Tax Warning to all Federal Contractors

The Federal Contracting Law Blog reports that in January President Obama signed a presidential memorandum instructing the IRS to audit all federal contractors. The audit will prevent companies that owe back taxes from obtaining more federal work.

For more information contact Jared M. Scarbrough at jscarbrough@holmwright.com or (480) 477-8589.

An Ounce of Prevention: Consistent Contract Drafting Can Prevent Litigation in Multiple Forums

Opinions regarding whether arbitration of project disputes is better than litigation really are like noses—everyone has one and they all seem to be different. There are certainly benefits and drawbacks to both forms of dispute resolution. But prudent contractors should decide which forum is appropriate based on the project and make sure all contracts within that project are consistent. Otherwise, you run the risk of having to fight the same battle in both litigation and arbitration at the same time.

For example, in a current case involving a local residential community, the general contractor entered into subcontracts that contained arbitration clauses that either gave the general contractor the election of dispute resolution forums or were ambiguous regarding dispute resolution. At the same time, the general contractor issued purchase contracts to the homeowners that require arbitration for dispute resolution, but some of the contracts allowed consolidated arbitration—more than one homeowner can participate in the arbitration proceedings—and some contained non-consolidation clauses—every arbitration must be separate and distinct.

When some of the homeowners brought claims for alleged construction defects in their homes, the error of the general contractor’s failure to maintain consistent contracts was uncovered. Some of the cases are in a consolidated arbitration, but more than 60 are lined up for separate non-consolidated arbitrations. And even more subsequent purchasers—who have no contract with the general contractor—have brought claims in Superior Court.

Additionally, the homeowners are arguing that, based on their contracts with the general contractor, the subcontractors are not allowed to participate in their arbitrations. The general contractor, on the other hand, claims that the subcontractors will be bound by the arbitrator(s)’ rulings, which could spawn yet more separate litigation in another county.

All of this could have been avoided by good planning at the contracting stage. Contractors—and their lawyers—should keep a close eye on the dispute resolution forums in their contracts. If the contract is silent on this issue, then that means any dispute will be traditionally litigated through the courts. If there is a valid arbitration agreement, then any disputes will likely be arbitrated.

To prevent being dragged into both arbitration and litigation at the same time, make sure all of your contracts on every project are consistent regarding the dispute resolution forum. If one contract has an arbitration clause, make sure all your contracts contain a consistently-similar provision. Conversely, if the "upstream contract" makes no mention of arbitration (meaning litigation would be the dispute resolution forum), keep your "downstream contracts" silent as well.

As with any construction project, the key is good advance planning. An ounce of prevention will help avoid being sued in multiple forums later should disputes arise.

For more information contact Jared M. Scarbrough at jscarbrough@holmwright.com or (480) 477-8589.

TEN POINTS TO KEEP IN MIND IN TODAY’S CONSTRUCTION MARKET

10. Know with whom you’re contracting, and make sure they are financially viable (or at least that they have bonding or insurance companies that are).

9. Prevent costly personnel ambiguities by having well-defined, fair, written, and well-communicated employment policies in place before problems arise.

8. The best defense to an OSHA investigation is to prevent an OSHA investigation.

7. Don’t agree to any indemnity provision unless you’re willing to financially be on the hook for another party’s negligence.

6. On the other hand, if you negotiate indemnity from another party, make sure the indemnity provision in the contract is actually enforceable.

5. Do not include heavy-handed and/or punitive liquidated damages provisions in your contracts–courts will not enforce them.

4. Remember that old emails never die–if you wouldn’t put something on paper, don’t send it in an email.

3. Limitations of liability are serious–if you use them in your contracts, use them correctly to ensure enforceability.

2. Have good billing practices. Know your lien deadlines and stick to them!

And #1...drumroll please....

1. Read your contracts. Understand your contracts. Enforce your contracts!

For more information contact Jared M. Scarbrough at jscarbrough@holmwright.com or (480) 477-8589.

The Arizona School Retention Trust Issues Model Construction Contracts

By Kirk H. Hays


As part of its pre-paid legal services for Arizona school districts, the Arizona School Risk Retention Trust has issued model construction contracts specifically designed to meet the unique needs of Arizona school districts. The contracts are based on the American Institute of Architects’ (AIA) widely used contracts but have been modified to reflect unique statutory and regulatory requirements applying to school districts, address Arizona specific laws and provide additional legal protections for owners that are not included in the standard AIA contract documents.


For standard Design-Bid-Build projects these contracts include:

• B101-2007 Agreement Between Owner and Architect
• A101-2007 Standard Form Agreement Between Owner and Contractor
• A201-2007 General Conditions

For Construction Manager-At-Risk projects these contracts include:

• B101-2007 Agreement Between Owner and Architect
• A121 CMc-2003 Agreement Between Owner and Construction Manager
• A201-2007 General Conditions

The B101 and A201 documents have been modified to address the unique needs of CM at Risk projects.

As part of its pre-paid legal services, the Trust also provides legal representation to school districts from the beginning of the contracting process. When a school district begins its solicitation process, attorneys can modify the Trust’s model contracts to meet the unique needs of the district and the project. These contracts can then be included in requests for proposals and bid solicitation materials. Legal representation is also provided for contract negotiations and to generate final contract documents for the project. This approach provides significant advantages to school districts over having their architects prepare construction documents because the attorneys can address legal issues outside the expertise of architects and it avoids conflicts of interest between the architects and the school district.

The Trust model contracts will be available for review to Trust members on the Trust’s website sometime in January. Questions about the contracts or specific provisions or requests for copies of the contracts can be addressed to Kirk H. Hays at khays@holmwright.com or (480) 961-0586.