 makeup congiants family. Welcome today's guests on our podcast is Marjorie Newman. Marjorie came to us. Uh, we reached out to her firm Bryce Downey and linkup based on an article that she wrote entitled dangerous subcontractor clauses. And what's interesting, we made a video in July in response to the Florida condo collapse. Today the wall street journal came out with an article discussing some of the rampant corner cutting issues in terms of the construction. And so we thought it would make sense for us to reach out to an attorney who specializes in actual, her practice is construction law. So I know that personally I've been in situations where I was taken advantage of by not understanding my construction contracts. And so we don't want you to have that today. We decided to reach out to a professional expert. And so today's episode is that person Marjorie Newman going over some dangerous construction clauses inside of your contract. So again, if you or anyone you know are in that particular business, we're in that industry, make sure to share this content with them because I can promise you, you got to learn something today and you're going to have notes. And at least you understand what you're getting into before you sign the dotted line. Thank you so much for watching. I hope you enjoyed this episode. My name is Marjorie Newman. I am a partner with the law firm of Bryce Downey and Lenkov in Chicago, Illinois. I am a construction attorney and I have been a construction attorney for 35 plus years. Although I represent everybody in the chain of construction from the owner all the way down to the material supplier, most of my clients are subcontractors and many of my clients are minority and female owned companies. For many years, I have been talking about what clauses people should look for in their contracts so that you know in advance what the risks are. I would never tell a client that a clause is a deal breaker because if the contract is signed and then the work progresses and everybody gets paid, nobody will ever look at the contract again. The only time people look at contracts is when there is a default or a lack of payment. So what I'm going to talk about today are all of the construction clauses that can trip you up and cause you to lose a lot of money. The first one I call contract. A margin. One second, excuse me, let me never check for a moment. Now, before we jump into the actual clauses for the contract, let's talk about how did you get into the industry of defending the rights for subcontractors? Like how did you know that this is something that you wanted to do? Well, the truth is, this is not what I thought I wanted to do. When I was in law school, I decided that I was going to go into litigation. It didn't really care what. But I was pretty good thinking and speaking on my feet because before I became an attorney, I was a school teacher. And as a teacher, you had to be able to get up and speak in front of a group. You had to project. You had to speak clearly and make your thoughts understood. So I determined that I was going to use those teaching skills as an attorney. When I first started working, I was working at an intellectual property firm and I did a lot of trademark work, but there was very little in the courtroom. Then I moved from my first firm to my second firm and I was hired as a split attorney. Half of my time was to do construction law. And the other half was to do corporate work. So I learned both aspects of the law in corporate and mechanics lanes. And then the other associate who was doing mechanics lane left and went to another firm and I moved into his position and I became a full time construction attorney. So I sort of fell into it. But the senior partner was my mentor for over 17 years. And I decided that I really enjoyed representing people who built things. You could see the product at the end of the day. This wasn't mergers and acquisitions. This wasn't banking or tax law. You could actually see what your clients were doing. Now, it's interesting. I'll share how I discovered your firm is I was doing a video. And in that video, I was discussing risky contract clauses. And I learned about this article that was written here, dangerous subcontractor clauses. And so I personally have had a lot of experience with many of these subcontract clauses. I was taken advantage of by some major contractors. And so for me, I want to have you on to discuss these things because had I known a lot of these things that you've mentioned here, I could have been better prepared, better suited to navigate the legal ramifications that were coming my way that I couldn't foresee at the time. So thank you for that. And I just kind of want to give some background as to how we discovered your firm and discovered you ultimately for the article that you wrote. I will say that keep in mind the dangerous clauses that I wrote about relate to subcontractors. If you are a general contractor, these are actually very beneficial clauses. These clauses are exactly what general contractors want and owners want these clauses. So it really all depends where you are in the feeding chain in a construction project. What's bad for the sub is good for the general. Right. Right. Makes sense. No, thank you. That makes a lot of sense. So one of the first things that you look at is a subcontractor when you're going to do a job is you look at the scope of work that you're going to perform. So the contract scope provisions. What happens with subcontractors is that they tend to look at only the drawings that apply to their trade. So the electricians will look at the E sheets, the structural steel people will look at the S sheets, the plumbers will look at the P sheets or the MEP sheets depending and will fail to look at the architectural drawings and will not necessarily look at any of the other contract drawings. Keep in mind when you sign a subcontract, there is what we call an incorporation by reference clause in just about every subcontract. What that incorporation by implication means is that the subcontract you sign incorporates every other contract document that you probably have not seen, will not see, don't want to see and will pay your lawyer to look at. They will include the contract between the owner and the architect, the contract between the owner and the general contractor. It can include the contract between the architect and the engineer. All of those contracts plus addenda, supplemental conditions. Everything will get incorporated into your subcontract. And you will be responsible to meet all of the requirements of all of those contracts. So it's important that you look beyond your scope provisions. That's number one. Now, can I ask you a question about that? So if it includes all of these other contract provisions, like we said, the contract between the owner and the general contractor. What does that mean for me as the sub? How, you know, what what is that? OK, I read this provision now. What what