Changes to Contractor/Subcontractor Agreement Can Have Profound Effect on Roofers

Whether they like them or not, most subcontractors and contractors have used American Institute of Architects (AIA) standard form contract documents at some point in their careers. Several options exist for those wanting to utilize standard form documents, like ConsensusDocs, Design-Build Institute of America, and the Engineers Joint Contract Documents Committee forms. However, the AIA, being founded in 1857 and having published standard form construction contracts for more than 100 years, is the most established of these organizations, and its form contracts are still the most prevalent and most commonly used forms for commercial construction projects in the United States.

The AIA updates its forms every 10 years and completed its most recent revision in late April 2017. The updates included revisions to several forms in its A-Series (Owner/Contractor Agreements), including its widely used General Conditions (AIA Form A201) and its standard Contractor/Subcontractor Agreement, AIA A401. While these are only a few of the AIA’s updates, these changes may be particularly pertinent to subcontractors and those working in the roofing construction industry. Some highlights of the 2017 updates to A401 follow here.

Designated Representatives and Notices

Both the Contractor and Subcontractor are now required to designate (in the space provided in Section 14.2) an individual who will serve as each party’s “representative” for the project. This requirement is set forth in Section 3 for the Contractor and Section 4 for the Subcontractor. Parties are permitted to change their designated representative only if they provide 10 days’ notice. This is significant for both parties because the updated form requires that notices — for example, notices of a party’s potential claim arising from the subcontract — must be made in writing and are valid only if served upon the designated representative. The new form allows notices to be made via e-email or other electronic means only if an electronic method is set forth in Section 14.4.3. Parties should remember not only to designate a point person who is prepared to serve as a project representative and an email address for notices, but they should also ensure that the other party has done the same. Failure to do so could result in notices not being made by the proper means and to the proper individual — which in turn could result in parties waiving potential claims.

New Contractor Responsibilities — With Limitations

Although it has long been a standard practice (both on AIA projects and elsewhere) for the Contractor to include the prime contract as an exhibit to the subcontract, the updated form takes this a step further and requires the prime contract to be attached to the subcontract as “Exhibit A.” If Subcontractors hold Contractors to this requirement, Subcontractors will be able to review all of the contract documents with greater ease before signing.

Furthermore, Section 3 requires Contractors to “render decisions in a timely manner and in accordance with the Contractor’s construction schedule” and to “promptly notify the Subcontractor of any fault or defect in the Work under this Subcontract or nonconformity with the Subcontract documents.” However, in Sections 3.4.4 and 3.4.5, the phrase “written notice” has been changed simply to “notice” with respect to the Contractor’s requirement to notify the Subcontractor of defective work as a prerequisite of finding the Subcontractor to be in default. Section 14 still clearly states that all “notices” must be made in writing to the designated representative. This change could result in debate over what Contractors must do in order to notify Subcontractors of defective work before they avail themselves of remedies for breach, such as withholding subcontract payments.

Contractors also now have additional duties to provide Subcontractors information they may need in order to preserve their lien rights. Section 3.3.6 previously required Contractors to provide Subcontractors “a correct statement of the record legal title to the property … and the Owner’s interest therein.” The revised A401 now requires the Contractor to request this information from the Owner if the Contractor does not have it and give the Subcontractor the information upon receipt; a corresponding section in AIA A201 requires the Owner to provide it to the Contractor.

New Subcontractor Duties and Concerns

The above requirement to submit lien information is perhaps balanced by revised Section 11.1.10, which provides Contractors additional rights to indemnification from certain lien claims. “If Contractor has paid Subcontractor in accordance with the Agreement, Subcontractor must defend and indemnify the Contractor and Owner from liens and claims from lower tier subcontractors and suppliers, including being required to bond off liens,” the new form states.

Another noteworthy change concerns alternates — alternatives to a base bid that provide for a change in the level of quality, or scope of the work specified in the base bid. Alternates provide the owner with the option to modify the project by accepting or rejecting the alternate. The newly revised A401 contains a new section, 10.2.2, which allows the parties to list alternates that the Contractor can accept after execution of the agreement. Subcontractors should consider carefully whether it is wise to include alternates under this section.

Payment and Retainage

Finally, subcontractors and contractors alike should familiarize themselves with the newly revised Section 11, which concerns progress payments. Sections 11.1.7.1 and 11.1.7.2 break down the calculation of progress payments into separate subsections for additions, deletions, and retainage. This includes additions for construction change directives and deletions to allow for defective work remaining uncorrected (assuming that Contractor has duly notified the Subcontractor of the issue). Other portions of A401 allow for additions and deletions in these scenarios, but they are often conditioned on the owner’s approval and other factors. It remains to be seen whether this section could change normal progress billing procedures.

