In the fast-paced and complex world of construction, projects often need to move forward before all the terms of a formal contract are finalized. To bridge this gap, stakeholders commonly use Letters of Intent (LOIs)  and Memorandums of Understanding (MOUs) . While these documents are not full contracts, they play a critical role in laying the groundwork for formal agreements. However, their use comes with risks if not carefully drafted and understood. LOI vs. MOU: What’s the Difference ? While the terms "Letter of Intent" and "Memorandum of Understanding" are often used interchangeably, they have distinct common uses: Letter of Intent (LOI): A Letter of Intent is a preliminary agreement that records the parties’ intention to enter into a formal contract while setting out the essential commercial terms to guide the parties during an interim period. In the construction industry, an LOI commonly authorizes a contractor or subcontractor to proceed with limited or preparatory work before a formal contract is signed, such as authorizing some limited work that needs to be performed early in the project or ordering long-lead time materials and equipment. Memorandum of Understanding (MOU): By contrast, an MOU is usually broader in scope and generally used to record mutual intentions or cooperative frameworks. While LOIs are most often used between an owner and a contractor or a contractor and a subcontractor, MOUs frequently appear in joint venture arrangements, development partnerships, or collaborations involving public authorities and private developers. An LOI therefore carries greater potential to create enforceable rights and obligations, while an MOU generally serves as a statement of good faith. When and Why Are LOIs and MOUs Used ? Construction projects often require early commitments to meet timelines and full construction contracts are lengthy and require negotiation. LOIs/MOUs allow limited progress while those negotiations continue, saving time and keeping projects on schedule. LOIs are especially helpful in situations such as: Fast-tracked projects where delays are costly Securing pricing, availability, or commitment from subcontractors Allowing site preparation or procurement to begin before contract finalization Clarifying intent during preconstruction or negotiation phases Are LOIs or MOUs Legally Binding ? It depends.  The enforceability of an LOI or MOU depends on the parties’ intent and the language used. To make such documents binding: Express Intention:  State clearly whether the document is legally binding. For example, “This Letter of Intent is intended to create legally binding obligations regarding terms and payment for work performed prior to execution of the formal contract. Essential Terms: The more complete the terms (e.g., price, payment timing, scope, schedule), the more likely a court will enforce it. Authorizing Limited Work: If a party is expected to begin work or incur costs, the document should clearly state that and define the parameters. Reference the Formal Contract:  State that all subsequent work will be governed by the final contract once executed. Essential Terms to Include (While Keeping It Short) These provisions help ensure both parties understand their obligations during the interim period. Even a brief LOI or MOU should include: Parties Involved  – Full legal names and roles (e.g., general contractor, subcontractor). Project Description  – Name, location, and Owner information. Scope of Work  – Description of the limited work authorized, such as a limited scope of work and placing orders for long-lead time materials and equipment. Payment Terms  – The pricing or payment structure during the LOI/MOU time frame and in the event a formal contract is not executed. This should address payment for the materials and equipment ordered under the LOI/MOU if no formal contract is ever executed. Schedule/Timeframe  – Related to the limited scope of work, if applicable. Insurance Requirements – This allows both parties to understand the insurance requirements for the project to ensure they can be complied with prior to work commencing. Binding Clauses  – Make it binding pending finalizing the formal contract. Intent to Contract  – State that the parties intend to enter a formal agreement with mutually agreeable terms, but that the LOI/MOU is biding until that happens or until it is terminated. Timeframe of LOI/MOU and Termination Rights and Process  – Provides a deadline for the formal contract to be finalized and the ability to withdraw from the LOI/MOU if no formal agreement is reached. Dispute Resolution – This should include a short process for resolving disputes during time period of the LOU/MOU and whether attorney’s fees will be available to the prevailing party. Signatures and Authority – Used to ensure the document is executed by parties with appropriate authority to bind their organizations. Common Pitfalls to Avoid Unclear Binding Intent:  Failure to specify whether the document is binding often leads to litigation. Scope Creep:  Allowing work to proceed beyond the stated scope can result in significant disputes and claims. Missing Key Terms:  Neglecting to define payment or termination rights can expose both sides to financial risk and inequitable outcome. Overreliance on LOIs:  Prolonged use without finalizing the main contract undermines commercial certainty. Misuse as a Substitute for a Contract: These documents are not meant to replace formal contracts. Relying on them long-term is risky. Conclusion LOIs and MOUs are useful tools in the construction industry when used appropriately and with clear understanding. They help initiate work, secure commitments, and clarify intent before a formal agreement is signed. However, their legal effect depends heavily on their language and structure. To reduce risk, parties should always: Use precise, unambiguous language Limit the scope and duration of the document Ensure all parties understand their obligations To keep out of trouble and ensure that the LOI/MOU covers your risks, it’s always a good idea to seek legal advice before relying on these documents to begin work.

Adopting a work ethic of “excellence” is a powerful and lasting tool.  Don’t confuse this with perfectionism. It is far different. Ironically, the “perfection” mindset can be “demoralizing and lead to burnout” according to Psychology Today. Since being “perfect” is not generally achievable, the “perfection” mindset actually leads to procrastination primarily due to the fear of failing. It also increases feelings of self-disappointment and saps us of drive and motivation. As a stark contrast, approaching work with a mind toward excellence energizes your determination and significantly increases job enjoyment. No matter how mundane the task is or how much you may dislike your current job, knowing you did an excellent job has a lasting, positive effect. Plus, always embracing the “excellence” approach puts you on a lifelong trajectory of constant improvement and pride in your work product. Comedian, Kevin Hart, in his New York Times bestseller, “I Can’t Make This Up”, gives a perfect example of the powerful impact an excellence mindset can have on your life. During his high school swim team graduation ceremony, Hart watched his teammates who had worked harder than him receive many awards. They all had plans for their next step in life. Hart did not. That night, he was pretty down on himself. After attending a community college for a few weeks, he was failing miserably and knew it was not for him. His mom required him to do something , so he walked into a sporting goods store and, drawing on his great personality, landed a job selling shoes. He liked the people he worked with and found he was a natural at talking to customers. It eventually clicked in his brain that if he actually learned something about the shoes he was selling, he could “really shine in this space.” At that point, he decided to be excellent at what he did, even if it was just selling shoes. Soon he was hooked on the challenge of seeing how many sales he could do – plus he was enjoying the extra income for the commissions he received from being excellent at shoe sales.  Per Hart: “As the weeks continued to pass, the enjoyment I experienced from letting my personality shine and convincing people to buy sneakers intensified .” Hart often had his workmates in stitches with the funny stories he told. That experience convinced him that he wanted to be a stand-up comic. So, while keeping his day job, he also worked tirelessly on his craft with the same commitment to excellence that he had developed while selling shoes. And we all know how that commitment turned out for him! So, stop dreading your to-do list. Stop dreading the workday. Stop dreading your job. Just stop dreading.  Instead, light yourself on fire and experience the “high” you feel at the end of the day when you know that you applied excellence to everything thing you did!