do I what is my what should I be doing? What's my remedy? Here's here's an example. Let's say this is a public project. OK, and there is a deadline to finish the work. Let's say the deadline is April 30th. And in the contract between the owner and the general, there is a clause that says if you miss you, general, if you miss that day of completion, every day, thereafter, we're going to assess damages. We call those liquidated damages. We're going to say for every day beyond April 30th, we're going to backcharge you a thousand dollars a day, depending on the size of the project. It could be five thousand dollars a day. It could be ten thousand dollars a day. That's a clause between the owner and the general. Right. Now, let's look at the contract between the general and the sub. OK, there is a clause which says to the sub, this subcontract incorporates by reference all of the clauses in the contract between the owner and the general. OK, that means that the subcontract, the subcontractor is also going to be on the hook. If they don't finish their work by April 30th, they have now signed on to being at risk of paying a thousand dollars a day in damages, even though there's no damage clause in the subcontract. As long as it's in some contract somewhere and that gets incorporated into your subcontract, you are on the hook for all of those clauses. So it could be you get no money if the project is delayed. You get your risk for liquidated damages. You have to work overtime for no extra pay. We don't have to pay you if there is a dispute with somebody else. These are all clauses that exist in other contracts, but they get incorporated into yours. And you are taking on all of this risk without being aware of any of it. Right. So what should I do in that situation? What's your recommendation? Or you're not allowed to make recommendations? The recommendation, well, there are two of them. OK, number one, you can say, I am only going to be responsible for this contract and the plans and the specifications that relate to my work. Right. OK. One option. The ability to negotiate such a limited clause is slim to none. So I don't want to, even though I'm going to give you, as you ask, I'm going to give you all the ways to protect yourself. The likelihood that you will get any general contractor to agree to this is remote. You know, it's it's the old golden rule. She who has the gold rules. Right. So the sub has very little bargaining power. Makes sense. So the first option is true. If you're the only company in the country that does something. Oh, OK. General needs you. If the general needs you bargaining power. But if you are a painter, an electrician, a carpenter, a plumber, you can be replaced. And if you can be replaced, you have very little bargaining power. But that's one example. You can limit your liability to what's in your contract. OK, that's number one. The other option is to say to the general, give me a copy of everything. I'm going to read it and I'm going to at least familiarize myself with my risk now. Because I've been doing this for over 35 years, I will tell you that no subcontractor will do that. They may ask for the documents. They don't have the personnel and they're not going to pay the lawyer to read these documents. I know it's it's hard to believe, but 99 percent of the calls I get usually start off with. I know you told me not to do this. I only have one client in my 35 years of practice who all calls me in advance and asks me to read the contract in advance to point out the risks. But those are your two options, either limit your risk or ask for all of the documents that explain your risk. Fair enough. Fair enough. OK. All right. Now, when you get to your scope provisions, this is important. This is how these scope provisions are generally itemized. Number one, you have to do your work in full compliance with all the plans and specifications. That makes sense. But then it says you have to also comply with all the other contract documents. That's what we were just talking about. Those are the documents you haven't looked at. Then it says you also accordance with all local codes. OK, I've read that before. I've read this. I've read this one. OK, I don't understand it, but I've read it. OK, so there are every municipality, every governmental agency has a building code and some of them are international or national codes. And some of them are unique to a particular agency. It's my opinion that the architect who draws the plans should be responsible for code. For example, let's say you're building a tollway building and in this tollway building, the architect includes in her plans and specifications five fire whole stations. So, you know, those are the last things that you write. Let's say the code for this size building actually requires 20 whole stations. So now you have a problem. A subcontractor prepares its bid based on the plans and specifications. So the subcontractor, books, let's call it the plumber or the electrician who's ever doing the work, books at this and says, OK, I see five whole stations. That's my bid. I'm bidding five whole stations. Now the job starts. And the inspector comes out and says, well, you need 20, your 15 whole stations short. Well, you didn't have it in your bid. So you put in for a change order. You ask for the money for the next 15 whole stations. Then the general contractor pulls out your contract and says, wait a minute, your contract said you're going to do the work according to the plans and specifications and all applicable codes. You bought this problem. Oh, Marge, that's a tough pill to swallow. Right. So when you a lot of what I'm talking about is things that you will bring up during the negotiation stage, assuming that there even is one. During the negotiation stage, the subcontractor is going to want to talk to the architect and say, here's what I'm doing and I'm excluding code because that's something the architect should know about. And if we need 20 pole stations, then the architect needs to drop 20 pole stations. And if they only draw five, then I get an extra. I'm not saying that you're going to be successful with this negotiation, but at least know your risk. Right. And why is it that? And I agree with you. We we run into a lot of problems with architect firms. And I remember there used to be like a meme about like, this is what they designed, this is what the owner intended and this was built. You ever seen that picture running around? And so why is it that it's the what? It's the person on the swing. Yes, correct. Correct. That's right. Yeah, that's right. There's a hole in it for the. So why is it that architect firms? Why? Why is why are there so much inconsistency? Because, you know, I, you know, I can I started my career in Florida and now I'm working up in Rhode Island and up in Massachusetts. And it's the same thing. Doesn't matter where I go, it's the same problem, same challenges. OK, well, when I started practicing thirty five years