Section 11.7.2 opens the door to retainage options other than the typical arrangement (where the Contractor simply withholds the amount the Owner is withholding). Newly added subsections allow the parties to designate items that are not subject to retainage, as well as set forth an arrangement for reduced or limited retainage. This new section (11.1.8.2) could be a helpful avenue for early finishing trades to propose release of retainage upon 50 percent completion of the project as opposed to substantial completion — or even a way for parties to negotiate the retainage percentage down.

The above are just a few highlights of changes to AIA Form A401. For additional information or questions, visit www.aiacontracts.org or email Caroline Trautman at ctrautman@andersonandjones.com.

 

This article is not intended to give, and should not be relied upon for, legal advice. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.

Chem Link Opens New Training Center

Chem Link has opened a new training center at which the company will offer in-person and virtual contractor education.

Located in Schoolcraft, Mich., the new 3,200-square-foot facility with a 540-square-foot classroom can be utilized for groups of up to 20 contractors, training on both Chem Link and SOPREMA products. Training takes place in a classroom setting featuring stations set up to provide customers with hands-on experience using these products. This experience is designed to teach and engage using written, hands-on application combined with training videos through Chem Link’s interactive media classroom.

“We are pleased to be able to offer our customers the chance to receive this type of product training,” explained Rocky Stroud, National Sales Manager, Chem Link. “Our new education facility means we can give contractors the firsthand experience they need to feel confident using our products in the field, and we can also provide virtual training to contractors in remote locations. It is a great opportunity to ensure customers can learn in the manner that suits them best.”

For more information, visit www.chemlink.com.

 

Atlas Roofing Roadshow Enhances Contractor Business Skills

Atlas Roofing has hit the road with its roadshow, visiting cities across the country. The purpose of this journey is to help contractors enhance the business skills that will increase their job close rate and maximize customer satisfaction.

“Our roadshows are designed to help contractors outshine the competition and maximize closing opportunities,” says Stan Bastek, Atlas director of Marketing and Sales Development. “We have built a rapport with contractors through events like these, and we, in turn, learn a lot from them.

“The main purpose of this roadshow is to share our ideas with everyone while educating contractors about our product line and marketing programs.”

The 2017 Atlas Roofing Roadshow will feature the following sessions:

  • Learn how to become a 3M Scotchgard Shingle Sales Specialist
  • Control your cash flow with Genesis Contractor Solutions
  • Set yourself apart: Sell on value, not on price and land more jobs
  • HP Shingle Technology: How to save both time and money on installation
  • Boost your social impact: Learn how to maximize your social media to gain leads and increase referrals.

The Roadshow provides an opportunity for roofing contractors to learn about product innovations and marketing partnerships that can be leveraged from Atlas Roofing. Professional headshots will be taken of all participants, free of charge. And as always, there will be more than $5,000 in giveaways and prizes for the lucky few who win the fun roadshow-themed game show, What’s That Streaking.

“Stan and his crew of Atlas professionals impressed me,” says Josh Thompson of Storm Doctors Inc. in Peachtree City, Ga. at this past year’s roadshow in Atlanta. “They had product knowledge and presentations. Although I’ve wanted to go to one of these events for a while, this was the first time I was able to attend. And I’m going home with some helpful knowledge,”

Atlas Roadshow events are half-day conventions open to contractors, their staff members and Atlas distribution partners. Registration is required to attend, but admission is free. This year, we will hit these markets:

  • Oklahoma City – Jan. 26
  • Minneapolis – Feb. 1
  • Ann Arbor, Mich. – Spring 2017
  • Nashville, Tenn. – Spring 2017
  • Philadelphia – Spring 2017
  • Pensacola, Fla. – Date TBA
  • Austin/San Antonio – Date TBA
  • Tampa, Fla. – Date TBA
  • Baton Rouge/New Orleans – Date TBA
  • Dallas – Date TBA

Roofing Industry Alliance for Progress is Offering Building Construction Scholarships

The Roofing Industry Alliance for Progress announces applications are being accepted for the 2017-18 Melvin Kruger Endowed Scholarship Program. The merit-based scholarship is available to NRCA contractor or supplier member employees and their families to assist in furthering their education in pursuit of careers in the roofing or building construction industries.

Applicants to the scholarship program must be full-time employees of an NRCA member company or their dependent children or spouses with a minimum of one year of full-time employment with their companies as of the application deadline date. High school seniors or graduates who plan to enroll or who are already enrolled in a full-time undergraduate course of study at a two- or four-year college, university or vocational-technical school for an entire academic year are also eligible.