According to the 15 th  Annual Construction Disputes Report (the “Report”) published by Arcadis , “speed, agility, and adapting to change” are the secrets to managing the reality that disputes are constant in this industry. But what does that mean? “Speed” can be achieved by using a proactive approach to “to identify potential issues early and address them before they escalate into full-blown conflicts.” The first step here is to thoroughly study the plans, specifications, preliminary project schedule, and site conditions to increase your awareness of where potential problems may arise. This should be done pre-bid to the extent possible, and addressed in pre-bid RFIs. “Agility” is conduct designed to “prevent disputes from arising in the first place”, such as using “open communication and a willingness to quickly resolve unforeseen circumstances.”  Being a good team player means you don’t throw your hand up when there’s a problem, you offer solutions. “Adapting” is a skill that involves embracing “innovation to mitigate risks and address disputes effectively”, which can include the use of AI to “forecast potential project disruptions, enabling stakeholders to take preemptive actions.”   So, what types of disputes are most common so that you can be on the lookout for them? The Report shows that tied for first place are “errors and/or omissions in the contract documents” and “Owner/Contractor/Subcontractor failing to understand and/or comply with its contractual obligations.” While contractors and subcontractors cannot generally ensure that the plans and specs are accurate for the intended results of the project, nor should they be expected to (except for design-build project deliveries), a lot can be done to avoid misunderstanding contractual obligations. Specifically, the Report points to “misaligned expectations, unclear scope requirements, and lapses in adherence to agreed-upon timelines and standards are frequent triggers for conflict.” This is caused by “a lack of contract knowledge among both owners and contractors” which “often amplifies these issues, creating a cycle of misinterpretation and dispute.” What’s the best line of defense to avoid this #1 cause of expensive construction disputes? 1.      Make Sure Your Scope of Work is Clear.  This starts at the time of bid. If you’re a prime contractor on a public or federal project, leave yourself ample time to review the plans and specs carefully and use the pre-bid RFI process to get clarification when needed. A subcontractor’s proposal should clearly state the plan sheets and spec sections they are bidding. A sub’s proposal should also include clarifications and exclusions so that the prime contractor is on notice of exactly what scope you are offering for the price you are offering. Then make absolutely sure that your subcontract includes the scope you presented in your proposal, including the references to the plans and specs for your work and your clarifications and exclusions.   2.      Review the Project Start and End Dates . This is critical in today’s market. Before you submit your proposal, get confirmation that long lead time items can be acquired in time to meet that schedule. Sub’s should clearly state the lead times of materials and equipment that will be needed for their scope.   3.      Learn the Changes and Dispute Resolution Process . You can never study these procedures too much! This is the absolute key to resolving questions and disputes quickly: from the RFI process, to the notice requirements, to the claims procedure. Exercising your rights ensures that the change order or other dispute moves forward efficiently without having to wait until the end of the project!   If you or your team struggle with any of these must-do’s for managing disputes, or maybe you need to brush-up on these skills, OnSite Pro Development can help! We offer targeted and exciting workshops to give you and your team the confidence needed to boldly navigate the more challenging aspects of contracting and slay that DISPUTE DRAGON! Check out our most popular workshop at: https://www.onsite-pro-development.com/popular-workshops .

If you do both federal and state public works projects, you need to know the key distinctions for getting paid on under payment bonds for those projects! There are both federal and state laws that require the prime contractor to furnish a payment bond for the protection of subcontractors and material suppliers on federal and California public works construction projects.    Payment bonds function to provide security to ensure that subcontractors and material suppliers get paid for their labor and materials provided on federal or state projects as an alternative to securing their rights to payment by way of a mechanics’ liens (which are allowed on private property projects).  A mechanic’s lien results in a subcontractor or supplier having an ownership interest in the project and property and it allows that sub or supplier to foreclose on that property, similar to what a lender can do when the property owner defaults on a mortgage. So, mechanics’ liens are not allowed on federal or state projects because private companies or individuals can’t have an ownership interest in land or a building that is owned by the federal government or any state or local government (including school districts and other government agencies). Even though both state and federal laws require bonding for publicly owned projects, the process and timing related to bond claims differ greatly! First, on California public works projects, a 20-day preliminary notice is required for any subcontractor or supplier who does not have a direct contract (“contractual privity”) with the prime contractor. It is recommended that a 20-day preliminary notice is served for all projects as a routine matter so that you don’t have to worry about whether or not you have contractual privity. While a 20-day preliminary notice is not required for federal projects, a claimant who does not have contractual privity with the prime contractor must serve a claim notice on the prime contractor no later than 90 days after the claimant last provided material or labor to the project. This is the first instance of the difference in timing and process to secure payment rights against the payment bond for California public works projects vs. federal projects. Making a claim against a prime contractor’s payment bond involves beating tight deadlines.  But, the triggers for those deadlines is where the confusion comes in.  For public works projects in California, the deadlines relate to when the entire project is completed (or the cessation of labor if the project is not ever completed). Thus, the trigger date that sets the deadline to file suit against the payment bond on a California public works project does not  relate to the completion date of the claimant’s work.  But, for claims against a payment bond for a federal project (known as a Miller Act claim), the deadline is triggered by the last date on which the claimant performed its labor or last supplied the material to the project.  For California public works projects, the deadline to file a lawsuit against a payment bond is six (6) months after the period in which to file a stop payment notice, which is 30 days if a timely notice of completion (or cessation) is recorded, or 90 days after project completion (or cessation) if a notice of completion (or cessation) is not timely recorded. For federal projects, the deadline to file a lawsuit against a payment bond has nothing to do with when the project is completed. Instead, it is one (1) year after the claimant last provided its labor or materials for the project. Another important thing to remember is that other states’ public works projects have different deadlines than California, with some states following the federal requirements. So, if you want to play in both state and federal project arenas, you’d better keep up on the different processes and deadlines! It’s best not to allow yourself to get strung along with a promise of payment at some unknown future date. A better idea is to act quickly to secure your payment bond rights if your work is completed or you’ve finished supplying materials to the project, even if the project itself is not yet completed.

