Key takeaways from the Rocky Mountain Construction Summit

Current challenges in construction

Controlling liabilities are critical at all points in the construction process, and it starts with paying attention to the terms of the contract, panelists said.

  • Contractors like Mortenson, said Jason Greves, associate general counsel of that construction firm, fight to include a provision in the control to permit them to stop work if they aren’t paid. “We’re not the bank,” he said.
  • Subcontractors seek to avoid “pay when paid” language because they don’t have leverage or the ability to negotiate with owners, said Ashley Kramer, senior counsel with Comfort Systems USA.
  • When uncertainty exists, such as with the current tariff situation involving steel and aluminum, try to delay until more is known, said Greves. If delay isn’t possible, then work for a exclusion in the contract for government acts that affect price or conditions.

Best practices for presenting construction claims

Construction claims — whether for change orders or problems discovered on the job — will happen. The contract, again, is key.

  • First, talk with the owner before taking legal steps or submitting claims notices, said Mark Gentry, vice president with Kenrich Group LLC.
  • Document everything. Memos, meeting minutes, photographs, daily reports and, increasingly, emails are critical to the paper trail.
  • Make sure the job supervisors know how to read the contracts so responsibilities are met and notice requirements are observed, said Ken Ekstrom, president of Applied CM.
  • Create a simple, laminated contract matrix that spells out the key requirements so that frontline workers know the expectations, said Anamaria Popescu, director of the Berkeley Research Group.
  • Remember, whatever is written in an email may be seen by an arbitrator. “If you can prove how dysfunctional a project management team is, and how little respect the team has for each other and the owner, that can affect an outcome,” said Popescu.

 

Current issues and risks in residential development

Lack of quality labor is the biggest issue in construction right now, panelists agreed.

  • “Almost no project is on schedule along the Front Range right now,” said Doug Rothey, president of Surescape/CRS. Lack of labor also means that construction quality issues occur.
  • Existing workers are moving onto more complicated jobs, said Ryan Polk, general counsel for RK Mechanical. “The quality of tradespeople to work on residential is the worst I’ve seen because the best folks who did residential have moved into commercial and those in commercial have moved into major projects,” he said.
  • Rothey said he’s seen more performance bond claims in the last 12 months than he had seen in the remainder of his career.
  • Kevin Brinkman, CEO of Brinkman, said involving key subcontractors early on can help assist in creating designs that are more economical to build.
  • Polk said a Catch 22 exists in the Colorado housing economy. Bringing in workers from other states can help, but they can’t afford to live in the houses that exist here.
  • Changes to the construction defect law in Colorado will help but there are still risks when building multi-family housing, said Tasha Power, senior associate with Berg, Hill, Greenleaf & Ruscitti LLP.  The new law permits contractors to get in front of owners and to perhaps remedy problems before suits are filed.

 

What to do when a good project goes bad

Projects can fall apart as a result of numerous issues, but they tend to fall into a few major categories.

  • Provisions for when and if contractors and subcontractors are paid are frequently included in contracts, but that doesn’t mean that liens won’t be filed at the end if someone isn’t paid as they expect. Hammering out the language in advance is key to avoiding issues about pay.
  • Indemnity provisions are important. Owners want problems to be handled by the general contractor and not come back on them. Contractors don’t want to indemnify owners for the owner’s negligence. Insurance can often cover risks posed by indemnification provisions.
  • Remedies for non-performance problems need to be included in the contract and that “at law” remedies are waived. Consequential damages can be difficult to determine. Including liquidated damages in the contract can avoid protracted problems later, and help to determine risks up front.
  • Contracts should have provisions for scope of project changes and contractors need to provide timely notification when changes are going to result in increased costs or time. Records of discussions need to be accurate — and corrected immediately if errors in understanding are recorded.

 

Hot topics within the construction industry

Construction companies, like companies in other industries, also grapple with issues that go beyond the job site. They include:

  • How to transition to new leadership — expect to take at least 10 years grooming new leadership, the experts say.
  • What to expect when selling a company — companies in high demand such as some of the mechanical subcontractors are bringing six times earnings. Sales to insiders often bring less than to an outside buyer.
  • Identifying potential future leaders and providing programs to groom them for promotion can help to cement workers within company ranks.
  • Culture is important. Workers want more than a job. “We have seen a direct correlation between cultural changes and performance,” said Len Koch, senior vice president of commercial banking at Vectra Bank.

 

Current challenges in construction

Controlling liabilities are critical at all points in the construction process, and it starts with paying attention to the terms of the contract, panelists said.

  • Contractors like Mortenson, said Jason Greves, associate general counsel of that construction firm, fight to include a provision in the control to permit them to stop work if they aren’t paid. “We’re not the bank,” he said.
  • Subcontractors seek to avoid “pay when paid” language because they don’t have leverage or the ability to negotiate with owners, said Ashley Kramer, senior counsel with Comfort Systems USA.
  • When uncertainty exists, such as with the current tariff situation involving steel and aluminum, try to delay until more is known, said Greves. If delay isn’t possible, then work for a exclusion in the contract for government acts that affect price or conditions.

Best practices for presenting construction claims

Construction claims — whether for change orders or problems discovered on the job — will happen. The contract, again, is key.

  • First, talk with the owner before taking legal steps or submitting claims notices, said Mark Gentry, vice president with Kenrich Group LLC.
  • Document everything. Memos, meeting minutes, photographs, daily reports and, increasingly, emails are critical to the paper trail.
  • Make sure the job supervisors know how to read the contracts so responsibilities are met and notice requirements are observed, said Ken Ekstrom, president of Applied CM.
  • Create…