly drafted damages for delay clause in your contract so that you know and the contractor knows that if I go to court over this thing, this thing is going to be enforced by the court.
Number two, and this is something we see all the time, and since COVID it's gotten way more prevalent. Contractors love to put these very broad force majeure clauses in their standard contracts. Now what's force majeure? Force majeure is like the act of God type of unforeseen situations where the contractor gets to A, increase the time for completing the project, or increase the price of the contract. And so your delay for damages clause will have no teeth in it if there's this broad... If the contractor can call anything force majeure. So weather, weather conditions in Florida. The contractors love to put in there unforeseen weather conditions. Well, that should be defined. What's an unforeseen weather condition in Florida? I mean Florida gets some rainy weather. Is that an unforeseen condition? If you allow it to be, it will be. And so every day it rains, the contractor will say, "Oh, that that's an excusable delay day." Well, if your project's going on in the summertime, it rains every day in the afternoon. So you can imagine that contractor saying, "Well, we couldn't work."
Now, sometimes they can't work in the rain and that's okay, but you have to be able to define that very carefully. So when we're negotiating contracts for owners, and you see me looking down, I'm looking at the time because Alan likes to remind me when I'm going on too long. Number one, we always want to put a damages for delay provision in there. We want to make sure that it's properly drafted, it has to say the right magic words in order to be enforceable. And secondly, we want to take a very, very, very good look at that force majeure clause and we want to carve out as many things as we can reasonably carve out that give the contractor the right to say, I couldn't work this day or I couldn't work this week or this month.
Look, contractors love to say we can't get materials. That's a force majeure issue. We had difficulty getting materials. Well, they may have difficulty getting materials from their regular supplier, but have you required them to look at other reasonable suppliers in the geography where they might be able to obtain the materials, and demonstrate to you that they've made that search and that they've looked at other suppliers and they still aren't able to obtain the supplies that they need for the project within a reasonable time to complete the project on time?
I've seen all of these things come up as reasons why a contractor has not been able to complete the job on time. And typically when I go look at that force majeure clause, I say to myself, "I wish I had drafted that before I've had to deal with this dispute." So very important, look at those things early on before you put your pen to the paper and the president of the board signs that contract. It is generally recommended to have a lawyer take a look at those issues because they're difficult issues, they're issues of contract interpretation, they involve how courts look at these things and interpret these things. And so sometimes legal counsel, legal review of that is going to be very important.
So moving on from there, I'm going to throw it back to Alan and he's going to talk about the right, I'm sorry. No, I'm wrong, I'm still up. We're going to talk about the right to inspect and reject work. Okay, so what I encounter, again when we get involved in a dispute is that the first time that the work is being inspected by the owner is when the work is complete. The owner has made all of the payments under the contract, and the only thing that has not been paid is the retainage, which is usually 10% of what the contract value was, what was supposed to be paid to the contractor. 10% is held back in retainage. And that's sometimes the first time that anybody looks at the work and determines whether or not the work was sufficient. Well, as you can probably imagine, that contractor has probably been paid most of their profit on the work. That 10% retainage may be relied upon the contractor to pay the last of its subcontractors, the last of its material supplies, bills for materials and supplies.
And so there's very, very little incentive for that contractor to jump on those issues. I've seen more projects get bogged down in the lengthy correction of work after the contractor's already delivered the certificate of substantial completion and they've been paid 90% of the contract price. And then all of a sudden the project drags out for months and months and months while the contractor is negotiating over what needs to be corrected, punch lists, all kinds of silliness. The best way to control that, and especially where you have a contract that is going, a bigger project where you're going to have progress payments made is that every time that contractor submits a payment application, your contract gives you the right to inspect and reject that payment application because the work is not right. If you want to get a contractor's attention, then you tell them, "Hey, I got your pay application, I'm going to have my consultant go out and look at this work."
And when the consultant goes out and looks at the work and determines that something isn't done right, you are writing back to the contract and your contractor and you're saying, "I'm not going to pay this payment application because A, B, C, X, Y, and Z need to be redone." That's going to get your contractors immediate attention. They need that payment. They have subs to pay, they have suppliers to pay. They may have credit terms that they're not really fond of that they need to take care of getting suppliers paid so that they're not incurring additional interest charges. And it also sets up a relationship where that contractor knows they need to deal with you every time they make an application to get paid on that project. But here's where the rubber hits the road. If that's not in your contract, that's a problem.