Here’s the scenario – your work is on schedule, your work complies with the contract documents, yet you haven’t been paid for your last 3 payment applications or two approved change orders. What’s going on here?  Every time you follow up with the GC, you’re told that the owner is not paying. How do you know if that’s true? You could ask other subcontractors to see if they know something you don’t. You could contact the higher ups at the GC to try and find out. But, if you’re working on a California public works project, there is a surefire (and easy) way to find out what the GC has submitted to the owner for payment, whether the GC had been paid, and even the status of your change orders. Hmmm …  did the GC even submit them to the owner yet? For public works projects, you can directly submit a request for documents under the California Public Records Act (CPRA). The good news is that the request is easy to submit, and you don’t need a lawyer to help you. Many public entities provide on-line instructions giving you the steps to follow and they often include an email address to use for sending the request. It’s easy to Google the name of the public entity along with the phrase “Public Records Request”, and you are usually provided with the webpage for that entity that explains how to submit a request. Some examples I found in less than 30 seconds are as follows: Caltrans: https://catc.ca.gov/pra-requests Los Angeles Unified School District: https://www.lausd.org/Page/3137 City of San Diego: https://www.sandiego.gov/communications/public-records-requests LADWP: https://www.ladwp.com/cpra Now, let’s talk about what you may want to ask for in your CPRA request. First, make your request as clear as possible  by stating the correct project name and direct/prime contractor. Also, in my experience, the fewer documents you ask for, the faster you tend to get them. So, be sure to include only the date ranges that are important to the information you are seeking. To be very clear, you should review the prime contract’s payment and changes procedures so that you can use the same nomenclature  in your request as used in the prime contract. A typical request may look like the following: Request for Public Records Project/Site: ABC Elementary School Modernization; 1234 Dawson, Ave., Los Angeles, CA Direct Contractor:    LatePay Construction Company Pursuant to the California Public Records Act, Government Code § 7920 et seq., we are requesting the following documents: “Project” as used herein refers  to the ABC Elementary School Modernization, owned by Los Angels Unified School District  (“District”), with LatePay Construction Company (“LatePay Construction”) as the Direct Contractor. DOCUMENTS REQUESTED 1.       LatePay Construction’s schedule of values approved by the District for the Project . [NOTE: Asking for this will allow you to analyze where your work is in the direct contractor’s SOV so that you can see when your work is billed in the payment applications.] 2.       All payment applications submitted by LatePay Construction to the District from February 1, 2025, through June 30, 2025, plus any revisions or modifications requested or made by the District thereto. [NOTE: this date range should match the months you have not been paid, or the months where the direct contractor reduced the amount you asked for in your payment application to the direct contractor.] 3.        Copies of all vouchers issued, or evidence of payments made, by the District to LatePay Construction for payment applications submitted by LatePay Construction to the District from February 1, 2025, through June 30, 2025. [NOTE: Public Entities use different methods of making payments.] 4.       All claims and requests for change orders submitted by LatePay Construction from January 1, 2025, through June 30, 2025   [NOTE: this date range should cover the dates of any claims or change order requests you have submitted to the direct contractor for which the direct contractor has not issued a formal change order or payment to you]. 5.       A copy of LatePay Construction’s payment and performance bond for the Project. [NOTE: ask for this is case payments continue to be held up and you need to make a bond claim in the future.]   We will accept documents via email.   If we can provide any clarification that will help expedite your attention to this request, or if you require anything further, please feel free to call (619) 555-5555 and speak with myself or Joe Smith or email: AStark@XYZElectric.com.            Thank you, Annie Stark Project Manager XYZ Electric   The public entity must let you know within 10 days whether it has determined if your request seeks “ disclosable public records” and let you know the reasons for its determination.  It can extend the date for determination if there are unusual circumstances by no more than 14 days. If the public entity determines that what you have asked for is disclosable, then they must provide the estimated date and time when the records will be made available. They cannot charge you for staff time to search for the records you requested, but they can charge a fee to copy or reproduce electronic copies. This is usually a per-page fee, and they have to disclose this to you before they provide the documents. So, if you’re not being paid, don’t just wait around, don’t guess why, and if the answers just don’t add up, it is time to take matters into your own hands and get the facts. After all, it is your money at stake, and you are entitled to know what the holdup is!

