Recent Updates
January 19, 2012
Changes to the AIA Performance and Payment Bonds
November 29, 2011
Design Professional Service Corporation
November 14, 2011
No Damages for Delay Provision Saves Contractor's Delay Claim from Notice of Claim Provision
October 28, 2011
Pitfalls in Arbitration and Construction Lien Enforcement
October 04, 2011
Deductibles and Self-Insured Retention on Professional Liability Policies: What Owners Need to Know
Changes to the AIA Performance and Payment Bonds
Posted by: Edward Baker
January 19, 2012
Topic: Surety Bonds and Construction Insurance
The American Institute of Architect's (AIA) Document A312 is comprised of two bonds, the performance bond and the payment bond. The standard AIA-A312 performance and payment bond forms have been used as the industry standard since its release in 1984. In 2010, significant changes were made to the A312 form and as of December 31, 2011, the A312-2010 version has officially replaced the AIA Document A312-1984 version.
The 2010 revisions to the A312 performance bond made several important changes, concentrating on (1) streamlining the process by which owners can declare potential defaults; and (2) clarifying the surety's exposure.
In streamlining the default process, the 2010 version no longer requires owners to attempt to arrange a conference with the contractor and surety before declaring the contractor in default. Additionally, the 20-day waiting period for declaring a default has been deleted. The bonds now state that owner's failure to comply with the notice to surety obligations do not constitute a failure to comply with a condition precedent to the surety's obligations, or release the surety from said obligations. Also, owner's obligation to send an additional demand to the surety requiring its performance has been reduced from 15 days to 7 days before the surety is deemed in default. These changes significantly reduce the owner's waiting period for declaring a contractor in default, while simultaneously reducing the hurdles owners face in seeking intervention of the surety.
The 2010 revisions also focus on clarifying the surety's exposure. Most significantly, in instances where the surety undertakes to perform and complete the construction contract itself, the surety's obligations are no longer limited by the amount of the bond.
Among the changes in the A312-2010 payment bond are an increase to the surety's period of time within which to initially respond to the claimant from 45 days to 60 days, which will not be well received by owners. In addition, a failure of the surety to act under the bond is no longer deemed a waiver of its rights, except for amounts upon which the surety and claimant have previously reached agreement. If the surety fails to send an answer and pay undisputed amounts within the time constraints specified in the bond, the surety is now required to indemnify a claimant for reasonable attorney's fees incurred in recovering any sums found to be due and owing to the claimant.
To learn more about the issues that may arise for both owners and contractors, please contact a GTH attorney today.
Design Professional Service Corporation
Posted by: Laurie Stanziale
November 29, 2011
Topic: Design Professional Agreements
Move over LLC, LLP and P.C., come January 1, 2012, you might start to see some new initials following the names of design professional firms in New York State.
D.P.C.
A Design Professional Service Corporation is the newest member of the New York corporate family, recently signed into law by Governor Cuomo. The law allows New York licensed professional firms, such as architects, engineers and land surveyors to consist of a minority (less than 25%) share of non-licensed owners. Previously, New York State required that all owners of a design firm be licensed. This is viewed as a big win for design professionals who have been lobbying for this change for quite some time. They believe it will enable them to be more competitive in the industry since many other states do not have the requirement that 100% of the design firm owners be licensed.
No Damages for Delay Provision Saves Contractor's Delay Claim from Notice of Claim Provision
Posted by: Richard J. Lambert
November 14, 2011
Topic: Recent GTH Decision - Construction Delay Claims
In Huen New York, Inc. v. Board of Education Clinton Central School District, Supreme Court, County of Oneida, Index No. CA2005-001680, Greenberg, Trager & Herbst, LLP represented Huen New York, Inc. ("Huen"), the prime contractor for the electrical work on a large new construction project for the School District, which was to be completed in two phases ("Project"). Huen's work on the Project was scheduled to be completed in January 2003, but was actually completed in September 2004. Thereafter, Huen brought a claim against the School District for delay damages.
Pitfalls in Arbitration and Construction Lien Enforcement
Posted by: Kalvin Kamien
October 28, 2011
Topic: Mechanic's Liens
Construction lien remedies are cumulative to other remedies under the contract, including the right of a contractor, subcontractor, material man, laborer or design professional to demand arbitration where permitted by the terms of the written agreement. In that connection, New York State Lien Law § 35 is explicit in stating that the filing of a notice of lien shall not be a waiver of any right of arbitration. However, care must be taken in proceedings by the lien claimant to insure that there is no waiver of the arbitration agreement, or of requirements under the Lien Law.
In order to avoid a waiver of the arbitration agreement, it is recommended that a complaint in foreclosure include an allegation that the filing of the lawsuit is not intended to be a waiver of the right to arbitration under the parties' contract. The lien claimant should also seek a stay of the action pending arbitration no later than service of the answer. Any further activity in the foreclosure action could be construed by the court as a waiver of the remedy of arbitration under the parties' contract.
It is well established that the amount found to be due the lien claimant by the arbitrator is conclusive in any action to foreclose on the lien. However, the validity of the lien, and whether the amount found due the lien claimant is chargeable against any lien bond, are matters beyond the power of the arbitrator to determine. These issues can only be determined in the lien foreclosure action itself, once the stay has been lifted by the court.
Finally, a lien claimant should also investigate whether any payment bond has been issued in connection with the construction project. If the answer is in the affirmative, there will be requirements that must be fulfilled concerning notice, and the commencement of any action under the payment bond. The failure to address these obligations will most likely result in the waiver of this additional remedy available to the lien claimant.
Deductibles and Self-Insured Retention on Professional Liability Policies: What Owners Need to Know
Posted by: Laurie A. Stanziale
October 04, 2011
Topic: Construction Insurance
More often than not, owners request that a design professional carry a certain amount of professional liability coverage in connection with its services to the project. The amount owners request typically is tied to the scope of the design professional’s services and the fee being paid. This is right approach but, unfortunately, most owners stop here when they see proof of the coverage. Owners need to take the inquiry one step farther and ask: (i) whether the policy has a deductible or self-insured retention; (ii) the amount of that deductible or self-insured retention; and (iii) how it is paid.
The difference between a deductible and a self-insured retention.
While these terms are often incorrectly used interchangeably, they actually have different meanings and impacts.
A deductible refers to the portion of the loss that is to be paid by the policyholder. Typically an insurer will pay the claim amount on the insured’s behalf and bill back the insured for the deductible. The deductible, unless paid directly by the insured, reduces the total limit of available insurance.
A self insured retention (SIR) is a dollar amount specified in an insurance policy that must be paid by the insured before the insurance carrier will respond to a loss. The SIR does not reduce the limit of available insurance.
Typically, a policy holder can reduce its premiums by having a higher deductible or self-insured retention.
Why this matters to an Owner.
When a design professional has structured its policy with a high deductible or SIR, the risk to an owner is that the design professional cannot fund the SIR (and in some cases the deductible) and therefore, the carrier will not pay out a claim. Since most design professionals do not maintain “assets”, an SIR can be a risk to an owner who may be left with no recovery from the carrier because the SIR is not paid, or the owner itself may be forced to pay the SIR in order to trigger the insurer payment.
Knowing the amount of the design professional’s deductible or SIR and whether it has to be funded before the carrier pays out on a claim are important considerations when entering into the contract. Millions of dollars in coverage is great to see, but knowing what needs to be done to get to “Dollar One” of coverage will allow the owner to assess the risk with eyes wide open.