So you need to specify that. That definitely needs to be in there. And you need to be, and I mean it makes a heck of a lot of sense to make that determination about whether the work is done right and whether the pay application should be paid to make that determination be the province of a consultant, somebody other than the owner. So if you had the engineer or the consultant do that, those detailed plans and specifications, then you want to make it in the contract that that person is going to come back and do the routine project inspection. Does it cost you money? Yes, it does cost you money. Is it going to cost you way less than the dispute you'll have at the end of the project when you're arguing with that contractor to finish the job both in time and money? It's going to be far less to pay it upfront rather than doing it and waiting till the end. So reserve the right to reject and inspect and reject the work, and especially reserve the ability to do that with each pay application.Alan Tannenbaum, Esq.:
Jon, somebody asked a question about having a separate owner's representative on a job. And let me answer that. So engineers, if they're doing inspections, most of them do periodic inspections. They're not on the job every day. So if you're doing a major project, you need somebody, a superintendent of the works, an owner's representative on behalf of the association. A lot of times boards say, "Well that's our manager's job." Well, management companies generally are not set up for that purpose. Some of them have maintenance crews that you can purchase services to act in that capacity. But it's a good idea, especially during a time when your board is going to be out of town, like over the summer to hire an owner's rep who can act on your behalf and be there to watch the project on a daily basis if it's a significant project. So that's definitely a good idea. I've had projects where there's a very experienced board member who knows construction well, but they go back to Indiana in May and the project is going on throughout the summer and nobody's watching the store anymore.
But let's switch to the next topic, which is the right to reject or replace subcontractors. I love this picture. I'm not quite sure how you get the car into that garage. But anyway, so people believe when they're hiring a contractor, that they're hiring this company that gave you the glossy brochure that has a nice website that gives you all these references. The people you're actually hiring to do your job is the superintendent and crew from the contractor and the subcontractor to show up at your property. And every contractor has, or many of them have superintendents who have been with them for 20 years, and they have superintendents who they hired last week. They have subcontractors who they're comfortable and used to dealing with, and your project's starting and that subcontractor's not available.
And they go into the marketplace and bring in a second tier subcontractor to staff your job. And as these folks walk towards you or towards your building, you really have to be proactive about who is it that's actually coming to our building? Do we know who the subcontractor is? Are they keeping discipline on the job? Are they following safety standards? And you need the ability to go back to the contractor and say, "This subcontractor needs to be taken off of the job. They're not following the specs, their employees are disrespectful, they're not following safety standards," and have the ability to reject them and have a new subcontractor brought in. So having control of the project that way is really important and understanding that you need to know.
And I learned this lesson a long time ago personally, I hired a friend of mine who was a commercial contractor. He had just got into home renovation work. And I hired him to do a renovation on my personal residence and I found out a month into the job that the superintendent who showed up had been hired a week before. So I literally had experience with that and there was a reason why the job wasn't going very well is because of who my friend happened to provide to me. So make sure you vet the people who are coming to the site. All right, with that I want to turn the session over to my partner, Cindy Hill, who's going to talk about protection against liens.Cindy Hill, Esq.:
Thanks Alan. So the first step that needs to take place when you have a major project is to be sure that a notice of commencement is filed by the contractor. I do hear scuttlebutt about how contractors will say it's really not necessary or the project doesn't warrant it. Any big project, candidly, there's no good reason not to file the notice of commencement because what it does is it provides notice of record as to the project, the contractor and the owner. And it's that notice that when you have subcontractors or suppliers who are part of the project, they can use that notice of commencement to be able to send their notices that they have to send after providing their labor or services, their notices to owner to let the owner know, in this case your association, that they are part of the project. It's a statutory obligation that they have when the process is followed.
And when you get one of those, when you get a notice to owner from a sub or a materialman, it's best policies to reach out and even give them a call and say, we got your notice to owner. No, it wasn't exactly an invitation to a birthday party or anything, but it is notification that they're on your property, they're providing services, and if you reach out to them and call them and make some contact with them, you start a relationship that may benefit you if things do go south or if payments become an issue. Having a point of contact and making that friendly phone call can be a really good step to making sure that you got it, they know you got it, and everybody knows who everyone is.