In this industry you frequently find yourself stuck in a very frustrating game of waiting until the end of the project to resolve extra work claims. Do you realize this results in you financing the extra work until you get paid for that work? As a Subcontractor, you must promptly pay for the labor and materials used to perform the extra work while you, the General Contractor, and even sometimes the project Owner, haggle over the value of that work or whether the work was already included in your original scope. Payment for the extra work typically lags way behind the performance of the work for months or often years on larger, longer projects. When getting stuck in this type of situation, you end up regretting the day you signed a subcontract that requires you to perform extra work anytime the General Contractor (“GC”) directs you to.  This includes situations when there is no agreement as to the time or cost associated with the work. Here is a representative subcontract provision: In the event that Subcontractor and Contractor cannot agree to the price or time impacts associated with any claimed extra or changed work, or there is a disagreement as to the scope of such work, then Subcontractor shall promptly perform such upon written direction of the Contractor pending resolution of the disagreement . The issue is compounded when there are numerous extra or changed work directives and the Subcontractor has no choice but to perform the work and keep paying for the related labor and materials. Frequently, the Sub follows up with the GC asking about the status of getting a formal change order and, more critical, getting paid for the work. What seems to be a simple request gets ignored and about 90% of the time, your GC comes back with the response that “the Owner is holding it up”.  Infuriating, but true.    And, many times we see that the reason the Owner is “holding it up” is because (1) the GC has not yet requested a change order because they are behind in their paper work, (2) the Owner doesn’t want to pay because it can avoid immediately incurring the cost for that work, and/or (3) the GC or the Owner wants to “negotiate” all extra work claims together at the end of the project in order to force a compromise to reduce the amount of the claims. Are you stuck waiting this indefinite amount of time to get an answer or payment? No! Not if you are willing to initiate the dispute resolution procedure for the extra work   before the project is completed . While many subcontracts require the Sub to follow the prime contract procedure if the Owner may be the reason for the extra work, the Sub still can force the issue by following whatever procedures are required. For example, a subcontract may state that the Sub will only get paid for extra work initiated by the Owner to the extent the GC gets paid from the Owner. Here is a common provision: This Subcontract incorporates the dispute resolution procedure in the Prime Contract for disputes involving the Owner. Subject to compliance by Subcontractor to the changes and claims procedures in the Prime Contract, Contractor's only obligation is to present any timely-filed claims by Subcontractor to Owner under such procedure and Contractor shall only be obligated to pay Subcontractor the proportionate part of any sums paid by the Owner applicable the extra work performed by Subcontractor and for which Subcontractor is entitle d. If the Sub followed the notice provisions when the claim of the extra work first came up, there is no reason why the Sub needs to wait before moving forward against the GC with whatever procedure the GC would have to follow against the Owner. For example, meet and confer, demand mediation, or file a demand in arbitration – do whatever it is that the GC would have to do against the Owner. What about the wording that says the Sub only gets paid for the extra work if the GC gets paid by the Owner? That looks suspiciously like a “paid-if-paid” clause, and there’s a good chance it would not be enforceable under California law If the extra work is an issue only between the Sub and the GC, then the Sub can simply follow the dispute resolution procedure in the Subcontract. If there is no procedure, then file a lawsuit seeking payment just for the extra work. Most of the time, there is no good reason whatsoever to wait. There is nothing stopping the Sub from getting a resolution on the extra work even if it is still on site performing its original scope along with extra work. Prime contracts and subcontracts that contain dispute resolution procedures requiring meetings between management and/or mediation offer the perfect opportunity for Subs to get movement on resolution and payment for the extra work. Whether you choose to enforce the dispute resolution procedure earlier than later depends on how much is owed and how long it has been owed. But the reality we’ve seen is that when you start to formally enforce the dispute resolution procedure, the issue gets resolved pretty quickly. Remember, once the extra work is done and the project is over, the GC knows you have less bargaining power and may try to pull the “…let’s negotiate the payment…” tactic. Starting the process sooner than later can only be to your benefit.   So, what are you waiting for?

It is a rare project that has no conflicts, problems, disputes, change orders, or claims.   An important goal in managing your scope of the project is to avoid formal claims by you and by your subs and suppliers.  Even where a formal claim cannot be avoided, every party has the same goals in resolving it – finishing the project and maintaining profits.   Your initial approach to a problem often dictates not only how quickly and painlessly it is resolved, but whether the parties walk away looking forward to doing business together in the future or hoping to never lay eyes on each other again.    I learned an important lesson early in my engineering career from my first manager.  I was told that I was welcome to come to him with problems, but I had better come with my recommended solutions as well.  This sage advice served me well in managing my managers, but I realized its usefulness when I’d run into problems with projects I worked on as well.    It doesn’t matter whether the problem relates to unclear or conflicting plans, or you’re experiencing delays, by offering suggestions as to how the issue could be resolved is a good way to create a collaborative atmosphere and expedite the solution.  This approach translates well when seeking direction through a Request for Information (“RFI”). For example, instead of just pointing out a conflict in the plans, or that the plans are missing some necessary items to make the project work, provide a suggestion for correcting the issue in the RFI.  But remember, if your suggested plan would result in you incurring extra costs or time, be sure to include the costs or the need for more time in the RFI.       Adopting a collaborative style does not, and should not, mean that you let people bulldoze over you, or you grow sloppy in following the contract procedures.  Knowing your rights and duties under your contract is the foundation of the collaborative style. It may not seem like you are being collaborative when preserving your rights, but being in the collaborative mindset can help keep tempers in check when dealing with controversial issues among the project teams.    A simple, but often overlooked technique is to actually talk  to the person you are dealing with and explain that you are going to have to document a situation prior to sending out a strongly worded email or demand.  And, responding to demands placed on you in a well-reasoned, non-emotional manner generally results in others treating you the same way.  Again, picking up the phone and discussing it before you document your response in writing goes a long way.   In many situations, your ability to identify potential troublemakers early on, goes far in handling issues collaboratively as they come up.   There are a number of early warning signs that may signal future trouble if not monitored closely.  Early warnings signs of potential trouble based on conduct coming from an owner, architect, owner’s construction manager or even the prime contractor can include: Not providing a project schedule at the start of the project; Rejection of submittals for minor non-conformances; Unreasonable delays in responding to RFI’s; RFI responses that are vague or merely direct you to consult with the plans when the plans do not contain clear direction; Failure to timely process change orders; Issuances of 24 or 48-hour notices for minor field problems; Issuances of 24 or 48 hours notices to cure or be terminated that do not follow the contract procedures; Complaints that you are “papering” them to death when you document issues to preserve your rights; Refusing to put “directives” in writing; Getting behind on submitting/processing payment applications or failure include approved change orders in the payment request; Wanting to “table” all disputes until the end of the project – especially when resolution would result in money coming your way.   When these issues start to happen, they can have a snowball effect and turn into major issues that seriously hamper your ability to perform and your ability to get paid.  You need to be super vigilant to not let the project, or accusations, get out of control.   But it’s not always from the top down, there are several early warning signs of trouble that may come from the direction of a subcontractor as well.  The signs can include:   The early submission of excessive documentation for delays and “problems” being blamed on others; Early and excessive RFI’s where the answers can easily be found in the plans; Delays in administrative tasks such as daily reports, submittals, and payment applications; Poor documentation for claims of delay or changes; Failure to follow procedures in the subcontract, which could mean they did not read it, or worse, they are overwhelmed with the process.   It is important that you follow your contract procedures even if others do not, and respond in writing to any allegations about your conduct or complaints about your work.  If someone seems to take offense that you are documenting potential or actual problems or delays, remind them in your writings what the contract requires and that you are following contract procedures.      Finally, a collaborative approach to resolving project issues does not mean you should strive to make everyone your friend.  What it does mean is that you should strive to approach every situation calmly and professionally. The collaborative approach helps keep problems from escalating to a point where egos and hurt feelings overshadow reasonableness in finding a mutual resolution. Working with a “team” mentality also reduces your own stress as you work through the problem toward a resolution that doesn’t break the bank and that everyone can live with.  Never forget that everyone’s  goal is to complete the project on time and profitably!

