Becker & Poliakoff

Country Club Design, Construction and Renovation: Contract Provisions that Protect the Owner

Country Club Design, Construction and Renovation: Contract Provisions that Protect the Owner

The country club industry represents big business for Florida’s design and construction industry. As new country club communities emerge and existing clubs embark on major renovations, owners of such projects face unique challenges. Members expect uninterrupted access to the club during construction and timely completion within budget. These objectives become difficult and often overwhelming to the experts charged with overseeing the details of the renovation. Among these experts are architects, engineers, cost estimators, general contractors, project managers, subcontractors, suppliers and various specialty consultants for acoustics, space planning, interior design, lighting, Americans with Disabilities Act (ADA), fire safety compliance, golf course irrigation, food service and others.

By virtue of the multitude of participants and inherent risks of construction, contractual agreements are very important. Contracts allow owners to protect themselves from potential damage claims arising from defective design and construction documents, inadequate scheduling of work, weak or worthless warranties provided by contractors and suppliers, claims of lien placed upon country club property by unpaid subcontractors, inadequate insurance of persons and property, as well as significant damage exposure for delay claims asserted by the various project participants. Written agreements for the design and construction are the owner’s best protection to reduce damage expbsure and ensure timely completion. At the outset, the full scope of the project must be fully understood, including the timing of certain work, coordination among trades and establishing ultimate responsibility for specific aspects of the work. The following are various contract concerns owners face when contemplating the design, construction and renovation of country club projects.

Beware of Standardized Form Agreements
Standardized form agreements, such as design and construction documents prepared by the American Institute of Architects (AIA), fail to adequately protect the country club owner. This is especially true relative to standard of care provisions that govern the performance of the design professional or general contractor. These participants should be held to a high standard of care such as “first?class construction” or in accordance with the “highest standard of care of architects designing country club renovation projects” for the particular jurisdiction where the project is located. The contract should require compliance with applicable building codes, local laws, ordinances and Occupational Safety and Health Administration (OSHA) regulations, including those associated with the ADA.

Building Codes
Standardized form documents often fail to address local requirements associated with construction, such as local building codes. For example, X553.84, Florida Statute establishes liability against any person performing work that violates the applicable building code. Yet, the AIA documents, particularly ยง3.5.1 of the AIA A201 “General Conditions for Construction,” require the owner to prove that the contractor “knowingly violated the building code” prior to the owner being entitled to recover damages for resulting losses. Based on this provision, it would be necessary for the owner to establish “premeditated intent” or that the contractor knew, for example, that the gypsum drywall serving as a fire barrier between rooms was improperly installed contrary to the building code at the time it was installed. This provision has been included in the AIA documents for more than 20 years and directly conflicts with Florida law. Accordingly, this provision must be stricken and replaced by those standards that simply require participants to be responsible for what they do or fail to do.

Scheduling and Timely Completion
Typically, country club projects involve the renovation of an existing facility. In Florida, most country clubs are heavily populated during the winter season and nearly abandoned in the summer. As such, time is of the essence and considering phased construction will likely accommodate residents while other facilities are under construction. The contract must provide for the submission of realistic, meaningful schedules to ensure timely completion. Proper scheduling will enable the owner to monitor progress and determine whether construction needs to be modified or accelerated to achieve timely completion. Updated schedules must include all construction activities, reflect all delayed activities and be updated with each pay request submitted to the owner by the contractor. Should the contractor fail to provide an updated schedule, the payment should be withheld for lack of compliance.
It is imperative that the club retains an architect, project manager or other qualified professional who has sufficient expertise to review and analyze schedules. The project manager should evaluate the contractor’s compliance with scheduling specifications and also determine whether sufficient construction progress has been achieved.

