Many construction projects must comply with a variety of laws and regulations. These may be local, state or federal in nature and include safety standards and environmental requirements.
State law may create implied duties that home builders, for example, owe their customers. Project participants should have a firm grasp of the laws and regulations that are applicable to their specific situation.
Building Codes
Building codes govern construction projects by setting standards for safe and efficient structures. Before construction begins on a new home or commercial structure, most projects must receive a permit from the local authority in charge of inspecting such structures to ensure compliance with the building code. Most state and local laws are based on national model codes that undergo a regular revision process to reflect the most current knowledge about how to design, build and maintain structures.
Such models serve as a common-language script for architects, engineers, builders/contractors and inspectors to use during the project. The regular revisions also stimulate the market for product innovation and improve building performance.
Building codes address a wide variety of issues ranging from the types of materials that may be used to how many fire escapes are required in a structure. The regular update process also allows jurisdictions to incorporate lessons learned from natural disasters and other advances in geological science into the building codes. Updating codes makes structures safer, reduces insurance premiums and leads to appreciably lower lifetime costs for building owners.
Labor Relations
Labor relations are a vital part of construction projects. They determine how workers and employers should interact, as well as establish norms for working conditions and salaries. Labor laws also protect workers from discrimination and other violations.
Construction managers must deal with worker grievances and other workplace issues that may affect productivity and safety. They must also respond to changes in laws and regulations that may impact construction projects. Often, these changes are unforeseen and not addressed in tender documents, but they can be costly for the contractor. For example, the COVID-19 pandemic caused major delays and cost increases for many contractors.
Typically, contractors negotiate labor contracts with local craft unions in the trades that work on their projects. These agreements bind both parties to a collective bargaining agreement and force them to follow the jurisdiction rules for each trade. They must also hire workers through the union referral system without bias. Failure to do so is a violation of the law and can result in negative legal and financial repercussions for the company.
Contracts
The volume and nature of contractual documentation for construction projects varies widely as a result of the project’s size, scope and procurement methodology adopted. However, every construction project has at its core a compact of rights and obligations between the contractor and the employer.
Almost all construction contracts allow the employer to increase or decrease the scope of work by issuing a written variation. However, variations are typically subject to limits. For example, contracts normally only permit contractors to suspend their work if the employer fails to cure an uncured material breach within a certain time after notice and opportunity to cure.
Most contracts provide for mediation or binding arbitration as a dispute resolution process, although federal contract law may require a different mechanism. Many contracts also include a statute of limitations that sets the number of years in which a claim must be discovered (and therefore brought to court or arbitration). This limit is separate from the statutory duty to mitigate damages. This duty arises from state law principles regarding claims for lost profits and/or other economic losses caused by a delay in performing the contract’s duties.
Insurance
Many construction projects require that contractors have specific insurance coverage. For example, large building projects are often required to have an excess liability policy with a minimum limit of $1,000,000 per occurrence. Other types of insurance coverage required include general liability, pollution, and workers’ compensation. Additionally, contracts with design services are likely to specify professional liability insurance. Construction companies also procure builder’s risk or erection all-risk policies to cover damage to the project as it is being constructed.
Insurance is a complex area of law and there are many ways in which it can impact a construction project. A construction attorney can advise on compliance with relevant laws and regulations. They can also assist with negotiating insurance requirements in contracts, advising on the use of wrap policies and evaluating a client’s need for scaffolding insurance.
Insurance premiums are typically based on the total contract value (ECV) of the project. Keeping track of ECV as the project progresses is important to ensure that a contractor’s property coverage is adequate, especially in high inflation scenarios where sizable increases in a project’s cost might cause the sum insured to become insufficient under a standard builder’s risk or erection insurance policy.
Liens
Whether you are a residential builder who makes people’s dream homes come to life or a commercial contractor with a passion for building projects, there is no question that construction can be an inherently challenging business. From materials and equipment delivery issues to payment disputes, these challenges can have serious repercussions that impact your reputation and bottom line.
The good news is that with the right knowledge and understanding of construction law, you can minimize risks and avoid negative legal and financial consequences. From contract issues, to safety and employment laws, to mechanics liens, there are many important concepts that builders need to know to thrive in the industry.
A lien is a security interest in property by which contractors, subcontractors and suppliers can force owners to pay for work or goods provided. Lien statutes impose strict time periods, require language in notices and other documents, dictate escrow accounts and mandate service and other requirements. Working with a knowledgeable attorney familiar with lien claims can help you successfully navigate this area of the law.