Construction Law & Ethics

J.V

What is the major risk in operating as a partnership? One of the major risk is that both individuals can be sued for any or all liabilities that the partnership assumes. I myself have been involved in case of this nature, eventually this experience made be realize that it is a tough world when it comes to partnerships. 

S.P

What is the difference between a unit price contract and A lump sum contract and where are they typically used?

Unit price contract are individual costs such as mobilization, earthwork, steel, and concrete individually identified in unit price bids.  This because some projects are difficult to determine the extent of the work or actual quantities to starting the project.  Quantitative products can be added or deleted in a unit price proposal vs.  while the lump sum approach is used when too many different quantifiable products are hard to measure in a project.  

B C

What delivery form of contract minimizes risk to owners?

The proper choice of a delivery system refers to the process, which includes planning, design, and construction that is required to execute to complete the project. Choosing a proper delivery system is one of the fundamental decisions made by owners. On the other contracts enables the responsibility between two parties to deliver the correct outcome of the project. Contracts enable the two parties to work together and accomplish the same objective, which will result in long term collaboration.

T H

What is bid shopping and is it good for the construction business?

Bid shopping is a way that a contractor seeks a lower sub-contractor bid by sharing the lowest bid with the other competitors.  A contractor can use this to help make his overall bid to the owner lower and thus hopefully more competitive.  The easy way to explain this is car shopping; if one car dealer writes down a price for you, then you would take it to other dealerships to see if they can beat that price. I think it depends on the type of project and how you use the sub-contractor. It really is only good when for say a homeowner, who already knows the local skilled-labor, then he may trust that all the bidders have same skill set and prefer saving money. This is really for small home projects. However, for construction all together, I do not think it is good. Bid shopping encourages lower quality work, increased corner-cutting, increased claims, increased change orders, and project completion delays. All in all, bid shopping can be more damaging to the owner than traditional bidding.  Reference  Gregory, Don, and Eric Travers. “Ethical Challenges of Bid Shopping.” Kegler Brown Hill +    Ritter, The Construction Lawyer, 1 June 2010,            www.keglerbrown.com/publications/ethical-challenges-of-bid-shopping/. 

D G

What is the major risk in operating as a partnership?

A partnership is when two or more individuals work on a business for profit as owners. It is not a legal entity. Individuals must have confidence in the other and not undisclosed conflict of interest. In this partnership, all partners share all liability regardless of who caused what. The partner has the authority to make representations that are binding in the partnership. A partner who has actual authority to make a representation binds the partnership.

M L

2. What is the difference between a unit price contract and a lump sum contract and where are they typically used.?

A unit price contract removes the contractor’s risk of losing money in a project by setting up the price of the entire project according to how many units it will take to complete it. Sometimes the number of units to complete a project is hard to calculate until the project is started or done. For example, if dirt has to be taken out of a lot. Using the per unit system, like per dump-truck instead of a price for the entire job, could save the contractor money if it is difficult to determine how much earth is being removed. The unit and the cost per unit must be clearly outlined so later there is not dispute over how much is owned. This works best when the work is simple, repetitive and the unit/cost is easily defined. Any work not included in the per unit/cost definition must be outlined clearly in the contract and determined if there is a separate charge for it or included as part of the total job.

A lump-sum contract, also known as a fixed-price contact is one with a final total price for all the work as a whole. Normally a lump-sum contact is not adjusted, unless there are contingencies included in the contract to change the price based on included unknown factors. A contractor is responsible for cost of materials or labor if they are higher or lower than when the fixed contract was signed. The contractor would absorb or retain the difference in cost. This requires the contractor to obtain the lowest price in materials and labor in the market. As a contingency, some construction contracts contain a differing site conditions that compensate the contractor if there are unknown ground conditions that exist that raise the cost of the project.  It works best with projects that are clear and comprehensive plans including specifications are drawn before the lump-sum contract is signed.

O G

What delivery form of contract minimizes risk to owners?

Lump Sum because it includes a defined scope of work and budget. But it may be counterproductive if the project is likely to changes. 

DR

What is bid shopping and is it good for the construction business?

In construction law, bid shopping refers to the action of divulging the bid of a subcontractors to other subs with the intention of making them lower their initial bid, this is done after the contractor wins the bid so that they can send the bid without a profit and make the profit after unjustly winning the bid by bid shopping their subs. It is bad for the industry because in most cases to give a lower bid just for the sake of getting the job the subcontractor will use lower quality material or unqualified labor and the project in consequence will be of lower quality.

1. JP

What is the major risk in operating as a partnership?

The major risk in operating as a partnership is that each partner can be liable for actions done by the other partner.  Apparent authority can come into play here when one partner seems to have actual authority to a third party (such as a contractor) when in fact that partner does not have authority.  In cases like this, the partnership itself is ultimately responsible