ago, the owner architect agreement required the architect to do a lot more work than the architects do today. Thirty five years ago in the owner architect agreement, the architect had to supervise the work. They had to inspect the work. They had to approve the work. They had to stamp shop drawings, reviewed and accepted things like that. One of the problems when you have this kind of responsibility, you tend to get sued. So whenever there was a problem with a defect on a job, the architect would get sued allegedly on the basis of having undersized something, not meeting code, doing something that caused its errors and omissions insurance to skyrocket. Architects decided, well, the only way to stop getting sued is to step back and do less and less work. So instead of supervising today, they observe. Instead of approving, they look at the design intent. Are you meeting the design intent? What does that mean? If I signed a steel building, if you're building a steel building, you've met my design intent. As a result, architects also carry very little insurance because they have always limits on liability in their contracts. With the owner, they say, I limit my liability to $10,000 or you can't sue me for more than my contract amount. They have these exculpatory or risk aversion clauses. So that's one of the reasons why drawings are becoming less and less detailed. They're becoming more and more 60 percent, 80 percent drawings. And the architect says, well, you some, you're the expert. You flesh out my drawings. And that's one of the problems why architects no longer take responsibility for anything. The other, which is probably even a bigger reason, it's money. Architects get paid for various portions of the work. So there's the pre-design, the design, and then there's the construction. By the time you get to construction, the architect has been paid 80 percent of its money. There's not enough left in that 20 percent to do everything that you would want architects to do. So that's part of the part. And owners don't want to pay the architects. So, you know, chicken or egg, the architects don't want to do it. The owners don't want to pay the architects to do it. And so this falls on the shoulders of the subs. And so has the amount of litigation increased for contractors as a consequence of this or as a result of this? Has it has litigation increased? Have you seen that increase for contractors? What I would say is any time there's a void, as architects stepped back from their usual role of being the supervisor, in came the construction manager. So it hasn't really cut down on litigation. It's just shifted from the architect to the construction manager because somebody had to take up that role of being the owner's eyes and ears. Right. The owner needs someone to protect them. And if it's not the architect, we have this new entity. I would say that this country is probably the most litigious country in the world. So no lawsuits haven't stopped. Architects just limit their liability because they carry a limited insurance. Right. No. And speaking on that, you can type in construction and litigation and you'll find thousands of articles. I mean, it's really it's it's it's pretty. Yeah, it's devastating. So OK, continue on. Now let's move on to the next thing you can do. And I touched on this when I was talking about what can you do to limit your liability? When you submit a bid. It's not only important to include in your bid what you are going to do. It is even more critical to put down what you're not going to do. We call these exclusions. If you're not going to get permits. If you're not going to set up construction barriers, if you are not going to provide hoisting material, it is critical that you put in your bid what you are not going to do. Another example, and this comes up very frequently in construction, let's say you bid a job and you think that you're going to be doing it in June, July and August. And then due to a delay on the job, you don't get to do it until December, January, February of the end of the year and into the next year. Well, now, instead of doing the job in nice weather, you're doing it in the dead of winter. You call those winter conditions working in the cold. Now, maybe this doesn't work down to Florida. Maybe it doesn't matter. You said you're up in Boston now. Yeah, we had that. Yep. Yeah, that happens. Yes, winter conditions make a big difference. It blows people down. It makes it harder to get materials. So if a job is going to run or possibly run into winter conditions, you want to get paid extra for that. So you want to put in your exclusions extra costs for winter conditions. Now, nice, you submit your bid. And let's say the general contractor agrees and says, OK, I accept your your exclusions. Here's the tricky part. When you sign the subcontract agreement, you must make sure that all of your inclusions and your exclusions get put into the actual subcontract agreement. If you forget to do that, the minute you sign your subcontract, your bid document disappears like it never existed because there's a clause in the subcontract which says all prior negotiations are set forth in the subcontract and will no longer have full force or effect. How do you broke up? You said all prior contracts and and what? All prior, sorry, right? My internet's all prior negotiations. OK. Documents, OK, included in the subcontract so they no longer have any force or effect. So if you haven't put the exclusions into the subcontract, it doesn't exist. Went away. Now, if I gave them my bid and it's not in there, I guess it's on me to say, hey, this is not included to make sure they include that. Yes, you either need to add a clause to the subcontract. So let's say it's a 20 paragraph or 50 paragraph. Yeah, 150 paragraph page kind. It doesn't matter. After you get to the last numbered paragraph, let's say the last number is 100, you can write in 101. My exclusions are the following. Or you can do a writer to the to the subcontract. Right. I've done the separate document because most general contractors will not let you touch their contract. They're very proprietary. You don't write it. Don't don't mark up my contract. So you do a writer in the opening sentence of the writer says, this is a writer to contract that that's attached here to and in the event of any dispute between the writer and the contract, the writer applies. And that's where you put in all your special clauses like here are my exclusions. I actually I was working on a contract as a sub and the the drawings, the contract drawings were different than the actual scope of work. And they didn't they showed there was a missing wall and we were putting panels on this wall. Well, on the drawings, that wall did not exist. When you looked at the elevation drawings versus the rooftop, you could see that it appears that it should have been there, but it was not. And so after I was awarded my subcontract, I was able to exclude that particular wall because