THE PITFALLS TO FLORIDA COMMUNITY ASSOCIATIONS OF UTILIZING NATIONAL INDUSTRY FORM CONTRACTS FOR REPAIR PROJECTS

The American Institute of Architects and three national engineering associations publish contract forms (AIA owner/general contractor agreements) and (EJCDC owner/general contractor agreements) that are intended for use nationally on major new construction projects.It's an easy default for Florida architects, engineers and contractors to recommend the use of these form contracts, or even incorporate such form contracts in their project manuals.Unfortunately, unless appropriately revised, they are a poor fit for a Florida repair project and do not adequately protect a community association's interests.

WHO IS BEST PROTECTED IN THESE FORM AGREEMENTS?

It was a brilliant strategy for architects and engineers to develop their own owner/general contractor contract forms.This is because they took the opportunity to maximize the design professional's authority in the construction process while minimizing the design professional's responsibility.A knowledgeable construction lawyer looking out for the Association's interests can go page by page through these form agreements to remove or revise the clauses which tend to minimize design professional responsibility.

Perhaps the most glaring weakness in these form agreements is that they make the design professional the initial arbiter of all disputes between owner and contractor.This may seem like an appropriate role for the design professional, but what if the dispute arises primarily or even partially from a glitch in the design?This represents a built-in conflict of interest.

INSURANCE REQUIREMENTS

The form agreement recommended on your project may provide for a waiver of subrogation by all parties.Subrogation in this context is where your insurance carrier pays a claim then seeks reimbursement for what they paid from another party's insurance carrier.But have the insurance companies involved signed off on this?If not, the Association's property insurance company, if it pays a claim, may ask for its money back from the Association when it subrogates against the general contractor's insurance company and is informed that the Association waived subrogation on its behalf in the contract.

The form agreements make the Association the named insured under the contractor's liability policy.This doesn't happen automatically.The contractor actually has to go to its insurer and secure a special endorsement for this.The form agreements leave out this detail.Make sure that the general contract is modified to require the endorsement (and then make sure it is provided per the contract).

The form agreements require that the Association obtain Builder's Risk Insurance.This covers losses during the work.This insurance may already be covered under the Association's existing property insurance coverage.If not, the specifications incorporated in the form contracts for the insurance may not match what is available in the market.The requirement for Builder's Risk insurance in the form contract may have to be modified or deleted.

LIQUIDATED DAMAGES FOR DELAY

There are none in these form agreements unless daily penalties for late completion are inserted.Additional language needs to be added to assure that the liquidated damages clause is enforceable in Florida.

INTEREST ON THE UNPAID BALANCE

There are various reasons why an Association may withhold payment.If it turns out that money was not justifiably withheld, you want the contract to provide for a reasonable interest rate to be owed on the unpaid balance.Under the form contracts, it's generally going to default to 18% in Florida unless a lower % is inserted in the form agreement.

FLORIDA DISCLOSURES

There are lien law and claim notice procedure disclosures which need to be incorporated in Florida repair contracts.The form industry agreements, being aimed towards a national audience, don't contain these.

VENUE AND DISPUTE RESOLUTION

The form industry contracts either mandate the arbitration of disputes or offer the option of either arbitration or circuit court.But under the AIA-form agreement, even if you choose circuit court, the agreement still requires that you mediate before filing suit under the auspices of the American Arbitration Association.We generally strike the AAA mediation requirement if circuit court is chosen as the venue.

It is very important that the venue for disputes with the design professional be the same venue as the disputes with the contractor.We always recommend venue for disputes in both the Association/design professional agreement and the Association/contractor agreement be designated as the state circuit court where the property is located.State court is preferable because it allows the Association the choice of a jury trial, there are broad discovery rights, all parties who may be liable are brought together in one action, there are full rights of appeal, and there are means through the proposal for settlement process to place pressure on the opposition to settle.

The form industry contracts do not provide for the award of prevailing party attorney's fees and costs.This is an essential protection for an Association and needs to be added to the form industry contracts.

CONCLUSION

Form industry contracts contain many great protections for Florida community associations on major repair jobs.However, they should not be adopted lock, stock and barrel without careful scrutiny and revision/supplementation by a Florida construction lawyer. 

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