We received a lot of positive feedback on our last article on three terms all savvy subs should include in their Proposals, so we’re back to share a few more!    Proposals are the first chance a Subcontractor gets to address anticipated bad Subcontract terms. If you have terms and conditions included with your Proposal, then you can easily explain that your pricing expected these terms to be included in the Subcontract.    Please keep in mind that if you sign a Subcontract that does not refer to and include your Proposal then it’s as if your Proposal didn’t exist.    BEWARE: If you can get your proposal referenced and attached to the Subcontract, many Subcontracts state that if your Proposal is attached, then it is for the scope of work only and that any terms included in your Proposal are of no effect.    So, what other types of terms should you include in your Proposal? As we said in our previous article, there are lots  of them but, for now, let’s look at three more important ones that you should seriously consider when creating the terms for your Proposals:    1.        Include Force Majeure terms to clearly state that you will not be liable for impacts to increases in your cost and time by events that are not within your control.  2.        Address project schedules so you don’t get stuck with a schedule that you can’t meet.  3.        Limit the extent of your obligation to review plans and specifications and do site investigations  to avoid taking on the risk of bad or inconsistent plans and unknown site conditions.     1.    Include Force Majeure Terms     Force Majeure provisions are very important these days, especially with what we all experienced with supply chain issues during the 2020 pandemic and concerns about tariffs.  While many subcontracts have provisions that allow some relief to Subcontractor due to force majeure events, it usually is in the form of delays and not increases in the cost to acquire the materials.    Many force majeure clauses also include language that the event must be “unexpected” or “unforeseen” in order to qualify under force majeure.  But, with the wild ride this industry has experienced over the last few years, one could argue that there are very few things that are “unforeseen” or “unexpected.”    It’s best to include with your Proposal terms what you’d like to see for a force majeure provision. One example is as follows:    Subcontractor shall not be liable for any failure or delay in performing its Work due to any causes to the extent beyond Subcontractor’s reasonable control (“Force Majeure Event”), including, but not limited to, acts of God, accidents, riots, war, terrorist acts, epidemics or pandemics or reactions and rules in response thereto, quarantines, civil commotion, breakdown or interruption of communication, utility, or internet services, natural catastrophes, governmental acts or omissions, changes in laws or regulations, tariffs, changes in taxes, strikes, fire, explosion, supply chain interruptions, or lack of reasonable availability of materials or labor. Subcontractor shall be equitably compensated for increases in its cost to acquire materials to the extent caused by a Force Majeure Event.     2.      Address the Project Schedule.     A project schedule is almost always referenced in the Subcontract and included as a Contract Document. But, many times you may not have seen the base-line schedule because it is not yet finalized when you submit your Proposal or are asked to sign your Subcontract. What do you do?  You need to confirm it is accurate for your work when the Subcontract is signed, or address concerns before the Subcontract is signed.  Knowing this may be difficult , but it’s good practice to address the project schedule in your Proposal.   You also want to be clear if your work includes equipment with long lead time items. One way to address this in your Proposal is to add a list of equipment that has long lead times and include the lead time after submittals are approved the equipment can be released for manufacturing.     Consider including a provision in your Proposal terms like the following:    Subcontractor will comply with the agreed-to schedule.  Subcontractor’s compensation shall be increased to the extent Subcontractor’s cost of work increases due to the project site not being ready for Subcontractor’s work per the agreed-to schedule or Contractor’s changes in the agreed-to schedule, including, but not limited to, increases caused by Subcontractor having to accelerate its work, work its crew beyond its normal work day or week, re-sequencing its work, providing extra mobilizations, and/or incurring extra rental equipment costs.     3.    Avoid Responsibility for Deficient Contract Documents and Unknown Site Conditions      Your Subcontract almost always includes the obligation for you to review the Contract Documents and familiarize yourself with the jobsite conditions. You do not want to be responsible for confirming that all the plans and specifications coordinate properly, unless you are part of a design-build team, which we won’t address here.     You don’t want to be tasked with doing anything more than a visual site visit, because it is a rare situation when you do any destructive investigation into existing conditions.     You can also expect to see a provision in your Subcontract that commits you to following all the rules, laws, statutes, ordinances, codes, and regulations related to your work.    One way to combat this in your Proposal is to include language like the following:    Subcontractor’s site investigation (which shall be visual only) and examination of Contract Documents are in its capacity as a subcontractor and not a design professional and are for the purpose of facilitating coordination of Subcontractor's work and not for the purpose of discovering errors, omissions, or inconsistencies in the plans and specifications, or non-compliance of such with laws, rules, ordinances, codes, or regulations, or discovering latent, subsurface, or any site conditions that are not readily observable, none of which Subcontractor shall be held liable, and, Subcontractor shall be equitably compensated in the event any such errors, omissions, inconsistencies, non-compliances, or such site conditions cause an increase in Subcontractor’s cost or time in performance of its work. Subcontractor shall not be responsible for its Work failing to comply with rules, laws, statutes, ordinances, codes, or regulations in the event the drawings/plans and/or specifications provided with the Contract Documents fail to so comply .    Remember , the main reason you want to add terms and conditions to your Proposal is to have a much stronger leg to stand on when you are negotiating the Subcontract. By thinking through terms that are important to have in your Subcontract, and including those terms in your Proposal, you can legitimately argue that your pricing was based on having these or similar terms in the Subcontract. And, most importantly, don’t forget to include the terms you want in the Subcontract! Good Luck!