Liquidated Damages
A liquidated damage clause provides the general contractor with an incentive to complete the project on schedule. Liquidated damages are a per diem amount paid to the owner if construction is delayed and relieve the owner of the burden of proving actual damages. To be enforceable, however, liquidated damages can not be a penalty, nor can damages be readily ascertainable. Yet, liquidated damages must bear a direct relationship to actual damages, therefore the owner must identify the types of damages that may be incurred in the event of a delay. These might include additional security personnel for a longer duration of time, additional consultant fees to compensate for professional services for an extended time period, approving pay requisitions and additional inspections. Likewise, liquidated damages should offset additional financing charges incurred for extending a construction loan. In some instances, it may be necessary for the owner to lease nearby tennis courts, golf courses and swimming facilities while construction is delayed, as well as to provide transportation to such facilities. The amount of liquidated damages should be carefully computed or they could be deemed unenforceable if ultimately subjected to legal challenge. Marginal liquidated damages will provide little incentive for a contractor to accelerate construction to comply with schedule requirements and avoid the imposition of liquidated damages. For example, an experienced contractor faced with $500 a day in liquidated damages for being 30 days late faces a $15,000 liquidated damage assessment. If instructed to accelerate construction, the contractor may calculate that it would actually cost him $25,000 to comply with the original schedule. Based upon this scenario, the contractor may simply agree to finish late, pay $15,000 and save $10,000 by ignoring the request to accelerate. If liquidated damages are sufficiently high, the costconscious contractor would find it more cost?effective to achieve timely completion than pay liquidated damages.

Depending upon the project’s scope, liquidated damages may be warranted on a per?phase basis. This is especially true if the renovations inconvenience the members if a delay occurred; for example, inaccessibility to covered parking, restroom facilities or portions of a golf course.

The club should only grant extensions of time to relieve the contractor from liquidated damages upon a written request, subject to sufficient explanation.

An alternative incentive for the contractor to avoid delays and potential liquidation is the inclusion of a provision in the contract for a bonus payable to the contractor upon early completion of the project.

Weekly Project Meetings
Mandatory attendance at weekly meetings conducted by the club’s representative should be required of the architect, contractor, subcontractors and suppliers. Minutes of these meetings, which ultimately provide a chronological history of the project, should be prepared and disseminated to all attendees within 24 hours of the conclusion of each meeting. Audiotapes also should be utilized to attest to the accuracy of the meeting minutes.

Daily Reports
Daily reports maintained by the contractor provide a daily record of the weather, amount of manpower supplied to the project, sufficiency of equipment on site, delays, injuries, type of work and location of work being performed. The daily reports should also identify those persons that witnessed delays or injuries so that in the event of future litigation or claims, those persons can be contacted to discuss the event. Photographs should accompany the daily reports to provide substantiation of the conditions encountered, such as unforeseen site conditions, interference with work areas and sub?surface conditions. Likewise, when work is being performed on a unit price basis as in a “cost plus contract,” daily documentation must be generated to assist the owner in calculating the additional quantities performed as a basis for determining the costs incurred in performing additional work.

Warranties for country dub facilities must be carefully scrutinized to ensure that all work and components achieve a commercial quality. Irrigation systems for landscaping and golf courses should be reviewed by specialized consultants to ensure that all features are included and that common malfunctions fall within the scope of the warranty. It is not unusual for an owner to receive 30 to 40 separate warranties for project components, yet these are often never reviewed until after the work has been completed. The owner must demand that sample warranties be provided before the contract is executed and work begins. The contract should require that warranty periods for all components commence upon final payment as opposed to installation. Frequently, installation is complete months earlier than occupancy by owner and, therefore, the length of actual warranty protection is less than anticipated. The contract should provide that all written warranties issued by manufacturers, subcontractors and suppliers to the general contractor be assigned and delivered to the owner in exchange for final payment. Otherwise, since the owner is not in contractual privity with the manufacturers, subcontractors and suppliers, the owner will have no enforcement rights against these parties following completion of the project.

As-built Plans and Other Documents
The contract should require that as-built plans and sepias be furnished to the owner upon completion of the project. As-built drawings must depict the location of concealed or underground conduit and pipes to enable future maintenance to be performed. There is no greater frustration to the owner than when he or she attempts to correct a malfunctioning plumbing system and discovers the components are not located as depicted in the drawings.

The country club construction project represents an overwhelming challenge to all participants involved with the construction – especially from the owner’s standpoint. Careful consideration of the planning, phasing, use of facilities while others undergo renovation, liquidated damages and risk shifting provisions should be utilized. Such actions will ensure that things run smoothly and that renovations are completed as quickly as possible, reducing inconvenience to members and possible loss of revenues to the owner. At the same time, the contractor should be mindful that legal limitations associated with additional work, change orders, warranties, statute of limitations governing payment and performance bonds should all be addressed by the contract.