So as the project proceeds, depending on the complexities you might have draws, it may be just a one lump sum. Regardless, you do want to get final or partial releases of lien as the project is progressing or when it completes. You want to get payment affidavits. You want to be sure that you get all of this from those who serve notices of owner to you, which is again why you want to make sure you reach out to them and keep them in contact, not just your contractor. And then your contractor will have to provide a final payment affidavit. And the final payment affidavit will have to include anyone who's not paid. So these are all very important documents that are part of 713 under the construction lien law. And it sounds self-serving, but I have to say it. It's best to make sure that you do have your association's attorney involved in these notices and keep them in the loop on them.
But if you're not going to do that at a minimum, again, make sure that these notices get put in a location where the board knows about them, can access them, reach out to the subcontractors and materialmen in a communication can go a long way to avoid problems. If in a worst case scenario you do get a lien on the property, first thing to do is take it to your attorney and let them look for some problems with it. There very well could be some problems. For instance, the deadline to file a lien is 90 days after the last furnishing of labor materials. If they've missed that deadline, that contractor or subcontractor, whoever it is, has a problem. The lien is good for a year. So you might even think, "Hey, we got a lien on the property but nobody's doing anything about it." But they've got up to a year to file a lawsuit. The lien does extinguish if a lawsuit isn't filed in a year though, so that's a good window to keep in mind.
You do have some options for contesting a lien if there are problems with it. One of them is notice a contest of lien in the statute which shorten shortens the lien period to 60 days. Now that's kind of a double-edged sword. You can get rid of the lien by contesting it in that manner, or the contractor might turn around and decide to sue. Again, conversations to have with your counsel. One last point for liens that's important to recognize is that when liens in a condominium for work on the common elements are on the entire condominium property. So they impact the units. And I have gotten some frantic phone calls from some of my association clients. We have a lien on the property, what do we do? We have an owner who's got a unit listed for sale. Well, there is a mechanism where those who want to refinance or sell their units can make a proportionate payment of that lien amount and continue with title transactions. It's not the end of the world.
That being said though, it does impact every unit owner when there is a lien on the condominium property and that's important to recognize. Whereas in homeowner associations, it will not. The work done on the clubhouse in the homeowner association, if that's liened, that's not going to impact the individual residences in the homeowner association. So I know we're running short on time, sorry to hit these issues so summarily, but they are important points to keep in mind with your counsel. So then I believe next we have Destinee.Alan Tannenbaum, Esq.:
To clarify one point that Cindy brought up, in the significance of a notice to owner. Notice to owner, it has to be filed within 45 days of a subcontractor initiating work on your project or materialman supplying supplies for your project. And what the notice to owner is, it's a notice to you that they are prepared to perfect their lien rights against your building. So when we say, "Well, it's good to contact them." The contact is, we got your notice and we do not want a lien on our building or on our condominium property. So let's work together to make sure that doesn't happen. So if the contractor gets behind on paying you, we would like to know about it. Because you want to get paid and we don't want a lien. So I firmly believe it's good to have that conversation.Jon Lemole, Esq.:
Alan, so the importance to get back to the notice of commencement and why that's so important, and correct me if I'm wrong, the notice of commencement is what basically then requires the subcontractor to serve a notice to owner in order to protect their lien rights.
So it all starts with that notice of commencement because now, if that subcontractor wants to potentially protect lien rights on the project, they have to give you the notice to owner. So now who the subs are who potentially have lien rights on your project. And if they don't give you that notice to owner, shame on them. But if you get it, then again, you have some A, knowledge, and B, you can establish that relationship.Alan Tannenbaum, Esq.:
All right, next, let's get on to payment and performance bonds. And we're going to save some of the questions until after the session is over at noon. So hold our responses until then so we can get through with the substance of it. So payment and performance bond. A payment bond is basically a security that your contractor's going to pay their subcontractors and suppliers. So if your contractor doesn't pay their subcontractors and suppliers, you go to the surety, the surety's responsible for those payments. The other thing that a payment bond does is it takes your project out of the construction lien process. The subcontractors and suppliers need to look solely at the bond in order to perfect their rights, it's no longer a lien situation against your building. So it does have that benefit, at least as it relates to subcontractors and material suppliers. The prime contractor would still have the ability to lien your building under those circumstances.