In my line of work, I run into a significant number of contracts.  Some terms are especially bad for the side that did not draft the contract .    Despite signing on to bad terms, there are steps any contractor or subcontractor can take to enhance their chances of success when faced with a claim or dispute.  Those steps include proper notice, proper notice and proper notice as well as documentation, documentation and documentation.  Proper notice and good documentation are so important that they each deserved being repeated three times!    Let’s get down to the basics:  1.      Proper Notice As a prime contractor, you need to fully understand how quickly you must provide the owner notice that the project is being delayed, or that you are running into problems that are costing you more money.  Likewise, as subcontractor you need to know the time limits for providing notice under your subcontract as well as the prime contract.  More and more contracts are stating that if you do not provide timely notice then regardless of what or who caused the problem (even if it is the owner), you have waived your right to pursue a claim for more time or money. Typical Events Requiring Written Notice (Even if you talk about it at a meeting!) a.     Delays to the approval of submittals; b.    Disagreement with a written interpretation of the contract documents from the Architect, Engineer or Owner; c.     Information received through an RFI that changes or adds to scope or time; d.    Contractor’s receipt of a directive that impacts contract price or contract time;  e.     Order for “minor” changes in the work that are not minor to the contractor; f.      Conditions encountered, observed, or believed to be present by Contractor at the site which differ from those indicated in the contract documents or are not ordinarily found in similar projects or sites.  Most contracts state that the contractor has examined the site and is willing to take all responsibility for conditions that differ. g.    Interference with, damage to, or delay in, the Work regardless of the cause; h.    Suspension of the work; i.       An order by Owner to stop the Work; j.       Emergencies; k.    Force Majeure; l.       Government agencies making changes under their own authority; m. Contractor’s desire to make a change in the work or deviate from the plans whether or not if affects price or time;   n.    Contractor’s belief that overtime or acceleration must be implemented to keep to the project schedule; o.    Subcontractor or supplier request for increase in price or time; p.    Contractor’s use of Owner Allowance items; Contractor’s use of contingency   2.      Get it in Writing Remember – there are no exceptions.  Create a paper trail for everything.  Whether or not to proceed with extra or changed work without a formal written change order or directive has to be decided on a case-by-case basis and most contracts require that you get a directive for extra work in writing – otherwise you waive your right to get paid.  But when a decision is made at a weekly meeting, or you get a verbal directive, confirming in an email that you’ll proceed unless you are told otherwise is sometimes your only choice to avoid delaying the entire project.  Sometimes you’ll not know if the other person gets the email even if you request a “read” receipt from the email server.  So, to verify your “confirming” email was received, “cc” at least one other person and include a question to the person you send it to that will likely prompt them to reply to that specific email.    3.      Keep it Clear  Strive to include only one issue per email and list the specific reason in the subject line.  Do this even if you have more than one item to discuss.  For example, if you are following up on one change order request and two RFI’s, send three different emails to keep the communication string clear for each item.  Keep mindful of the proper chain of command, but “cc” others if an issue is becoming critical and you are not getting the information or direction you need.   4.      Meeting Minutes Keep notes from meetings yourself.  Promptly review minutes if they are prepared by others and distribute changes to all attendees for items that are wrong or missing from the minutes.   5.      Daily Reports Set aside time daily to document the day’s events (daily reports or journal) and make this a habit regardless of whether or not you are required by your contract (or boss) to do so.  Use your tablet, laptop, or good old-fashioned paper and ink! Document everything, all communications, even verbal discussions held on site. Document visitors, owners and inspectors who visit the jobsite, weather conditions, rental equipment, crew sizes, any unusual occurrences, etc.   Finally, the importance of documenting in “real time” cannot be emphasized enough - key details may be forgotten if prepared later - plus, documenting from memory lacks credibility.   Realize that complicated and costly issues can end up going to litigation 2 or 3 years after the work is done and, by then, the individuals on the job will have forgotten most of the details.  You (and your company) will thank you when you have ample and accurate documentation to refer to when testifying later.  Always remember the old legal saying: The one with the best documentation wins!

Proposals are the first chance a subcontractor gets to combat bad contract terms and maximizes its profit goals – after all, no one wants to lose money on a project!    Most subcontractors focus primarily on identifying their scope in the proposal, which includes diligently reviewing the plans and specifications, doing a comprehensive take-off, and then carefully setting forth what’s included for their scope of work, often adding particular clarifications and exclusions.   Unfortunately, many subcontractors don’t take the opportunity to pump up  that proposal with some basic, but important, terms and conditions, leveling out that playing field when it comes time to negotiate the subcontract.   So, what types of terms should you include? There are lots of them but, for now, let’s look at just three (3) very important ones that you should consider when creating the terms for your proposals:   1.    A deadline for progress payments to avoid payment delays when the Owner doesn’t pay. 2.    A deadline for payment for changed or extra work  so you don’t get dragged into a long, drawn-out process waiting for the formal change order to be issued before you can bill for it. 3.    Contractor’s or Owner’s termination for convenience  must allow payment for costs you’ve incurred, especially for cancelling agreements with suppliers and lower tier subs.   1.    Using a Deadline for Progress Payments   As we all know, most subcontractors include provisions that say that the Subcontractor doesn’t get paid until, or even sometimes “ unless ” the Contractor gets paid. While California prohibits “pay-if-paid” provisions, some states don’t. And, either way, you don’t want to fight about this during the course of construction.   By including a term in your proposal that has a payment deadline, the Contractor knows that you’re not going to agree to unfair payment terms. A reasonable provision you can add can look like the following:   Payment to Subcontractor shall be made no later than 90 days after Subcontractor submits its proper payment application to Contractor regardless of whether Contractor has received payment for Subcontractor’s work, except to the extent Contractor is not receiving payment due to Subcontractor’s failure to comply with the terms of the agreement between Contractor and Subcontractor.     2.    Ensuring Timely Payment for Changed and Extra Work. For changed or extra work, the first hurdle is to clarify that you expect to get paid for all changed or extra work that the Contractor directs you to do regardless of how the Owner handles the situation with the Contractor.  