Scholarship recipients are selected on the basis of academic record; potential to succeed; leadership and participation in school and community activities; honors; work experience; a statement of career goals and aspirations; and an outside appraisal.

Each recipient will receive a $5,000 award that is renewable for up to three years of undergraduate study or until a bachelor’s degree is earned provided the awards are renewed annually and recipients maintain at least a 3.0 GPA.

Duro-Last Announces Contractor of the Year

Duro-Last Inc. held its 33rd annual National Sales Seminar in Palm Desert, Calif., earlier this year. During Duro-Last’s annual awards night reception, it honored Duro-Last Platinum Contractor Parsons Commercial Roofing Inc. of Waco, Texas, as Contractor of the Year for 2015.

This year marks the 10th consecutive year Parsons has earned the Contractor of the Year Award—a record for a Duro-Last contractor. In 2015, Parsons surpassed $6.9 million in Duro-Last sales. This level of sales also earned Parsons the John R. Burt Award, which honors contractors who achieve more than $4 million in sales.

For the first time, Duro-Last Project Awards were awarded. This category-specific competition honored Duro-Last contractors who completed outstanding projects in the below categories. Award winners and categories include:

  • Project of the Year
    • Contractor: Gage Roofing & Constructors of S. Houston, Texas
    • Project: Alvin Junior High School, Alvin, Texas
  • Custom Prefabrication
    • Contractor: Harrison Roofing Co. Inc. of San Angelo, Texas
    • Project: City of San Angelo Foster Communications Coliseum, San Angelo, Texas
  • Edge-to-Edge & Deck-to-Sky
    • Contractor: Nasi Roofing LLC of Minocqua, Wis.
    • Project: Rapid River Public Schools, Rapid River, Mich.
  • Metal Roofing
    • Contractor: CustomCraft Roofing of Cedar Grove, Wis.
    • Project: Detached Garage, Cedar Grove, Wis.
  • Sustainability
    • Contractor: Texas Roof Systems of Odessa, Texas
    • Project: Hobby Lobby, Waco, Texas
  • Specialty Roofing
    • Contractor: Overhead Inc. Toledo, Ohio
    • Project: Betco Inc., Bowling Green, Ohio

This year’s Sales Seminar’s theme was “Best in Class,” so there was a big focus on education and providing Duro-Last contractors the tools they need to succeed. Breakout sessions hosted by Duro-Last employees and industry experts discussed topics such as Sales 101, Sustainability, Installation Tips and Financial Planning. Introductory courses on Duro-Last’s new Corporate App and Digital Storefront were also available. Fun was had at the annual Awards Banquet and finale party, which had a superhero or “Duro-Con” theme.

Another fun event, the annual Dick Jozwiak Memorial Golf Tournament, hosted 104 players and 28 teams this year. Winners were Wendell Olson, Jeff Strain, Zach Cross and Rodney Castilleja.

“Every year we work hard to fill the Duro-Last Sales Seminar with as much relevant and helpful information as we can while also making it fun,” says Duro-Last Chairman of the Board Jack Burt. “We know it is something our contractors look forward to and we never let them down.”

A Case Involving Uber Has States Revisiting Employee versus Independent Contractor Status

When it comes to employment misclassification, no industry is safe. Employee misclassification occurs when an employer improperly classifies a worker as an independent contractor rather than as an employee. Misclassification can be intentional and unintentional and it generally results in avoidance of employment taxes and other potential liabilities.

While misclassification is prevalent in the construction industry, the issue recently resurfaced in a case involving San Francisco-based Uber Technologies Inc., the increasingly popular transportation network company wherein drivers use their own personal vehicles to transport customers to and from their destinations. Uber drivers and customers use a mobile-phone application that allows drivers to indicate whether they are accepting rides and allows customers to locate drivers and pay their respective fares. Uber has always classified its drivers as independent contractors.

In a recent hearing, the California Labor Commission challenged Uber’s classification of its drivers and reviewed whether Uber drivers were actually employees. Uber looked to the drivers’ exclusive control over their schedules and which ride requests to accept to support their contention the drivers were independent contractors. To Uber’s dismay, the commission ruled Uber drivers were, in fact, employees, entitling them to various benefits, including health insurance, unemployment benefits and workers’ compensation. As a result, Uber also was forced to cover certain business expenses, including toll reimbursements and mileage. Of the labor commissions addressing the Uber issue, the California Labor Commission’s decision directly conflicts with rulings in five other states: Colorado, Georgia, Illinois, Pennsylvania and Texas. All of these states’ commissions held that Uber drivers were independent contractors.

