What building managers need to know about contracts - Focus on Management & Maintenance

Whether the building is putting in new windows, removing asbestos, pointing a facade, changing washing machines or renovating the lobby, good contracts are essential for ensuring that a project concludes successfully. Simply filling in the blanks on a form contract is not enough. Each project has unique elements that must be addressed in the contract.

Building managers should avoid becoming project managers and legal counsel. It is best to recommend the retention of legal counsel knowledgeable in this area, as well as outside consultants. This article discusses some of the subjects you should consider.

Carefully defining the scope of the work is critical on any project. All construction projects should have written specifications and drawings, if appropriate. This ensures that the owner is receiving the materials and labor he negotiated for and that he pays the agreed upon price. If there are ambiguities, a contractor may be able to claim extra payment in change orders. He will argue that the item was not included in the base contract. It also defines what the contractor is contractually obligated to do.

There should always be a clear statement of who has authority to give orders to the contractor, otherwise the contractor may do work that the actual owner never authorized. If the managing agent has authority to order extra work or changes, the contract should say so. Property managers should avoid signing construction contracts unless they make their capacity as agents clear.

Payment should generally be made in relation to the percentage of work completed. Fixed payments are appropriate on smaller projects. On larger projects there should be a project architect to visit the site and review the contractor's applications for payment. On smaller projects, the managing agent may do this along with the owner.

It is common to retain a portion of each of the contractor's payments for the end of the project, but this is something a manager would negotiate into a contract, not the contractor.

Contracts usually require the contractor to provide various types of insurance, but it is up to the manager to review the policies to see that the insurance is actually in force and in the proper amounts before the work begins. It is not unusual to find that the contractor did not have insurance in place before the work began. Payment and performance bonds must be specifically requested by the manager.

The manager should always be advised of any sub-contractors working on the project. This will help avoid mechanic's liens and create tighter control over the project. It also minimizes the possibility of complex lawsuits if someone is injured. In other words, you should know who is working on your project. The contract may restrict the use of sub-contractors or even say that they are not allowed.

Disputes are quite common as a result of renovation work. I often recommend arbitration for construction projects, especially those involving smaller sums of money. It can be a fast, cost-effective method of resolving disagreements. However, there must be an arbitration clause in the contract in order to invoke it.

The process of negotiating a contract can pinpoint and resolve many potential areas where there may be a dispute. These contracts usually involve a lot of money and should always be reviewed by legal counsel knowledgeable in construction law before signing.

C. Jaye Berger of the Law Offices of C. Jaye Berger is an attorney in New York City who specializes in building construction, real estate, environmental law, bankruptcy and litigation. The firm represents a number of owners, contractors, architects, and interior designers. Ms. Berger has written a book about hazardous substances in buildings, which was published by John Wiley & Sons in 1992 and another book about interior design law published in 1994.

COPYRIGHT 1995 Hagedorn Publication
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