The second hurdle is getting around having to wait for a formal change order to be issued so that you can bill for that work.   So, for the first hurdle, you can include language like the following:   Subcontractor shall be paid for all changes and additions/extras to its Work directed by Contractor regardless of whether Contractor receives payment for same.   For the second hurdle, you may want to try a provision like the following:   Contractor shall issue a formal change order for all changed or extra work directed by Contactor no later than 30 days after such work is performed by Subcontractor so that Subcontractor may bill for such work. Otherwise, Subcontractor may bill for such work in its next payment application following the expiration of such 30 days.     3.    Getting Fair Payment for Cancellations. An issue that has been much more prevalent since 2020 is the push to get orders placed for materials and equipment as soon as possible to better manage supply chain concerns and long-lead time items.   But what happens if there is a change in the project requirements? Or worse, what happens if the project is cancelled or your scope is reduced?   Who pays for cancelling those orders?   Almost every subcontract these days have terms that allow the Contractor to cancel without a default by Subcontractor and without any other good cause. These terms are generally known as “termination for convenience” provisions.   If you know you will be subject to cancellation charges from your suppliers once you place an order, it’s important that you put the Contractor on notice of this when you submit your proposal. Adding terms like the following can help:   Materials and equipment cancelled after the purchase orders are placed by Subcontractor are subject to cancellation charges . In the event Contractor cancels or terminates Subcontractor’s work or services for its convenience after direction to proceed or execution of the Subcontract, Contractor shall pay Subcontractor for all work performed, plus cancellation and restocking charges assessed by Subcontractor’s material suppliers, rental companies, and sub-tiers, plus a reasonable amount as determined by Subcontractor as compensation for demobilization to safe-off its work.   It makes sense that you provide a proposal believing that you’ll enter into a subcontract that has fair terms. But that is becoming less and less likely as Contractors continue to present increasingly one-sided subcontracts to their subcontractors.   Remember, the main reason you want to add terms and conditions to your proposal is to have a much stronger leg to stand on when you are negotiating the subcontract. By thinking through terms that are important to have in your subcontract, and including those terms in your proposal, you can legitimately argue that your pricing was based on having these or similar terms in the subcontract. And, most importantly, don’t forget to make sure your proposal terms are included in the Subcontract!

Everyone knows that project delays increase the project build cost for both contractors and owners. Owners may face higher loan carrying costs, loss of revenues associated with not being able to use the building, or holdover costs from extending leases at old facilities. With delays, contractors face extended general conditions costs, protracted equipment rental costs, and depending on the timing of the delay, things like increases in material costs.    Who ends up footing the bill for such costs?  The answer is not so clear cut because it often depends on the terms of your contract and how you manage the project regarding on-site work and your contract terms.   There are three types of project delays related to the acts of the contractor and owner.   Contractor Caused Delays: These are delays caused by the contractor or subcontractor when there have been no acts (or omissions) by the owner or its design team that have hindered the progress of the work, and no other events or conditions delaying the work that are out of the contractor’s or a subcontractor’s control, the most common are  subsurface obstacles, differing site conditions or inaccurate plans. For contractor-caused delays, the contractor will be responsible for increases in the cost of performing its work, as well as actual or liquidated damages suffered by the owner due to the delay.      Owner Caused Delays: These are delays caused by the owner and/or the owner’s design team.   Events causing delays that would commonly be blamed on the owner (or its design team) include failing to get permits issued in a timely manner for a design-bid-build project, making changes after commencement of construction, failing to respond promptly to requests for information (RFI’s), and deficient plans.     Concurrent and Force Majeure Delays: The term “concurrent delay” often refers to two or more independent events that cause a delay to the work over the same period of time, whether over the exact same duration of time or over a partially overlapping period of time.  When an owner-caused delay and a contractor-caused delay are concurrent, while the completion date is often extended usually neither party can make a claim against the other for the costs or damages either one incurs – this makes sense.   There is usually a similar outcome for a force majeure delays. Force majeure delays are delays caused by an event that is not in the contractor’s or owner’s control. Many contracts define what is considered a “force majeure” event, such as acts of God or nature (i.e. flood, fire, earthquake); war, invasion, hostilities, riot or other civil unrest; government order or law; action by any governmental authority; strikes; epidemics and pandemics; and states of emergency; and any similar event beyond the reasonable control of the party claiming a force majeure impact.   As with concurrent delays, most contracts allow an extension of time for force majeure events, but no additional compensation to the contractor for the delay, and the owner cannot assess delay damages (whether actual or liquidated damages) for the delay. Two Contract Terms That Can Transfer the Risk of the Delay:   There are two important contract provisions that can interfere with the common theory that (1) for an owner-caused delay, the contractor would naturally get more time to complete the project as well as receive compensation for extra costs due to the delay, and (2) for a concurrent or force majeure delay, the contractor would at least get more time to complete the project.   The first provision that many contracts include is a “no-damages-for-delay” clause. This is a clause under which a contractor will not be compensated for costs it incurs due to delays to its work caused by the owner or others.  Under this clause, the contractor’s remedy for owner-caused delays is limited to an extension of time to complete the project.  If the contract has a no-damages-for-delay clause, then even when the owner is the direct and sole cause of a delay, the contractor will end up paying for the delay because it will have to absorb the time-related costs that increase because of the delay, such as costs associated with rental equipment, jobsite trailers, temporary fencing, job-site supervision, and even increases in material costs.    The second type of provision causing the risk of delays to shift to the contractor are the notice   provisions in the contract. Notice provisions provide deadlines for a contractor to advise the owner that something is delaying its work. If the contractor does not meet the deadline, then often they waive their right for more time or money. And, failure to provide timely notice of delay may result in the owner asserting delay damages against the contractor.   Let’s look at an example:   Suppose a Contractor enters into a contract that states that “Contractor shall be liable to Owner for liquidated damages in the amount of $1,500 per day for each day past March 1 that the project does not reach substantial completion.”  