Understanding Construction Contracts

Posted on August 10, 2016 by Marijana Dabic

Construction contracts can contain terms that impact your company’s bottom line. Reviewing them carefully prior to signing is indispensable, and can save your company time and money. This contract review guide is meant to be a starting point for reviewing contracts in general. It highlights some common contract terms and their potential impact. You can begin to understand which terms are most often negotiated in contracts. Then, with the help of licensed inside or outside counsel, you can analyze the commercial risks associated with construction contracts in depth and understand terms and conditions in order to protect your company’s assets.

Scope of the Agreement

Examine the definition of services to be provided in order to ensure the language is clear enough for an unrelated third party to understand the scope. The contract should include a time frame for completion of services. The rights and obligations of both parties should be clearly outlined. Any mechanism for changing the scope of the contract, as well as any of the terms, if allowed, should also be outlined within the contract

Terms of Payment

Terms of payment should be clearly listed within the contract so that the expectations of both parties are clear. The contract should specify the agreed payment schedule for goods received.

Warranties

There are two types of warranties: express and implied. Both types are assurances regarding particular issues, such as performance.

Express warranties are those that are defined specifically in the contract. Implied warranties are based in statutory and/or common law, depending on your jurisdiction.

They are two-fold: a warranty of merchantability, which requires that goods/services must reasonably conform to an ordinary buyer’s standards, and a warranty of fitness for a particular purpose, which states that if a seller knows the intended purpose for the product or service, the act of selling the product to that customer implies that it is fit for that purpose.

Be aware of warranty disclaimers and understand how the disclaimer limits your statutory rights. If it disclaims all warranties, express and implied, then you will likely be limited to the remedies in the contract for issues related to things like performance. You should also examine any disclaimer in the context of the contract. While it may require you to disclaim your statutory rights, other contract language may give you adequate rights and remedies regarding the points about which you are most concerned.

Damages, Limits of Liability and Indemnification

These three items are often in close proximity to one another in a contract, as they are interrelated. Damages may be defined as certain types of losses that could create liability under the contract. A limit on liability would restrict the amount of damages that a party would be required to pay if found liable for such damages. Sometimes this may also include a limit for indemnification.

Indemnification provisions allocate risk and cost between the parties. It is important to examine whether the party assuming the risk is the party with the most control over that risk. For instance, when a company’s employees are required to work at a customer’s location, the company is often asked to release the customer from all liability relating to the employees’ presence at the customer’s location.

In some cases, indemnification is limited to negligence or to a specific dollar amount, under a heading of “Limits of Liability.”

Insurance

Some contracts will contain minimum bodily injury and property damage liability coverage amounts that the party must possess and they also may require that customers are added as an additional insured on those coverages.

Prior to consenting to any contract, it is prudent to examine insurance coverage against the amount of liability exposure in a particular contract.

Terms and Conditions

Governing Law and Jurisdiction – Look at the governing law provision to make sure that you are comfortable with the implications of the provincial law chosen by the drafter. This can impact the interpretation of the contract from warranties to indemnification.

Additionally, when specific laws are referenced in the body of a contract, it is as though that statute or regulation is wholly contained within the contract itself. It is vital to read and understand that language prior to giving your consent. This happens regularly in government contracting situations.

Dispute Resolution – This is another clause with which you must be comfortable with the laws of the province or forum chosen by the drafter. The rules chosen to govern dispute resolution can impact the outcome. Additionally, you should consider whether dispute resolution is right for your situation.

Intellectual Property – When you are disclosing and/or licensing your company’s intellectual property, be it trademarks, copyrights or patents, it is important to include a clause that recognizes the owner of such intellectual property and affirmatively states that the agreement does not transfer any rights.

Standard of Care – A standard of care clause may appear in certain types of contracts. The standard of care that is provided by the law should provide the minimum standard of care for the provision of services under the contract.