the general kind was adamant that it was there. That was part of the plans, part of specs. And I said, OK, if you're so adamant, then go ahead and exclude it from my contract. This because if you're adamant, it's there. And I'm telling you, it's not. Then let's go ahead and put. All right, we're going to exclude this because if it's in there, then you don't have anything to worry about. And he did it. And so very that's a good end. Yeah, so it worked out means me. It brings me to the next clause, which is would have actually been detrimental for you. There is a clause. We call them the omission provision, omission provision. And this clause says if there is something omitted. Or misdescribed or insufficiently detailed in the drawings. But it's necessary for your work or it's customarily performed. Or the architect really meant to put it in. Come on, you shall do it. And you have to believe that it was fully and correctly set forth in the document. So when they say you will do A, B, C and D, and here are the words they use and everything reasonably inferrable. OK, that was one of my and my seven ones recently deferred, that was it, right? Yeah, yeah. So let's say you are doing a curtain wall, unless you're doing windows and on the plans and specifications, there are no, there's no flashing shown. There are no we polls shown and there's no caulking shown. Let's pretend. So you go and you put in a bid for windows only. And then you get out there with your windows and the general contractor comes to you and says, well, where's the flashing? Where's the we polls? Where is the caulking? You said, well, it wasn't in the plans and specifications. And the general says to you, well, you can't put in windows without flashing or we polls or caulking. So that should have been reasonably inferrable. You it's the old you should have known. Right, right. Needless to say, what a subcontractor thinks it knows. What a general contractor thinks the sub knows the two completely different things. So open ended language like reasonably inferrable or if something is missing or even if we misdescribe it, if it's customarily performed, vague comments like that. Those are very dangerous terms because it's completely open ended. And what you put in for a change order, someone else is going to say that's customarily performed. You don't get a change order. You know, that's that's that one is really tough. And, you know, the example that comes of my mind are doors, frames, hardware. That's the first thing comes to my mind. Replace these twenty two doors. OK, twenty two doors, no problem. Then, you know, like you said, if they reason for the frames and the hardware and you wait a second, you know, and then the frames what we've had don't have any support because it's old building, right? And so that now there's no support for the frames. We then how far back does this go? Right. Do we go back to the the port concrete on the wall that's now deteriorated so we can't hang frames up to support the new doors? Do we go back into the reinforcement that's so very forced to the concrete and the wall that reinforce the concrete so that could be there to sustain the frames are going to hold the doors? So how far back do we go? That's a tough one for me to swallow. How do we how do we get here? How do we get to this point? The construction industry is one of the most adversarial industries in the country, if not the world. I should say country because there are countries, other countries where if there is a problem on a job site, everybody shows up, everybody works on the solution, everybody pitches in, the owner puts in more money, the architect does additional work, the contractor, the subcontractors, they all come, they fix the problem. And then afterwards they sit down and they talk about who's going to pay for what. This is not the way they do it in the United States. In the construction industry, the owner wants a risk-free project. Now, we all know in construction, there is no such thing. In fact, there's no such thing in this world as a risk-free anything. Life is a risk, but the construction industry got into the practice of pushing all liability downstream. Right. So the owner says, I want no liability. So you contractor, if you are doing some excavation and you discover a boulder, then it's on you to remove it. And you incur the cost. Now, the contractor says, I don't have it in my numbers to move that boulder. So the contractor then goes to the excavator and says to the excavator, you should have known that there was a boulder there, that this the nature of this land is very hilly and rocky and filled with boulders. You should have expected that. So the excavator, now the contractor pushes the liability down to the excavator to do the additional work. That's what we have. We have from the top pushing down to the lowest trade, the company that has the least amount of money, the least capital, the least profit, the least ability to address the problem. That's what we have in the construction industry. It's they've everyone's become risk adverse in probably one of the most risky industries and low margin, extremely low margins, high risk, low margin. Right. And you only get paid 90 percent because there's retainage. Right. This is the only industry where you can do 100 percent of the work and only get paid 90 percent of the money due and you don't get paid for three to six months and you have to pay your your workforce every Friday. Yes. That's right. There you go. You know, the same industry that's right. I mean, you can't even buy a newspaper or a magazine subscription without paying for a year in advance. Very true. Very true. So now, along with the scope omissions, we have scope changes. So let's say you are let's say you're doing some electrical work and you get a set of plans and there's a contract clause that says, give me a bid, this is a lump sum contract. You're going to do this for five hundred thousand dollars. And there's a clause which says, as additional drawings are made available by the architect to fully explain your work, you will perform that work at no additional cost. Because it's not a change order. It's the same scope of work. It's just more detailed. That's obviously a very dangerous clause. Here's another one. This is an actual case. The plans call for twenty three dewatering well, somebody was building a tunnel under a mountain. And there was an estimate that as you're doing all of this excavation, that water rises up and they would need what they call dewatering wells, wells that get the water out of the construction. Well, it turns out that it didn't need twenty three dewatering wells. It needed two hundred and fifty dewatering wells. But there was a clause which said as more work becomes necessary, you don't get an extra because you agree to do whatever was in your scope of work. And, you know, too bad, so sad. We thought twenty three dewatering wells would do it. You're on the hook for the other two hundred