The contract also includes a provision that says “Contractor must submit a written change order request to Owner for an increase in time or increase in cost within ten (10) days after Contractor first recognizes the condition giving rise to the request, and such request must include an estimate of the impact to the cost of the work and the project schedule.”     As the project progresses, Owner makes various changes that clearly cause a delay in the project and, at one point, work comes to a standstill for three weeks due to a plan recheck because of the changes.  Despite its work obviously being delayed, and despite change orders being issued to increase the cost of the work due to the design change, Contractor never submits a request for a change order for a time extension nor does the Contractor make sure a time extension is included in the issued change orders.  The project reaches substantial completion by April 15.  Owner then sues Contractor for $67,500 because substantial completion was met 45 days later than the substantial completion date stated in the contract.  Contractor’s argument in its defense is that Owner is not allowed to assess LD’s for delays the Owner itself caused.    While the Contractor’s defense seems pretty solid on a practical level, there is a real possibility that the Contractor will lose on this defense.   This is because the Contract’s substantial completion date of March 1 was never changed.  The Contractor never bothered to submit a change order request to try and get the substantial completion date extended.    Under this situation, a Court could make a ruling that, because substantial completion occurred 45 days after the March 1 deadline, the Contractor owed LD’s in the amount of $67,500.  Under these circumstances, the Court would not analyze the cause  of the delay.  Instead, the Court would merely look at the fact that the substantial completion deadline remained as March 1st and then assess as many days of LD’s as the project was delayed past the contractual deadline.  Had the Contractor at least requested a change order for an extension of time, even if the Owner rejected it, the Contractor would have been allowed to defend itself by arguing that the Owner caused the delays and wrongfully denied the Contractor’s request for the change order extending the time.  This is a hard pill to swallow for any Contractor!   The moral of this story is: make sure your contracts do not rob you of the ability to charge extra costs for delays and make sure you understand the notice deadlines so that you don’t end up unexpectedly paying for an owner’s delay

Construction is a hard business, very hard. Some days (well okay, many days) you feel like it’s grinding you down. Your current project is THE. WORST. EVER!  At Friday night’s happy hour, you lament to two of your friends and one says, “Wow, you’re still on that school project?”  You pause for a moment, blink, blink. And then you say, “No, that one wrapped up in October, I’m talking about the courthouse project.”   The other friend says, “Wait, what? We heard you complain all last summer about the school project and now you’re on another one that’s even worse?”  The first friend says, “I’m thinking you’re in the wrong career!” What do YOU think? You’ve worked hard to get to where you are. But you suddenly realize – your friends are right! All you do is complain about how challenging your projects are. You used to love a challenge, so what’s going on here?  Well, I’ve been there and so have lots of other people! Chances are you are not in the wrong career, but somehow, you’ve lost your drive, you’ve let your job become mundane, you’ve stopped learning new things, and you’ve gotten a bit cocky because you’ve been doing it for a while. Everything is a hassle! Nonstop emails, nonstop problems, and worst of all, nonstop complainers – kind of like you! Maybe it’s to the point where you force yourself out of bed, get dressed, slink into the office, and hope that no one bothers you.  And then you fixate on just trying to get through the day.  You leave the office unsatisfied and with your to-do list weighing heavy on your mind. Maybe even blow off Friday afternoon because you tell yourself you’ll work a few hours Saturday to catch up. But you don’t catch up on Saturday, because you tell yourself “I need a day off.” Sunday afternoon, you start to feel a little anxious, but you’re not sure why. Monday morning shows up and your week moves forward just like the previous week, and the week before, and so on. You, my friend, are in a rut and you need to get yourself out of it, and fast! But how? Well, I used to be like that. Seriously! Several years ago, when my law practice had really become robust, I felt like I was on the proverbial hamster wheel, running fast, always tired, but getting nowhere. I wasn’t enjoying the “challenge” like I had just a few years before. I was doing good work, but just good, not great, and I felt I was always behind. I groaned when my phone rang, thinking “Oh great, just what I need, more work!”  I had developed the habit of putting off the stuff I didn’t like, or didn’t quite know how to start. So, I procrastinated as long as possible and that made many days feel like I was working in panic mode to get it all done and meet deadlines. I convinced myself that “I work better under deadlines.” I wasn’t happy at work, and with 10-12 hour workdays, that’s a boat load of time not to be happy! I even considered bagging it all and starting an Irish Pub! I needed to figure out what had changed for me. So, I had a serious talk with myself. Was I burnt out with my job? Was I burnt out with my career? Was I just burnt out? Was there really some other job or career I would like better? What DO I like about my job and this industry? After some soul searching, I realized three things. First and foremost, I missed the feeling I got when I knew I did my best. I am not talking about being perfect. I’m talking about doing my best. The younger me tried very hard to do my best. If I had to describe it, I could honestly say that each and every day, “I aimed to please.” The second thing I realized was that my self-imposed nose-to-the-grind-stone philosophy had me no longer seeking classes, or courses, or books about becoming a better attorney, business owner, and negotiator. Third, because I wasn’t feeling great about my job, I wasn’t attending as many trade group meetings and dinners, and I had stopped looking for ways to hang out with colleagues. I had lost the pulse of the industry and my passion for the part I play in it. Motivational speakers like Tony Robbins understand this. He believes that in order to keep the passion going and to love our jobs, we need to keep growing personally and professionally. Robbins says: “If you’re not growing, you’re dying.” How can you grow if you’re not pushing yourself to be your best? How can you grow if you’re just slinking through your days? After my realizations, I made some simple but powerful changes. I now begin each day with the motto “I aim to please”, and I am dedicated to doing my best with the challenges that are thrown at me each day. The first thing I tackle each day is the project or task that I dread the most. I tell myself to give it just one hour to get started. This often results in continuing to work on it longer than that initial hour, and frequently results in an amazing feeling of accomplishment by getting it done early instead of letting it languish in a pool of dread! I now attend more trade meetings, I volunteer for committees, I do more seminars and workshops, and I read more books to make myself a better lawyer, a better business owner, and a happier, healthier person overall. My advice to you is to do some soul searching to reignite your passion for your work and turn yourself back into that positive producer instead of that nonstop complainer! Everyone will be much happier, including YOU!