Commercial Construction Contract Documents
Note
: The State Bar of Texas Real Estate Forms Committee is grateful to Charles Comiskey, senior vice president of Brady Chapman Holland & Associates, Inc., an insurance brokerage firm with offices in Houston, Texas, and president of RiskTech, Inc., a risk management consulting firm in Houston, Texas, for his assistance in preparing exhibit D to forms 19-1 and 19-2 in this chapter.
Form 19-1 and 19-2 in this chapter are intended to be used for commercial construction projects that are designed by an architect with participation by the architect’s engineering consultant(s). The term Architect/Engineer as used in the contract designates the design professional for the project.
§ 19.2Architect and Engineering Services
The statutes applicable to architects and engineers govern the types of design and professional services that may be provided by each. Some professional services may be performed by either an architect or an engineer, including the preparation of site plans and the depiction of building systems. See, e.g., Tex. Occ. Code §§ 1001.0031(d), (e), 1051.0016(b), (c). Certain plans and specifications may be prepared only by a licensed architect or a licensed engineer. See Tex. Occ. Code §§ 1001.0031(c), 1051.703. Some projects may be designed by persons who are not licensed architects or engineers. See, e.g., Tex. Occ. Code §§ 1051.606, 1001.056–.057.
§ 19.3Role of Architect/Engineer
The commercial construction contract (forms 19-1 and 19-2 in this chapter) designates the Architect/Engineer (A/E) as the owner’s representative and anticipates that the A/E will provide design services before construction and contract administration services during the construction phase. As part of the contract administration services, the A/E will, among other duties, carry out the following: give the notice to proceed, approve payment applications from the contractor, respond to submittals and requests for clarification, review the contractor’s construction schedule, determine whether delay is excused, approve or make reasonable objection to proposed subcontractors, review the contractor’s draw requests for payment, determine whether the project is substantially complete, prepare the list of correction items required (punch list) for final completion, determine whether to recommend the owner’s final payment, and receive information and documents on behalf of the owner, such as lien releases and affidavits of bills paid. The A/E is designated in the contract as the initial decision maker for claims made by the owner or the contractor.
The contract administration services specified in the contract are typical of those in industry-standard forms, such as American Institute of Architects construction contracts. However, the A/E is not a party to the construction contract. Therefore, the terms of the architect’s contract should be made consistent with the A/E provisions in forms 19-1 and 19-2. Alternatively, the architect’s contract can be drafted to incorporate the provisions of forms 19-1 and 19-2 by reference in describing the A/E’s obligations.
§ 19.4:1Guaranteed Maximum Price
Form 19-1 provides for its contract price to be the sum of the actual cost of the work, plus the contractor’s fee, but not to exceed a stated guaranteed maximum price (GMP). Section F. of the contract specifies the types of construction costs that are reimbursable as the cost of the work. Paragraph F.5. requires the contractor to provide a schedule of values for the owner’s approval. The approved schedule of values will be used to determine progress payments, as provided in section J. The contract price, allowances, contractor’s contingency, owner’s contingency, and the amount of liquidated damages, if required by the owner, are to be set out in exhibit C of the contract.
Form 19-2 provides for its contract price to be a fixed price (the stipulated sum). As with form 19-1, this form of construction contract sets out in Section F. the types of construction costs that are included within the stipulated sum. This is done to illustrate the type of construction costs included, for example, demolition costs, to permit the parties to confirm the scope of the work. Paragraph F.4. requires the contractor to provide a schedule of values for the components of the work. The schedule of values will be useful for the A/E and owner to confirm the progress of construction and in approving progress payments. Exhibit C of form 19-2 sets out the contract price and permits the parties to establish allowances and liquidated damages for unexcused construction delay.
The contract provides for 10 percent retainage to be withheld in accordance with the provisions of chapter 53 of the Texas Property Code.
§ 19.6Payment and Performance Bonds
The owner may require the contractor to provide payment and performance bonds by designating the requirement on exhibit D of the contract.
The insurance requirements for the owner; contractor; and, if applicable, subcontractors are to be set out in exhibit D, which contains sample insurance requirements. See the discussion of types of insurance and their use in construction projects in chapter 17 in this manual.
The contracts contain at section R. two indemnities: the first is for claims other than employee claims, which is a “limited-form indemnity,” and the second is for employee claims, which is a “broad-form indemnity” as limited by chapter 151 of the Texas Insurance Code. See the discussion of these concepts in chapter 17 in this manual.
Sections M. and N. contain the default and remedies provisions. Paragraph N.7. also includes a waiver of consequential damages as an optional provision. Before selecting the liquidated damages option or determining the liquidated damages amount, the practitioner should consider the enforceability of such clauses. See Phillips v. Phillips, 820 S.W.2d 785, 789 (Tex. 1991); Garden Ridge, L.P. v. Advance International, Inc., 403 S.W.3d 432, 440 (Tex. App.—Houston [14th Dist.] 2013, pet. denied). In Garden Ridge, L.P., the court described the test set out in Phillips as follows:
“The test for determining whether a provision is valid and enforceable as liquidated damages is (1) if the damages for the prospective breach of the contract are difficult to measure; and (2) the stipulated damages are a reasonable estimate of actual damages.” Chan v. Montebello Dev. Co., No. 14-06-00936-CV, 2008 WL 2986379, at *3 (Tex. App.—Houston [14th Dist.] July 31, 2008, pet. denied) (citing Phillips, 820 S.W.2d at 788). Further, we stated:
In order to meet this burden, the party asserting the defense is required to prove the amount of the other parties’ actual damages, if any, to show that the liquidated damages are not an approximation of the stipulated sum. If the liquidated damages are shown to be disproportionate to the actual damages, then the liquidated damages must be declared a penalty. . . .
Id. at *3–4 (citations omitted).
Garden Ridge, L.P., 403 S.W.3d at 440.
Also, liquidated damages must be in lieu of and not coupled with or in addition to actual damages. A contract provision that “fixes liquidated damages without excluding additional liability for actual damages is not a reasonable forecast of just compensation and therefore a penalty.” Phillips, 820 S.W.2d at 789.
Paragraph J.10. authorizes the owner to withhold payment based on conditions that could result in loss or damages to the owner as long as the conditions remain uncured. The practitioner should consult the provisions of chapter 28 of the Texas Property Code, requiring prompt payment to contractors and subcontractors.
The contractor’s warranties are set out in section P. In addition to the customary one-year warranty against defects in labor and materials, section P expressly provides a ten-year warranty on structural components, including the foundation.
§ 19.10Choice of Law and Venue
If a contract that provides for the construction of new improvements to real property located in Texas contains a provision making the contract or any conflict arising under the contract subject to the laws of another state, to litigation in the courts of another state, or to arbitration in another state, that provision is voidable by the party obligated to perform the construction. Tex. Bus. & Com. Code §§ 272.001–.002.