Term/Termination – The contract should provide both parties with the right to terminate the contract. The situations in which termination is allowed will vary from contract to contract. Some contracts will allow the right to terminate in cases of dissatisfaction; others will allow it with a specific notice, for no cause. It is important that you consider in what cases you would want the right to terminate the contract. There should also be language defining the term of the contract. Does it have a finite term? Does it automatically renew each period?

Right to Cure – Related to termination, some contracts will contain a right to cure clause. This would give the defaulting party notice of a breach and a finite period of time in which to remedy such breach.

Standard Form Contracts

Contracts produced by professional and trade associations for architects, engineers and commercial contractors can serve as important references and benchmarks when drafting a new construction contract. They are a good source of industry best practices, and using them can greatly reduce drafting and review time, meaning lower overall transaction costs for your company.

For all of their advantages, there are several things that you should be cautious about when using standard form contracts. Note the following cautions about standard forms before using them.

Standard forms, which are written broadly to encompass many different contexts, require transaction-specific and jurisdiction-specific modifications. For example, certain provinces may require that indemnities be written in a certain way.
Changes made to one part of the document, such as definitions of words or terms, may affect other parts that make reference to it.
Custom-drafted and industry-drafted forms are often incompatible. Even industry-drafted forms from different publishers can be incompatible.
Standard forms always contain the bias of the drafter. Use this bias; know when to use various standard forms published by different industry organizations.

General Understanding

Reviewing general terms and features of a construction contract will help you grasp the consequences of its terms and conditions for your business. In any case, to ensure its completeness and accuracy, it is necessary to submit each contract you must sign to legal review.

Fort McMurray Wildfire Named Costliest Disaster in Canadian History

Posted on August 3, 2016 by Marijana Dabic

The wildfire that devastated Fort McMurray was named the costliest insured natural disaster in Canadian history. In total, the event generated $3.58 billion in losses, according to the Insurance Bureau of Canada. The total losses are more than double those associated with Canada’s second costliest disaster, the 2013 southern Alberta flood, which cost $1.7 billion in insurance claims.

The wildfire, which was finally brought under control on July 5, 2016, was Canada’s largest-ever evacuation. The fire impacted 1.4 million acres of area, destroying 2,400 homes and other buildings. In total, more than 27,000 personal property insurance claims averaging $81,000 each were filed.

While experts can’t point to a singular cause of the fire, some say it was the result of unusually high temperatures and a dry winter. And, with weather changes causing continuous problems, it is likely that more fires similar to the one that ravaged Fort McMurray could be imminent.

To protect themselves, businesses are encouraged to seek the appropriate insurance coverage to defend against substantial losses. Additionally, a business continuity plan can help ensure that, even after extensive damage has occurred, a business can successfully operate following a disaster—natural or otherwise.

Such plans should analyze potential threats, identify key stakeholders, provide emergency contact information, create a recovery team, backup important data, establish a communication strategy and list potential alternative operations sites.

So while wildfires and other disasters are often unpredictable, keeping in mind the above advice can help you prepare for the worst.

4 Things to Consider When Creating a Terrorism-response Plan

Posted on July 28, 2016 by Marijana Dabic

According to the 2015 Global Terrorism Index, which provides an overview of key trends and patterns in terrorism over the last 15 years, the impact of terrorism on Canada is relatively low. However, although terrorist attacks in Canada are rare, they do happen.

What’s more, trends suggest that terrorist attacks are targeting nightclubs, planned events and office buildings — essentially, anywhere that people gather. And, if a business is unprepared when such an attack occurs, they may face a complete halt in business or worse. To protect your employees and your business, it’s important to consider the following when developing an overall terrorism-response strategy:

Crisis management. Having a good crisis management plan in place allows for a quick recovery. Crisis management plans give organizations the means to respond quickly to an attack, so they can gauge its severity and act accordingly. Essentially, crisis management involves building an ideal framework around leadership to ensure they have the power to respond quickly.
Crisis communication. Following an attack, businesses should have a plan for reaching out to employees, customers and vendors. Post-attack communication is important and allows businesses to provide updates on health and safety as well as provide a report on how the company was impacted.
Philanthropy. After an attack, it’s the business’s responsibility to provide emotional and financial help to its staff, as needed. This is not only a moral obligation, but it also shows an investment in your employee’s well-being.
Business continuity and disaster recovery. A terrorist attack can derail an unprepared business. To account for acts of terror and other disasters, it’s important to have a business continuity plan in place. This plan should account for the recovery of management, IT systems and all other critical functions.