and thirty. That's why you had to pay attention, not only to these clauses, but to understand what they mean. If somebody says the design is not complete and that more work is going to become available, you better make sure that you have either an exclusion or a writer that says, you know, additional work, additional money. Now, the scope changes. Is that is it written into your contract that it says it allows for scope changes? How is that written? I mean, I heard what you said, but I guess I didn't really understand. Are they writing in my so, for example, let's let's say the design is not complete, but they're going to issue me a subcontract agreement, right? Is the provisions say scope changes, you know, forthcoming, that no additional monies, is that how it's written? What are we looking for? It would be language that says the subcontractor shall be prepared to perform all work necessary to complete its work without additional money. OK, that's not considered a scope change. If you're doing dewatering and you had to do more dewatering, right, that's not necessarily considered a scope. No, it's not. No, it's not the same. The same scope is dewatering. It's just more of it, right? Oh, you need to know that if how to protect yourself if you're looking at a set of plans that is not 100 percent complete. OK, OK. So we'll say OK. Right now, another issue that trips up subcontractors and results in huge cost overruns for subs is schedule changes. I touched on one of them. You thought you were going to be doing the work in May, June and July, and you don't get a chance to do it until September, October, November, let's say you have other work scheduled for September, October, November. Now, instead of one project, because you you spaced out your work, instead of one project, now you have two projects. Where do you get the people? You didn't there may not be people available. There may not be material available. Under schedule of work, everybody gets a preliminary schedule. And people bid on that preliminary schedule. The contract with the sub says that the general contractor may revise the schedule at any time for no additional cost to the sum. And they have to do it on overtime. In case there is an acceleration. So let's say the project was delayed by the concrete subcontractor early on, which now you have an end date. Let's say you had eight months in which to do a job. And it could have been done in eight months, but there was a delay with the concrete at the beginning of the job. Now, instead of eight months, you're down to six months. And in order to still meet that end date, everyone's work has to accelerate. You have to put on new, you have to work more shifts. You have to work overtime. You have to get additional equipment. This is extremely expensive. And if you have a contract which says that the schedule can be changed at any time and the contractor has the right to direct the sequence of the work and the pace of your work, what if you are a carpenter and you're working in a huge. Let's make it subject to today's world. Let's say you're working on a huge marijuana grow facility. And it's the size of a football field. And the general contractor says, OK, start in the north, south section. And by the way, tomorrow you're going to be in the western, northwestern section. Now you're picking all your tools. You're moving your equipment. You're moving your materials someplace else. Then a week later, the contractor says, I need you out of this area in the southwest area. Now go down to the southwest area. You're picking up everything again. The contractor has the absolute right to do that. And if you have a clause that says they can sequence the work and they can direct the work with no additional compensation, this is going to be a huge loss to the sum. So we're talking about a writer. You want to put in a writer a clause which says if the schedule changes through no fault of the subcontractor, then the subcontractor is entitled to any additional cost at any additional time. This is especially true when projects are accelerated. The cost to pay overtime or to get a second shift and a third shift is enormous. That happened to me. And we were talking about that in the beginning before we start the recording. And they postpone the job for several months. Then they asked me within like two weeks' nose to show up and then I couldn't make it because my crews were other places. And then they started hitting telling me I was delaying the project. And that's one scenario. The other scenario was where we were installing a roof. And the contractor, there was a like a third building that that was maybe there's a main building. And then there was like an offset building that the roof connected. It's like a like a, you know, you drive under it and they redirected our sequence. However, the way that the manufacturer designed this building was the panels for this sea building were supposed to be installed first. And the other panels overlay because it's a down slope. They had us do it backwards because the other building was not built. And so we had to install the B panels first before this because the sea building was not built because there was some issues with the fire hydrant and things like that, the permitting wasn't in yet. And so we literally installed them basically temporarily and then six months later when this other bill was built, we had to then take them out and then reinstall them after doing the right sequence, otherwise they would have never worked properly. There had been a leak in the building and we got no additional compensation. And this happens in many trades. A good example is if you have curtain wall going up and you also have somebody doing interior framing, if the project is not sequenced properly, you can be putting in, let's say, metal framing for the dry wall. The curtain wall is not up. So you have to stop 10 feet from the curtain wall. And because without the curtain wall up, you can't finish the interior work. Right. So you finish all of the floors and then once the curtain wall is up, you have to come back to the last 10 feet. And again, all with no additional money paid to you. So there are any number of scenarios where this happens. Another example is in concrete. This would be winter conditions where it's too cold to pour concrete, but it needs to be done. So the contractor says, well, go out and get heaters to keep the temperature warm enough in the building so you can pour your concrete. Well, you didn't have anything for heaters in your bin. But because this is the schedule that you got stuck with, you now have to pay the extra money for the heaters because now you're pouring concrete in winter instead of the summer. So. Right. And and on top of that, even if you didn't have a schedule problem, even if there's a legitimate delay that you can be, that you can have addressed, there's what we call the no damages for delay. So if the project was supposed to be done in a certain amount