Contract provisions can make or break your roofing project. This article highlights some key contract provisions that affect both commercial and residential roofers. A roofer that can issue spot and focus on key provisions may be able to reduce liability.
There are two types of contractual indemnification: standard indemnity and super indemnity. Standard indemnification is what most roofers encounter in construction contracts. For example, a roofer tears off a portion of the roof and tarps it at the end of the workday. Overnight, a thunderstorm blows the tarp off causing significant interior damage. The owner asserts a claim against the prime contractor. In turn, the prime contractor turns to the roofer, points to the standard indemnification provision in the subcontract and demands that the roofer indemnify the prime contractor because of the failure to dry-in or properly tarp the portion of the roof.
Super indemnification is where the roofer agrees to not only indemnify its customer for the roofer’s bad acts or omissions but also the customer’s bad acts or omissions. Using the previous example, let’s assume the roofer properly blue roofed the house but after the tarp was placed, the owner got on the roof and removed a portion of it because it was interfering with his satellite signal. In this scenario, the owner would be either partially or wholly at fault for the damage. A super indemnification provision would allow him to make a claim against the roofer for the interior water damage caused by the misapplied tarp, regardless of the fact that the owner partially or wholly caused the issue.
Most states have limits on indemnification and many states ban super indemnification altogether.
Contingent Payment Clauses
One of the justifications often used by a prime contractor to avoid paying a roofing subcontractor is a contingent payment or “pay if/when paid” clause contained in the subcontract. This clause usually states that the prime contractor has no obligation or duty to pay the subcontractor until payment is received by the prime contractor from the owner. Not all states allow contingent payment clauses and many out of state contractors insert contingent payment clauses in contracts without knowing whether they are valid in the state where work is performed.
In construction, owners and prime contractors withhold a predetermined percentage of each progress payment, called retainage, until final completion. It is also not uncommon for subcontractors to withhold retainage from sub-subcontractors. Retainage is governed by either state or federal statutes or by contract. Generally speaking, retainage is used by owners as an incentive for contractors to complete the project and to protect the owner in the event of back charges or uncompleted punch list items.
No Damages for Delay Clauses
Owners and upstream parties (i.e., a general contractor) frequently insert no damages for delay provisions in construction contracts to prevent a roofing contractor from obtaining compensation for delays that have been experienced on a project. Under the typical no damages for delay clause, the contractor or subcontractor is entitled to additional time, but not compensation for extra costs incurred as a result of delays regardless of the cause of delays. No damages for delay clauses are generally upheld in court although there are a variety of defenses to enforcement including active interference by a roofer’s customer. Typically, roofers will want to remove this provision or limit it to delays caused by the roofer.
Generally, the Uniform Commercial Code (UCC) (as adopted by most states) governs all transactions involving the sale of goods. The UCC recognizes several different warranties. Express warranties involve explicit representations made by the seller to the buyer regarding the goods to be sold or services performed – for example a one year workmanship warranty or 30-year NDL material warranty. The implied warranty of merchantability provides the buyer of goods with the assurance that the goods are fit for the ordinary purposes for which the goods are used – shingles are generally designed to perform as a roof covering. The implied warranty of fitness for particular purpose arises when the seller knows that the goods are to be used for a special function – roofing materials that have specific design criteria or wind uplift specifications.
The requirements for disclaiming warranties vary by state but generally, to effectively disclaim UCC warranties, the disclaimer must be part of the agreement between the parties. Specific language must be used in the contract signifying that the parties agree to exclude or modify warranties. The disclaimer must be set off from the rest of the contract by a technique which would provide the reader with notice of the provision, such as bold-facing or capitalization of the terms. Failure to make the disclaimer conspicuous may result in a court determining that the disclaimer is ineffective.
Scope of Work Provisions
Most litigated disputes arise out of or relate to problems with the scope of work. Often, contractors are seeking payment for extras that were not originally contemplated in the contract. However, the owner may believe that the contract included all roofing work to be performed on the project.
For example, a roofing contractor that is providing a new roof for an owner may encounter rotted decking that needs to be replaced. The contract does not specifically detail the cost or price for replacing the rotten wood. The roofing contractor incurs additional costs for the deck replacement and seeks to charge the owner for the additional charge. The owner objects stating that the contract did not mention that the decking would be an extra charge.
This example demonstrates the need to specifically define the scope of work for a roofing project. If replacement of decking, fascia, soffits and other work are extras, the contract should not only state that those items will be extra charges but indicate the method of pricing for the additional work (e.g., time, materials). It is also important to note the nature and limits of any workmanship warranties provided by the roofing contractor to the owner. The owner may misconstrue the scope of warranty work if it is not specifically spelled out in the contract documents.
All roofing contracts should contain a notice provision which requires that the owner or general contractor notify the roofer of any defects or claims within a certain time period. Additionally, many contracts impose strict notice requirements on the roofer. The notice provision must be clear and unambiguous and should also provide that failure to provide the roofer with notice results in the upstream party waiving any damages arising out of that claim. The courts have strictly construed these notice provisions and have required that the roofer provide the upstream party with a reasonable period of time to notify the roofer. All notice provisions should require that the notice be provided in writing to avoid confusion.
Attorney’s Fees Provision
All roofing contracts should contain an attorney’s fees provision which allows the roofing contractor to obtain attorney’s fees in the event it has to seek payment or defend claims against the owner or upstream party. An attorney’s fees provision not only provides the contractor with the opportunity to collect its attorney’s fees, but also gives the contractor’s attorney an additional settlement tool that may encourage an owner or upstream party to settle because of the risk of the owner having to pay for the contractor’s attorney’s fees.
Contractors (especially contractors that perform work in more than one county) should include a venue provision in their roofing contract. The venue provision governs where a case can be brought based on the contract which is helpful if you’d prefer to litigate in the county where your office is located rather than the county where the project is located. Obviously, this is beneficial for the contractor because the contractor has less travel expenses and may be able to use local contacts for expert witnesses.
Residential roofing contracts should contain disclaimers to state that the contractor is not liable for certain pre-existing conditions. Disclaimers can cover a wide variety of problems including mold, termites, dry-rot, and mildew. The purpose of these disclaimers is twofold: first, it allows the contractor to disclaim liability for certain pre-existing conditions and second, it helps educate the owner about the existence of pre-existing conditions. In conjunction with doing any residential roofing project that has pre-existing conditions, a residential roofing contractor should consider taking photographs or video of damaged areas to later prove the existence of pre-existing conditions.
Contractors should routinely review their contract to make sure that it contains the most current terms and that the terms are enforceable. This article has touched on a few of the more important provisions to include in roofing contracts. However, depending upon the nature of your work and the geographic location, there may be additional terms worth considering. Your roofing contract should be viewed as a helpful tool providing you with terms necessary to seek payment and to defend claims against owners if necessary.
Author’s note: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.
Hilary Morgan, Partner at Cotney Construction Law, is a Florida Bar Board Certified Specialist in Construction Law and General Counsel of NWIR. Cotney Construction Law is an advocate for the roofing industry and also serves as General Counsel of FRSA, NSA, TARC, TRI, RT3, WSRCA and several other local roofing associations. For more information, contact the author at 866.303.5868 or go to www.cotneycl.com.