Keeping in mind these simple concepts when constructing a terrorism-response plan can go a long way toward ensuring the health and safety of your business and employees.

5 Common Mistakes Made When Drafting a Business Plan

Posted on July 19, 2016 by Marijana Dabic

Business plans are key when it comes to putting a company together. They can help organizations review items like value propositions and marketing strategies, as well as operations, financial and staffing plans.

However, developing a strong business plan takes time, and it is likely that your organization will have to create several drafts before landing on a successful version. To aid in your drafting, avoid the following common business plan mistakes:

Grammatical errors. Spelling, punctuation and other errors can destroy any credibility you have in an instant. Prior to sharing your business plan with investors or bankers, it’s crucial that you have an editor take several passes at it.
Unrealistic projections. If your plan is too optimistic—or even dishonest—in terms of current and future value, it is likely that bankers and other investors will pass on your business. Do careful research when drafting the financial projection portion of your business plan. This will not only look good to those who read your plan, but it will also help you properly prepare for the future.
Unclear target audiences. Businesses will appeal to different customers and markets to varying degrees depending on the company’s value proposition. Inaccurately or vaguely defining these audiences and markets can spell disaster, as you will not know how to successfully connect with customers and prospects. To avoid this, use primary and secondary market research to understand your business climate and where you fit in.
Vague or complicated details. Your business plan should be thorough and contain enough detail that a person with a high school degree can understand it. At the same, your plan shouldn’t be overly focused on the details, and you should avoid sharing any proprietary information. A commonly expected business plan structure includes a three-page summary, a 10- to 20-page plan and an appendix.
Poor competition assessments. Regardless of the industry, all businesses have some form of competition. A good business plan should identify your competition and their value propositions. Understanding and planning for this competition can help you better position yourself in your respective marketplace.

Remember that good business planning can help save you time in the long run. It may take more hard work up front, but thinking critically about your business, researching your competitors and getting feedback along the way will set you up for long-term success.

How the CPP Will Impact Businesses

Posted on July 12, 2016 by Marijana Dabic

On June 20, 2016, the federal government and the majority of Canadian provinces reached an agreement in principle regarding changes to the Canada Pension Plan (CPP). The changes will be phased in over the course of seven years, beginning on Jan. 1, 2019, and will require workers and their employers to pay higher contributions.

This new deal will mark the first significant increase in CPP benefits since the program was first launched 50 years ago. In general, the CPP aims to help Canadians enjoy a financially safe retirement and ensures a strong public pension system.

The CPP deal includes, but is not limited to, three major changes that will impact businesses:

The annual payout target will increase from 25 per cent of preretirement earnings to 33 per cent.
Contributions to CPP from workers and companies will increase by 1 percentage point to 5.95 per cent of wages.
The maximum income that is subject to CPP contributions will increase from $54,900 to $82,700 by 2025.

Young Canadian workers are likely to be the ones benefiting most from CPP changes. This is because, to reap the full benefits of CPP, a worker would have to contribute for about 40 years. Other employees will benefit to varying degrees depending on their age.

There is some concern that the higher contributions will force small and medium-sized businesses to refrain from hiring new workers or making other important investments. However, experts have said that it is unlikely that the Canadian economy will suffer from CPP expansion.

Archives

Understanding Construction Contracts

Fort McMurray Wildfire Named Costliest Disaster in Canadian History

4 Things to Consider When Creating a Terrorism-response Plan

5 Common Mistakes Made When Drafting a Business Plan

How the CPP Will Impact Businesses

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