Allocating Risk and Construction Projects

In this edition:

• Allocating Risks In Construction Contracts
• Building Energy Benchmarking Program in City of Philadelphia
• ABA Forum on Construction Industry, 2013 Fall Meeting

It’s A Risky Business – Allocating Risks In Construction Contracts

By Jennifer Evans Morris and Carrington Coleman

Allocating risk is one of the driving forces behind contract negotiation and that is never more apparent than in construction contracts. Construction contracts clarify roles and obligations, specify procedures, and, above all else, allocate risk.

Owners negotiating contracts will have different agendas (and bargaining power) than contractors and subcontractors. But, an overly aggressive owner may end up with a contract that the contractors can’t afford. And, if the contractors can’t afford it, the project ultimately will suffer. So, which provisions are the most important to negotiate and how should you negotiate them? That depends on your role. Below are five provisions that should receive significant attention.

Responsibility of Site Conditions from the Owner’s Perspective:

An owner must establish up front who is responsible for site conditions. Ordinarily, the general contractor (a “G.C”) should be responsible and should be given sufficient time to conduct a pre-bid site inspection. In the event the GC is responsible, language should be included indicating that the G.C. is responsible for unforeseen risks as well. There is a scenario where the owner may prefer to retain the risk. If the owner has unusually good knowledge about the conditions, it might be in the owner’s best interest to negotiate contract discounts and retain the risk, perhaps by insuring for the risk.

Philadelphia Fires Up Building Energy Benchmarking Program

On October 31st, commercial buildings in the city of Philadelphia will fall deeply under the spell of mandatory energy and water use reporting. The City of Philadelphia has recently sent out compliance notices to owner/operators of commercial buildings with over 50,000 square feet of indoor floor space (or mixed use buildings with at least 50,000 sf of commercial space) in accordance with the City of Philadelphia’s Building Energy Benchmarking Law which was passed in 2012. The Benchmarking Law requires the owners to compile and disclose their annual energy usage and water consumption to the City of Philadelphia. The information will then be posted on-line for access by potential investors, lessees and tenants to aid in their commercial space decision making.

The City of Philadelphia has also launched a new website which describes the law and its associated regulations along with the reporting requirements. Although the bill was signed into law in August 2012, the reporting compliance component was held off until October 31, 2013 so that the owner/operators could have some time to conform their operations protocols to the law’s reporting requirements. The reporting methodology uses the US EPA’s Energy Star Portfolio Manager as a compliance tool.

The City has also launched a new website, which describes the energy benchmarking law and associated regulations in full, including detailed reporting requirements. The city of Philadelphia has had improving the city’s energy efficiency and greenhouse gas profile as a major set of goals since the inception its Greenworks Plan in 2009. The City has made some significant strides with per capita energy consumption going down since the Greenworks benchmark year of 2006.