As employee misclassification gains more visibility, more states are reevaluating how to properly classify workers. The North Carolina General Assembly, for example, is attempting to pass a law that would expressly define the factors that would determine whether a worker is an employee or independent contractor. A few of the factors being considered by the North Carolina Legislature in House Bill 482 include:

  • Whether the individual is engaged in an independent business, calling or occupation.
  • Whether the individual is paid a fixed price, a lump sum or upon a quantitative basis for the work performed.
  • Whether the individual is not subject to discharge because he or she adopts one method of doing the work rather than another.
  • Whether the individual is free to hire assistants as he or she may think necessary and whether the individual has full control over such assistants.
  • Whether the individual selects his or her own time.

In addition to the much-needed clarification, the bill also proposes a penalty provision, where repeated intentional misclassifications by employers of their employees as independent contractors will trigger a $1,000 per employee liability. The bill would also create a five-member investigatory team and an amnesty period that would provide an opportunity for employers to self-report their current misclassifications. The “temporary amnesty program” will provide misclassifying employers with
immunity from civil penalty and enable to re-classify their workers to their correct designation.

Other states, like Texas, who have already enacted a similar law, are successfully discovering and reclassifying misclassified employees. In 2013, the Texas Labor Commission conducted 6,158 audits—752 of which were in the construction industry. Of the 752 businesses, 37.6 percent were found to have at least one misclassified employee. A total of 3,638 employees—an average of about 16 per business—were misclassified as independent contractors. The construction industry had one of the highest percentages of misclassified employees among all industries.

An investigative series, “Contract to Cheat”, published in a number of Sacramento, Calif.-based The McClatchy Co.’s newspapers in 2014, revealed just how prevalent the misclassification issue is in the construction industry in high-development areas, such as North Carolina and Texas. The series resulted from a year-long investigation into U.S. Housing and Urban Development, Washington, D.C., and other government projects that were completed during the government stimulus era of 2009-13. Payroll records of 64 HUD projects with budgets of more than $1 million were released to the McClatchy investigators and revealed employee misclassification was rampant throughout the construction industry.

The series revealed, among other findings, that employers in North Carolina and Texas with government contracts, which general contractors accepted on the condition they would adhere to all government laws and ensure all their subcontractors would do the same, were misclassifying employees 35.2 and 37.7 percent of the time, respectively. Additionally, Florida, where, like North Carolina and Texas, the construction workforce includes a higher-than-average concentration of immigrant workers, also experienced misclassification of 15.5 percent of workers.

The McClatchy investigation estimated misclassification resulted in $467 million per year to North Carolina and $1.2 billion per year in Texas of lost tax revenue from employers and workers failing to pay employment-related taxes. Not only did employers fail to withhold mandated taxes, such as social security and unemployment taxes, but North Carolina independent contractors who attempted to comply with tax law underreported their income by 56 percent to the state and federal governments. In addition to abusing the tax system, the practice has made it more difficult for smaller, law-abiding employers to compete with employers who are strategically undercutting the competition, placing lower bids made possible by the illegal tax benefit of misclassifying employees.

Though not currently being considered by state legislatures, the opportunity to create a third classification may present itself in the future. Canada has employed the use of a third, intermediate category: the dependent contractor, which is technically a subset of the independent contractor classification. The dependent contractor is a hybrid classification that includes benefits of the independent contractor and employee classifications. Dependent contractors enjoy some of the protections provided to an employee, such as health insurance, severance protections, unemployment benefits, and workers’ compensation, but they still enjoy the flexibility of schedule and control otherwise held by independent contractors.

In Canada, the classification hinges upon the number of clients the contractor has. A dependent contractor—like many contract construction workers—has only one client and depends on that client for income and sustenance of their business. A contractor with more than one client is an independent contractor because they are not exclusively dependent upon any one client. Were a state to create a dependent contractor classification, legislators would then be tasked with determining which select employee benefits employers would be required to provide dependent contractors versus full-time employees.

Although Uber is appealing the California Labor Commission’s decision, the commission’s ruling is important because it has sparked a renewed discussion of employee misclassification across not only the transportation services field, but also in the construction industry, where, as discussed above, it has long been an important issue.