A performance bond is security that the project is going to get completed. So if the contractor goes bankrupt mid-project, the surety comes in and either completes the project or pays you as the owner a sufficient amount of money so that you can contract for completion. So they're important protections. We definitely recommend them on larger projects. On smaller projects you may not even be able to find a surety to give payment and performance bonds. So they usually have minimum contract amounts that are involved. The hidden value of payment and performance bonds, especially the performance side is that the contractor never wants you to contact the surety. So they're going to pay extra special attention to that, a bonded job to make sure it's performed so you never make that call or contact the surety because that affects their ability to be on the amount of bonding that they can qualify for the next year.
So if a contractor is starting five jobs, and two of the jobs are bonded and the other three aren't, they're going to pay more attention to the two jobs that are bonded. So it's an incidental benefit to having payment and performance bonds and we definitely recommended it, and it's important that your performance bond extend at least a year after the contract completion to at least cover a portion of the warranty that you get. Usually they won't go more than a year, but there's some bonds that end upon completion and you have no protection under the warranty. Most sureties will extend that performance bond protection to a year. All right, so the next section is on dispute resolution procedures, and I'm going to bring in Jennifer Myers to talk about precautions relative to dispute resolution.Jennifer Myers, Esq.:
Hi, like Alan said, today I'm going to talk to you about alternative dispute resolutions and contracts. You see these in almost every contract you sign. I see them in my lease contracts, I see them in my form contracts, they're everywhere, they're in everything. Relevant to today's topic, these are arbitration clauses that you really don't want to have in your contract. You want to have them removed from your contract. Instead, what you want to have is a contract that allows for, or that calls for a trial by jury. More specifically, you want to have a trial by a jury of your peers. You want to have people that own homes. You want to have people that understand the issues you might be going through, issues that your community might be going through, rather than an arbitrator. Arbitrators are primarily architects or engineers. They're lawyers. So they're not going to understand the plight of the everyday person, what you're really going through or you're really struggling with. So you want to make sure you have that clause in your contract that calls for a trial by a jury of your peers.
In addition to that, you want to make sure that your contracts match. So whatever contracts you have, you want to make sure that you have the jury trials in the same circuit court. So you want to make sure the circuit courts match where the property is. So this is going to make it easier for the parties to get together. So the takeaway, in the essence of time is that you want to remove the alternative dispute resolutions from the contracts, and you want to check to make sure that your contracts match, that they are going to allow for the same circuit for a jury trial. So you have everybody kind of working together in the same place where the property's located. And I'm going to move on to-Alan Tannenbaum, Esq.:
Jennifer, before we leave that, where key conflict often occurs is you sign a contract with your engineer. I had one of these, where it says the dispute is determined in the state court but in Hillsborough County. And then the association was about to sign a contract with the contractor that said the dispute was determined in state court in Pinellas County. And that meant that if an issue on the project was emanated both from design and construction, that now you were forced to try different parts of the case or different cases in two different counties.
So look first at your engineer or owner consultant, owner/architect contract. Make sure that contract calls for disputes to be determined in state court and the jurisdiction where the project is. And then when you sign your owner/contractor contract, make sure the dispute resolution in that contract is also in that same county where the project is. And the other thing that Circuit Court gives you is really broad-ranging discovery. A lot of times in arbitration it is restricted that way. So with that, Destinee Small is going to talk about prevailing party attorney's fees and cost provisions in your contracts.Destinee Small, Esq.:
Hi everybody. All right, in the essence of time, I'm going to wrap us up today so we can answer some questions and then get you all out of here. So as Alan said, the final piece of a repair contract involves attorney's fees. So associations want to ensure that their contracts include a provision allowing for the prevailing party's attorney's fees and costs. So practically this breaks down into one general idea, which is leverage. So for example, if a contractor files a claim against an association asking for unjustifiable, unreasonable damages, which happens less often, or if an association files claims against a contractor that isn't necessarily a high dollar or high damages amount, then that attorney's fee provision essentially evens the playing field, so to speak.