of time and it's delayed by two months, you can get an extension of two months, but you get no money. We call that no damages for delay. You get an extra two months. Well, that doesn't help you if the price of material has gone up. Right. If a union contract has expired and now you're paying more money for your labor, if the cost of equipment. So the fact that it was delayed two months, you get an extra two months. That doesn't help you if you don't get money. Oh, absolutely not. No, not at all. In fact, we're experiencing that right now with covid, right? And you know, material shortages. And, you know, we're having trouble with subcontractor pricing and no one no one's able to hold their prices long. Right. And and I have what I referred to as a covid clause. OK, which says that, you know, the price is the price the day you sign this and your the subcontractor isn't responsible for any price escalation that the owner or the general has to pay once the material is available. I'll get to that in a little bit. OK, you know, before this is over. OK, sometimes. A contract can go can can have very dangerous side effects by the use of just one word. And that word is coordination, coordination, project coordination. This is an every subcontract. It says the subcontractor shall coordinate its work with the work of every other trade. I want you to think about this. Put this picture in mind. Make yourself a triangle, put a general contractor at the top, put the sprinkler subcontractor down at the bottom leg on one side. Yes, put the drywall subcontractor at the bottom leg. OK, right? General at the top. Got it. Right. There you go. And let's say you are the drywall subcontractor. And you're going along and you're doing your work and you're on floor 17, 18, 19. And you put up all your drywall because that's where you are in the schedule. The contract, the project manager, whatever says time to put up the drywall, time for the drywall, so you do all these floors. And the contractor comes back and says, by the way, drywall subcontractor, we never got the sprinkler pipes in before you drywall, you have to open up the drywall, allow the pipes, the sprinkler pipes to be installed on these three floors. And then you have to close up the wall. And you say subcontractor, drywall subcontractor, sure, you know, it'll cost you another one hundred and fifty thousand dollars. And the contractor says to you, no, no, no. It says in your contract, subcontractor shall coordinate its work with the work of the other trades. And you drywall did not coordinate with the sprinkler subcontractor. I want you to think about this. The drywall subcontractor has no contract with the sprinkler sub. No. The drywall subcontractor could make a phone call to the sprinkler company and say, hey, I'm going to be drywalling. Floors 17, 18, 19, would you get your sprinkler pipe in? The sprinkler subcontractor can say, well, no, I can't. I'm working on floors three, four or five. I'm not up there yet. That drywall sum has no ability whatsoever to control or coordinate anything. No, of course not. They can only control their own trade. So any time you see the word coordinate, cross it out and make it cooperate only the general in this triangle that I showed you. Only the general can coordinate between the sprinkler sub and the drywall sub. Now, when you say coordinate, is it spelled different than coordinating? Is it the same word? It's coordination is the same word. OK, OK, because I see you keep emphasizing coordinate. So I don't know if it's the same word. Between coordinate and cooperate. Fair enough. No, that's right. Rid of coordinate and make it cooperate. OK. So what in my scenario when I said, well, the drywall subcontractor can call the sprinkler and say, can you get your sprinkler pipe in? And that's cooperation. Right. Operating if the sprinkler sub says, no, I can't. Well, too bad then. Go ahead, do your work. But don't take on the job of cooperation. I'm sorry, of coordination. Don't coordinate. You don't have the power. Right, fair word. One single word. I love it. I love it. All right. Now. The this is one of the most dangerous clauses is the indemnification clause. Indemnification means you are going to protect, defend, hold harmless somebody above you. So if you're the sub, you're going to be expected to indemnify, protect indemnifications. Just another word for protect. The general owner, architect, the engineer, all of their employees or their consultants, whatever. So now we have an issue of risk allocation. Everybody has insurance. Right. Subcontractors have what's called CGL policy coverage, comprehensive, general liability. They have coverage, but that coverage is only for negligence, not related to somebody's work. Let's be clear. You cannot get insurance for your own bad work. Unlike car insurance. You could be drunk. You could be incapacitated. You can fall asleep at the wheel. And if you're in an accident, your car insurance will pay the damages to the other party. In the event of a construction mishap, you cannot insure yourself for your bad work. You could only insure yourself if your bad work injures another person. So let's say you're working on the roof and the roof blows off and in the process falls on top of granny and kills granny. Your insurance will pay for a state, but it won't pay to repair the roof. You cannot insure yourself for your bad work. Right. So when when you indemnify other people, you want to try to limit what you defend them for, for what you have insurance. So if you can't insure yourself for your bad work, you don't want to be insuring others for their bad work. No, definitely not. Absolutely not. So here's an example. So you're bringing structural steel to a job site. It's in a truck and there are live wires on the project site, high tension wires and you've got all the steel stacked up and you've got the subcontractor driving the truck and you have the project manager or the superintendent for the general and the general contractor waving the car saying, come on to the truck, come on, come on, come on. And the driver is watching the general's foreman and a piece of steel hits that high tension wire and the driver is electrocuted. OK. You don't want to indemnify the general contractor because they participated, they were part of the problem. Right. They had risk involved. So when you sign on to these indemnification clauses, you want to try to limit it to two things really, what you have insurance for. And you want to limit it to only your breach of contract. Let's face it, if you, the subcontractor, do something defective, you should be on the hook for fixing it. Yeah, that's I agree. We agree on that. That's just fair. That's fair. But you shouldn't be on the hook if the contractor does something wrong, if the architect does something wrong. So you want to exclude from your indemnification mistakes made by others. They let them they have their own insurance. Right. Now that's saying that you're