Construction Law Insider

It is often said--mistakenly--that once a construction contract is signed (here, we’ll consider it a construction management agreement or CMA) it is put on the shelf and forgotten about. There are, however, many contractual obligations which must be carefully followed throughout the life of the project and which require specific reference to the CMA.

Short Term Housekeeping

Although the CMA may have been executed some housekeeping details may remain, such as the completion and attachment of exhibits which, in the haste to have the CMA executed, may not have been completed. Examples of this may be the form of subcontract to be used on the project or other related agreements with which the CM must comply, such as regulatory or funding agreements. Insurance documentation may also be required, such as the delivery of certificates of insurance, additional insured endorsements or copies of the policies themselves. Once this documentation is provided, it should be reviewed by the owner’s risk manager. During the course of the project, updated certificates of insurance should also be reviewed in order to confirm that required coverage is being maintained.

Project Forms and Payment Procedures

The CMA may also require the use of certain supplementary forms covering payment applications, change orders, lien waivers, and bonds. For example, preliminary applications for payment (also known as “pencil reqs”) may be required for submission to the owner, lender or architect for review before a formal application for payment is submitted. The timing of approval and payment, including retainage amounts and reductions set forth in the CMA, then need to be carefully followed.

The Project Schedule

As regards project scheduling, most CMAs require monthly updating and submission of the project schedule to the owner; however, we have found that far too often this process is not followed until project delays surface, by which time it may be too late to make up for the delay. It is, therefore, imperative that, from the beginning of the project, the CM updates and submits project schedules to the owner on a monthly basis. If delays are encountered, an immediate investigation of the cause must commence, and appropriate responses put in place. If the delay is the responsibility of the CM, it must provide a recovery plan to the owner, which may include accelerating the work by the use of overtime labor or utilizing additional shifts at the CM’s expense. If the delay is the responsibility of the owner, the CM must still provide a recovery plan, but at the owner’s cost.

The GMP

Where the CMA provides for a GMP, the CM must submit a GMP proposal containing the items listed in the CMA. We have seen that frequently the requirements of the GMP proposal, such as the enumeration of the contract documents and the calculation of the costs and markups constituting the GMP, are not correctly provided. The CM’s calculations must be confirmed by the owner and all elements required by the CMA are included in the GMP proposal.

Claim Procedures

CMAs ordinarily have detailed claim procedures if the CM seeks additional time or compensation from the owner, which may arise from, for example, owner delays or unforeseen site conditions. These procedures usually require prompt notice and full documentation and justification of the claim. The CMA may provide that the failure to provide the notice in timely manner will result in the waiver of the claim.

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It should be plain from the above discussion that the CMA cannot be ignored after execution. The CMA remains a living document and should be consulted frequently in order for the CM to remain in compliance with its terms.

For more information on the topic discussed, contact:

• Kenneth M. Block  |  block@thsh.com  |  212-508-6790