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Construction Contract Clauses Part 2- Flow-Through Provisions

Construction Contract Clauses Part 2- Flow-Through Provisions

by | 15 November 2016 | , , , ,

Construction contracts are intended to define and memorialize the parties’ expectations regarding how they will perform during the course of a construction project. This series will examine clauses that are routinely found in construction contracts and provide a brief explanation of what they are and why they are important.

Flow-through provisions are common in construction contract documents. In essence, when a general contractor enters into a construction contract with an owner, the general contractor obligates itself to perform certain functions and services for the owner. The general contractor then subcontracts some of those functions to sub-contractors. A flow-through provision is language in a contract that makes one party obligated to fulfill the obligations of another party. In essence, by way of example, if properly drafted, it could prevent a subcontractor from arguing that the obligations it owed a general contractor were different from the obligations the general contractor owed the owner. However, the language of these provisions needs to be carefully read and construed to determine precisely the specific obligations of the parties.

Construction Contract Clauses Part 1: Integration Clause

Construction Contract Clauses Part 1: Integration Clause

by | 8 November 2016 | , , , ,

Construction contracts are intended to define and memorialize the parties’ expectations regarding how they will perform during the course of a construction project. This series will examine clauses that are routinely found in construction contracts and provide a brief explanation of what they are and why they are important.

The first clause to be considered is the integration clause. An integration clause is language in a contract that prohibits telling a court or an arbitration panel that prior oral arguments, or even prior written agreements, are part of the contract documents. For example, suppose an owner and a general contractor enter into an agreement. The agreement has ten elements, and the parties were discussing orally the eleventh element. If this oral eleventh element is not reduced to writing and included in the written document, chances are that that oral provision will not be enforced due to the fact that the contract is “fully integrated” because it contains an integration clause. A “fully integrated” contract means that all of the prior dealings between the parties have culminated into the written contract and a court or arbitration panel will not look beyond the written contract to determine the obligations of the parties. The following is a common example of an integration clause.

New Overtime Rule – Legal Implications for Employers

by | 11 October 2016 | ,

In May 2016, the Department of Labor (DOL) released its long-anticipated new overtime rule for Executive, Administrative, and Professional employees. These employees are generally your managers and white-collar professionals. If these employees perform certain “duties” (as defined by DOL regulations) and are paid a salary, then you do not need to pay them overtime. They are referred to as “salaried exempt” (ie, exempt from overtime laws).

As of December 1 of this year, these Executive/Administrative/Professional employees will need to be making at least $47,476 annually (or $913 per week) in order to qualify as “exempt” from overtime. Right now, the required salary threshold is only $23,660 (or $455 per week). Under the new rule, up to 10 percent of the salary can include nondiscretionary bonuses, incentive payments, and commissions.

The Good, The Bad, and The Ugly – The Michigan Builders’ Trust Fund Act

The Good, The Bad, and The Ugly – The Michigan Builders’ Trust Fund Act

by | 3 October 2016 | ,

Contractors performing work on State and Federal construction projects are likely familiar with prompt payment acts. These laws generally require contractors and subcontractors to pay their downstream subcontractors shortly after receiving payment for such work. As the economy has improved, many contractors are finding opportunities in the private sector. The work may be similar, but the rules that apply are vastly different. These differences present pitfalls for the unwary contractor that may result in criminal and civil penalties. One such hazard exists under the Michigan Builders’ Trust Fund Act, which exposes contracting entities and its officers, directors, and employees to individual liability. The consequences for violating the Michigan Builders’ Trust Fund Act could result in substantial financial penalties and prison.i

The purpose of the Michigan Builders’ Trust Fund Act is to prevent fraud in the construction industry, and to ensure that the subcontractors, suppliers, and materialmen that did the work received the payments their work generated.ii

Supplier Who Does Everything Right Wins Big on Payment Bond Claim

Supplier Who Does Everything Right Wins Big on Payment Bond Claim

by | 13 May 2016 | , ,

On May 3, 2016, in the case of Wyandotte Electric Supply Company v Electrical Technology Systems, Inc., the Michigan Supreme Court issued an important opinion regarding “notice” requirements under the Michigan Public Works Act (PWA). The case involved renovation of the Detroit Public Library. KEO & Associates was the general contractor and Westfield Insurance Company supplied KEO with a $1.3 million payment bond as required under PWA. KEO subcontracted with Electrical Technology Systems (ETS) who in turn subcontracted with Wyandotte Electrical Supply for material and supplies.

ETS and Wyandotte had agreed to an open account arrangement, pursuant to which ETS would be liable for attorney fees and time-price differential charges of 1.5% on past due amounts. A time-price differential charge is “the difference between the current cash price of an item and the cost of purchasing the item with credit. A payment made with cash is immediate; a payment made with credit is not. Thus, when a payment is made with credit, the seller [such as Wyandotte] is burdened by a cash-flow interruption. A time-price differential compensates for the increased cost to a seller for credit. It reflects the difference between the credit price and the cash price.”