A recent article in ENR described the setbacks associated with a public rail project.  There are problems with the schedule, concrete quality, including precast girders , panels and rail ties, and allegations of fraud.  In a nutshell–a mess.  But, I wonder if there are contract provisions that address these problems.  Below are some problems on the project and my thoughts on contract provisions.

Schedule. The article mentions that the general contractor will be facing liquidated damages of $100,000 per day and the project will likely be several months late.

  • Does the contract allow the general contractor to assess a portion of the liquidated damages to subcontractors?
  • Does the contract allow the general contractor to withhold subcontractor payments to cover liquidated damages?
  • Does the contract have indemnity provisions that allow the general contractor to demand payment from the subcontractor and maybe its insurer?

Quality Control. The concrete appears to have been a problem throughout this project.

  • Who decides which “fix” is acceptable?
  • Do the parties have to “agree” on a fix or can the owner simply decide and demand the work be done?
  • Can the general contractor demand additional work of the subcontractor to fix the problem?
  • Can the subcontractor demand payment for the additional work?

Fraud. A subcontractor’s employee admitted to falsifying quality reports.

  • How will allegations of fraud impact a subcontractor’s insurance coverage?
  • How will fraud allegations impact an indemnity provision?
  • Will the subcontractor have the financial ability to correct its work?
  • Can the general contractor withhold funds from other projects to cover the subcontractor’s problems on this project?

Take Away. These are just a few of the questions that this single ENR article raised.  And, if you are a general contractor or owner, you should be considering these issues when you draft your construction contract. You’ll likely never cover every issue, but the failures on this project point out the importance of giving serious thought to catastrophic problems when drafting your construction contracts.  It also points to the importance of having an experienced construction lawyer helping you with your construction contracts.