going to be able to negotiate that. But I'm just saying if you are indemnifying everybody, here's a good example, case that I've got right now. I represent a carpenter who did some framing for a roof. So before the roof went on, they had to put in some wood and they had to nail down some of the forms. And then the roof went over. The roofing material went over. The carpentry work. OK, yep. So you had the general contractor hired the roof or the roof or hired my client. But the carpenter, right? This was done almost 10 years ago. Four years ago. The roof blew off. Nobody told my client the roof blew off. Now there's a lawsuit four years later. The job is more than 10 years old at this point. And my client never had notice of this. But she has an indemnification clause in her contract. And in her contract, she agrees to indemnify the roofer and the contractor. Even though she never knew this even happened. So you need to put some limits on this indemnification clause. If you're going to be indemnified by someone you need to get notice. It has to be not their work, but only your work. Big risk. It's awful. All right. Now, here's a clause that sneaks in very frequently, especially if you do work for a contractor on several projects. Oh, I know it. I don't know the name of it, but they've done it to me before. They they said, oh, if you don't finish this, we're not going to pay you over here. Is that it? Exactly, I've lived this stuff. I don't know what that clause is called. They just threatened it to me to go. Oh, you you don't know. And your contract, you sign that we're going to withhold your payments over this new project for this work that we want you to do over in this other project. I'm like, how is that fair? Go for it. I'm sorry. It's like jeopardy for me now. I guess I've been through all this stuff, man. I've been I've been dragged through the mud and back and forth. Was it called? Go ahead. Set off. Right of set off. And what it says is the contractor may withhold from this project or any other project damages. So you need to cross out those words or any other project. Because if you're doing projects, A, B, C, and D, you don't want and there's a problem on A, but B, C, and D are going well. You don't want them holding up money from project D. Now you're going to have two jobs at risk. Right. A where you have the problem and now D, where they're taking your money to pay for the problem on project A. Now project D is going to go, you know, south. Right. Right. OK, so no no right of set off. All right. I am going to just read for the audience a number of issues that can cause problems and cause extra cost that you need to think about when you're putting your bid together. For example, are you going to have easy access to the job site? In other words, if you're going to have to park a block away because the the site is flooded or it's in bad shape, you have to make sure that you have money in the project to either do that or you're going to get an extra for that. Who's going to provide the hoisting facilities? Is there suitable storage? You have access to stairways or is there going to be an elevator? Who's responsible for security on the site? Is there adequate parking? Where are the toilets? You don't want to be stuck on the 19th floor and the toilets, the porta potties down on the ground floor because that's going to take time away from your workforce as they run up and down the 17 flights of stairs because there's no lift available so they can take their bathroom breaks. So that's going to impact your efficiency. What about trash removal? You're responsible to remove your trash. But if there's no roll off box or debris disposal on the level where you're working and you're going to have to haul all of your trash someplace at the end of the day, that impacts your efficiency. Absolutely. You also have to be be careful about. Do you have to segregate your debris? Sometimes you get to the job site and you didn't have this in your agreement. You just said that, yeah, you'll take care of your debris removal, but then you get to the site and they have what's recyclable and what's not. And if you start putting non-recyclable debris in the recycle, in this recyclable bin, then you're going to get back charged. So you need to find out all of this information. Who's going to erect the safety barriers and will there be a temporary utilities and who's going to provide it? So I'm getting toward the end as we wrap up. I want to address and we touched on this price escalation clauses. You can go on to Google and you can type in price escalation clause. If you have an attorney, I recommend that you deal with your attorney. Hopefully you have a construction attorney, not necessarily a real estate attorney, not to disparage real estate attorneys, but real estate is real estate and construction is construction. So especially in today's market, whether there are material problems, you want to address both price escalation and material costs. So consider putting in a clause that says this bid is calculated on current marketing or current market pricing. I've gone out. This is the current price for conduit, for pay, for lumber, for biofoam, whatever it is, if after the date of our contract, this cost goes up by picking any number, it could be any number, five percent, ten percent, seven percent. If it goes up, I have the right to back out of this agreement. I'm not saying you're going to be able to get it, but I'm just, these are some of your options. Another one can say if it goes up by more than five percent, you will take that claim to the owner and negotiate something for me. There are any number of clauses or price escalation clauses. You can say this price is good for today. It's good for 30 days. If you don't sign a contract with me within 30 days, this price is no good. This happens a lot, especially in public projects. When projects got delayed, we had this in Illinois, where for almost three years we had no budget. Because we had no budget, we could do no public construction. So once there was a budget three years later and all these public projects came up again, the public body expected the prices would be the same from three years ago. All right, we're back and due to a technical glitch, we've actually had to rerecord this session at a different time and also a different location. So I did bring the same shirt somewhere in a shirt, but I'm not at my studio office. So but thank you for joining us and coming back on Marjorie. It's my pleasure. So they notice that my earrings are different. They'll understand. OK, fair enough. All right, I'm going to finish up now. The last item I wanted to talk about is what I refer to as a COVID-19 clause because of the uncertainty in the markets, both with obtaining material, finding labor, getting everything on a timely basis. I recommend that a COVID delay clause should at least be negotiated with contractors. So the clause generally acknowledges what the problem is for. So