As more states review employee misclassification, it is imperative employers, employees, and contractors alike be aware of any changes to state and federal employment laws. While employers are frequent targets of employee misclassification enforcement efforts, “independent contractors” may also be held liable, especially when they willfully comply with intentional misclassification. An employer should never assume that paying a worker by the hour, or any one of the other factors set forth above, guarantees the worker should be classified as one classification or another. If you are concerned about your business’s employment practices, consult an employment law attorney in your area who can best advise you on your state’s employment laws.

Contractual Risk Shifting, Workers’ Compensation and You

During the process of negotiating construction contracts, contractors often use certain clauses to shift the risk of loss onto subcontractors who may have less bargaining power. How do they do this? Most commonly through the use of indemnity and waiver of subrogation clauses. While these clauses apply in a variety of situations, they are particularly concerning with regard to workers’ compensation insurance.

All states have mandatory workers’ compensation statutes. These statutes make employers strictly liable for employee injuries on the job. Strict liability means liability without fault. Therefore, an injured employee of a subcontractor can recover damages from the subcontractor’s workers’ compensation carrier even if a third party is 100 percent at fault for the injury.

What Is Subrogation?

Subrogation arises when an innocent party incurs damages attributable to the fault of another. This most commonly applies when an insurance carrier pays an insured loss and subrogates to the rights—or “stands in the shoes”—of the injured party in recovering against the responsible party. This doctrine is based on equitable principles, primarily to prevent the at-fault party from escaping liability. Makes sense, right? Then how does a subcontractor waive subrogation?

Here’s a sample waiver of subrogation provision:
Subcontractor hereby waives all right of recovery against the Contractor, the Owner and their respective officers, directors, employees, agents and representatives with respect to claims covered by insurance obtained pursuant to insurance requirements under this Subcontract. The Subcontractor agrees to cause its Workers’ Compensation, General Liability and Automobile Insurance carrier to waive their rights of subrogation against the Contractor, Owner and their respective officers, directors, employees, agents and representatives.

Here’s an example:
A subcontractor’s employee is injured by the sole negligence of the contractor. The subcontractor’s workers’ compensation carrier pays out statutory damages to the injured employee. Pursuant to the waiver of subrogation clause, the subcontractor and its carrier have no right to recover the losses from the contractor.

What is the practical effect? The subcontractor suffers the consequences of the contractor’s sole negligence. How? The subcontractor’s experience modification rate (EMR) goes up. What else goes up with the EMR? Premiums!

What Is Indemnification?

Indemnification requires one party to pay damages to another, sometimes without regard to who was actually at fault. These types of clauses often include language requiring the subcontractor to “defend and hold harmless” the contractor, which puts the additional burden on the subcontractor of incurring fees and expenses for the contractor’s legal defense. There are generally three types of indemnity clauses: broad, intermediate and limited.

A broad indemnity clause requires the subcontractor to pay loss or damage regardless of who is at fault, even if the damage is caused by the sole negligence of the contractor. This is the most onerous type of indemnity clause because it shifts the entire risk to the subcontractor.

Here’s a sample broad indemnity provision:
Subcontractor shall indemnify, defend and hold harmless the Contractor, Architect and Owner against all liability claims, judgment or demands for damages and expenses, including, but not limited to, reasonable attorneys’ fees, arising from accidents to persons or property arising out of or resulting from the performance of the work.

An intermediate indemnity clause requires the subcontractor to pay loss or damage for its own sole or partial negligence. Some intermediate indemnity provisions require the subcontractor to pay the entire loss or damage while others only require the subcontractor to pay its pro rata share of the loss or damage.

Finally, a limited indemnity clause only requires the subcontractor to pay loss or damage that is the sole responsibility of the subcontractor.

How do indemnity and subrogation interplay? When the subcontract has abroad indemnity clause and a waiver of subrogation clause.

Pages: 1 2

Western Colloid Announces Territory Sales Manager

Western Colloid has announced the addition of Rick Boyce as territory sales manager for Texas and the Midwest.

Rick brings with him extensive experience in roofing with more than 40 years in contracting and manufacturing. “His knowledge of different types of roofing systems as well as the installation and restoration challenges that can come up on a roofing project make him the perfect addition to the Western Colloid team.” says Greg Hlavaty, general manager. “Rick brings skills that are very important to Western Colloid, such as the ability to provide solutions for the contractor.”

Rick will be responsible for promoting Western Colloid products, helping establish a distribution center in the Dallas/Fort Worth area, and developing relationships with contractors, specifiers and building owners throughout the region.

“Although we have been previously seen as a western states-based manufacturer, the last few years have shown increased demand throughout the U.S. An expansion into Texas is a natural next step for us.” says Hlavaty. “We feel very fortunate that Rick agreed to be part of our team and we look forward to building our business in the state of Texas.”