These provisions basically create that deterrence factor from nonsense contractor claims because if that contractor is responsible for your fees as well, it essentially ends up costing more to litigate the matter. In a similar way, these attorney's fees provisions provide leverage in negotiations that happen at the outset of the project as well. And the general idea is just to keep the contractor as interested as possible in your project, as Jon stated before, making your project a priority. Because they understand what bad behavior could cost them in litigation costs, attorney's fees, and court costs. So that's just a general summary of this essential provision, and we're going to go ahead and take any questions that we may have.Alan Tannenbaum, Esq.:
All right, I see a question from Greg. Is it good to have a request for proposal and have that as an addendum to the contract? I think what Greg is getting to is what are the contract documents? So there's generally, and I'm looking at the form industry contracts, they generally have this provision that lists all of the contracts, well all of the documents that are comprised what the contract is. So one of the big problems that we find is that they're contradictory. There could be supplemental conditions that differ from the general conditions. And there could be items in the base contract that differ from those two. And then the engineer comes up with a project manual that has also general conditions in them that may conflict with something in the plans and specifications or in the industry form general conditions. So a lot of our time in drafting is spent on reconciling it.
And then what you do is you have a supremacy clause, which is really important, because there's going to be built in conflicts between some of your contract documents. You need to have a supremacy clause that says in the case of the conflict, which one governs? And so I find this strange thing that I've seen over and over again, when you list a supremacy clause, and the last thing in the supremacy clause are change orders, requests for information and so forth as having the last in the supremacy. And I always talk to the engineers and say, "You need to reverse that because obviously a change order should overcome the base contract and the specifications because it's a change in the field during the construction and should have requirement." Somebody asked a question about liens, which is, can a subcontractor who doesn't file a notice to owner within the 45 days of beginning work on the project, can they lien your project? And something we need to clarify is it doesn't take anything to file a lien other than going down to the courthouse or the clerk's office and recording a lien against your property.
It's not a valid lien if in fact that subcontractor didn't provide you with the notice to owner. And you have means under the construction lien law to have that lien removed, but liens are easily filed, even the ones that aren't valid. So when we have said that in the circumstance of a subcontractor that you didn't know about showing up at the project and eventually saying, "Look, I'm entitled to be paid or I'm going to lien your property." You could certainly tell that subcontractor that we filed a notice of commencement, we did not get a timely notice to owner from you, and you have no lien rights.
That doesn't necessarily stop them from doing that. And what we generally say to the general contractor is we don't even want the possibility of a lien being filed against the property. So before we issue the final payment, you need to get us a lien release from that subcontractor or material supplier even though it didn't comply with the statute because we don't even want to mess with having to go through the process of having that lien removed. So when they show up, it has to be dealt with, even though they may not have a valid lien.Jon Lemole, Esq.:
Alan, that raises a good record keeping issue because I've come across this, you ask a client, "Well, did you get any notices to owner?" And they look at you like, "What?" If you get these notices to owner, have a process. Because if you have to go to court and demonstrate that you didn't get one, the absence of an entry in the association's business records is an exception to the hearsay rule.
So you want to have a process for when you get those that you're recording them, you're logging them in, you're putting them somewhere as business records on this project so that number one, you can prove the ones that you know, which ones you got. But also if you don't have a record of having one and that contractor says, that subcontractor says, "Oh no, we sent it." That failure to have that evidence is evidence, it's admissible. And so I can't stress enough that you need to keep accurate records relating to NTOs that you get on your projects.Alan Tannenbaum, Esq.:
All right, well we're hitting the end here. I don't think we're going to carry over because I don't think there's any additional questions that we didn't answer. But if somebody thinks of a question, certainly email us if we can answer the question, we will. Michelle has put up a poll, it would be great if you could respond to it before you leave. For all you managers, make sure Michelle has your manager information so that she can converse with the state and get you appropriate credits. Again, for your other board members or other managers, this presentation will be on our website a week till to 10 days with a written transcript that goes along with it. Some people find that to be very helpful. So you can refer your board members to our website within the next couple of weeks if you want to have them see this presentation, you can have the slides for whatever value they have. If you want some funny cartoons, that's the greatest value on the slides we use today. That's not anything very substantive there.
We thank everybody for participating today. It was good having you on board. Everybody enjoy the rest of your summer, and anything we can help you with, you'll let us know. Until next time, next month, we'll see everybody later. Thank you.