you say, as of the day to this agreement, certain markets providing essential materials or access to labor are experiencing or expected to experience significant industry wide economic fluctuations, especially with the Delta variant sweeping across the country and the risk that this is going to become even worse in the fall as students go back to school. The question will be whether subcontractors who are least economically able to handle price increases or paying higher wages if you're not a union subcontractor, who's going to pay for those increased costs? Generally, you would want to say that the owner would pay for any price escalation. Of course, as we discussed earlier in the program, everyone wants a risk-free job. So the owner is going to push down to the general any price escalations. And the general would do the same thing to the sub. So the party least able to handle an increase in price is going to be stuck with either difficulty in getting access to labor or materials, and that will delay the job or paying a premium for those products. So you want to acknowledge in what I, as again, said, COVID clause that that problems are expected. And then you want to say, well, what's the solution if the subcontractor is delayed? Either with commencing the work or the progress of the work or the unavailability of materials or labor beyond the subcontractors control. You can't control what happens in materials coming in from other countries. You can't control if there is no access to labor. Then if it's not the subcontractors at the subcontractors control, what you want to say is that the subcontractor gets two things. Number one, they get an equitable extension of time. So if your materials are delayed by six weeks, you get a six week extension of time and and any additional cost and an equitable adjustment of the contract price and then to wrap up that clause at the very end, you want to say, not withstanding any other clause in the contract, all these no damages for delay and having to escalate your and accelerate. Sorry, your labor, not withstanding any other clause in your subcontract. The subcontractor shall not be liable to the contractor or the owner for any of the additional expenses, losses or damages that arise out of a COVID-19 delay. OK, most important thing to remember is while COVID right now is in the moment, I think that we can pretty much expect going forward. More problems, whether it's climate change related. Another pandemic. A new fungus that sweeps the world that nobody was expecting. I don't want to be a doom and gloom sayer, but as the Arctic and the Antarctic are melting bacteria, things that people haven't seen for millions of years. We don't know what is in the future. And unless you prepare yourself for those eventual eventualities, then you're putting yourself at risk. That pretty much sums up sums up all of my killer clauses. I'm sure that there are others out there that I haven't seen or I haven't addressed today if you want to get those to Eric. If you have any questions, Eric can send something on to me and I'd be happy to address something in an email or a text. And that's all I have, Eric. Well, no, thank you. I let me tell you this. I don't I don't know why you were worried about going under an hour because we definitely with all this information. I know it may not seem very exciting for a lot of folks, but it's definitely exciting for me. And I know that the persons on the other end listening to this, they're going to get a lot of benefit from it. And at the very least, they'll be more knowledgeable. They'll be prepared to know what they're dealing with. And really, you want to know what you're getting into before you agree and put your name on a dotted line. So I'm definitely appreciative of your time, appreciative of all the information. I learned something myself, so that's always a positive. I knew a few of these, but definitely there's some other ones that really pop for me. So thank you for coming back on. Thank you for doing this today. Any other things that you'd like to say to the persons listening? Just some from your years of experience, some words of advice and consideration. I know we talked about the clauses, but anything else that you may want to tell folks that are getting started and getting into the industry and they're kind of wet behind the ears. They're green, as we like to say to the business. What are some of the things you'd like to say? My final thoughts. My final comment is I think every contractor, whether you're a subcontractor, general contractor, material supplier, should have a construction attorney, somebody that you can ask questions to somebody to take a look at these contracts, your attorneys can keep you out of problems, which is so much easier than trying to address a problem after it's arisen. Once somebody is suing you based on failure to meet your contract terms, it's not very much your lawyer to do for you. So I know it seems like red ink. I know it seems like you don't get the best bang for your buck, but over my 35 plus years of practice, I can tell you that those subcontractors who talk to an attorney, who go to seminars like this, who join trade associations, who educate themselves, not just open up your door and say, today I'm an electrician or today I'm a plumber. Join organizations, talk to other people, attend these types of programs, get yourself a construction attorney, not a real estate attorney, but a construction attorney. All of these groups are there to protect you. And it's just like putting in a computer system, just like putting in better lighting. All of this is to your benefit at the end of the day. That's my encouragement. So thank you very much for having me. I really appreciated this. Thank you. Thank you so much. And the best place to reach you, the website or the company? Yes, the website of my company. I would also say that my office number is 312-327-0041. I may not be able to get back to you immediately. Sure. But I will do everything in my power to answer questions. And your email address? It's M Newman, N-E-W-M-A-N at B-E-S-N-B-O-I-D-S-N-D-O-G-L-S-N-L-A-R-E-E-F-I-R-M.com. That's probably the best way to get a hold of me. There you go. That's no and we'll have all of that information on our show notes from today's episode. So, Marjorie, thank you again for coming on. We really appreciate it. I'm glad that we were able to connect and we reached out to you and thank you for writing the article, because without that article, we would have never learned about you. And so look at that. The article has taken you here and now you're in the show. And so I really do appreciate that because in doing my research for a YouTube video that I made, it was very helpful for me as well. And so I said, let me just see if I can reach out directly to the author and have her on. And so here we are. So thank you for that. Well, thank you for thank you for thinking of me. It was my pleasure. Thank you. Talk to you soon now.