Keith Mack
Construction and contracting laws govern the design and construction of buildings, encompassing contract law, commercial law, planning law, employment law, and tort. These laws apply to various participants in the construction industry, including financial institutions, architects, engineers, and contractors. Construction projects may be subject to different laws depending on factors such as whether they are private or public, the jurisdiction, and the nature of the project. Standard-form contracts are commonly used in the industry, with organizations like the American Institute of Architects and the ConsensusDocs Coalition providing standard contract documents. Construction law also involves risk management, with general contractors assuming more risk than construction managers. Additionally, health and safety regulations play a significant role, with laws like the Occupational Safety and Health Act (OSHA) in the US heavily regulating this area.
| Characteristics | Values |
|---|---|
| Location | The US and UK |
| Branches of government | judicial, legislative, and executive |
| Sources of law | common law, statutory law, and regulatory and administrative law |
| Project type | private or public |
| Project nature | design-bid-build, Design-Build, Construction Manager (CM) at Risk or Agency CM |
| Contractual parties | owner, designer, and contractor |
| Contractual terms | standard of care, workmanship, skill |
| Project participants | financial institutions, surveyors, architects, engineers, construction workers, planners |
| Applicable laws | health and safety, sales and excise taxes, income tax, corporate income tax, social security tax, Medicare tax, unemployment insurance tax |
| Contractual procedures | two-phase selection, sealed bids, arbitration, litigation, mediation |
| Contractual requirements | surety bonds, security of payment, planning, environmental regulations, construction claims |
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What You'll Learn
Design-bid-build
The design-bid-build process involves three main sequential phases: design, bid, and build. In the first phase, the owner retains an architect (or consulting engineer for infrastructure works) to design and produce bid documents, including construction drawings and technical specifications. The architect works with the owner to identify their needs, develop a written program documenting those needs, and produce a conceptual or schematic design. The early design is then developed further, and the architect brings in other design professionals, including structural, civil, mechanical, electrical, and plumbing engineers, a fire protection engineer, and often a landscape architect. This team completes the construction drawings and technical specifications. The finished bid documents are coordinated by the architect and owner for issuance to general contractors during the bid phase. Design fees are typically between 5-10% of the total project cost.
During the bid phase, the various general contractors bidding on the project obtain copies of the bid documents and put them out to multiple subcontractors for bids on sub-components of the project. Bidding can be "open", where any qualified bidder may participate, or "select", where a limited number of pre-selected contractors are invited to bid. Questions may arise during this phase, and the architect will typically issue clarifications or corrections to the bid documents in the form of addenda. From these elements, the contractor compiles a complete bid (or "tender price") for submission by the established closing date and time. Bids can be based on the quantities of materials, the operations needed to build, or a lump-sum cost, and these requirements are elucidated within the bid documents. Once bids are received, the architect typically reviews them, seeks any clarifications, investigates contractor qualifications, ensures documentation is in order, and advises the owner on bid ranking. If the bids are within an acceptable range, the owner and architect discuss the suitability of bidders and their proposals. The owner is not obliged to accept the lowest bid, and it is common for factors like past performance and quality to influence the selection. However, the project is usually awarded to the general contractor with the lowest bid. If none of the bids satisfy the owner, they may choose to reject all bids, re-bid at a later date, abandon the project, or issue a work order to revise the design.
In the final phase, once the construction contract is awarded, the bid documents may not be altered. The necessary permits must be obtained from all jurisdictional authorities before construction can begin. If design changes become necessary during construction, the architect may issue sketches or written clarifications, and the contractor may need to document "as built" conditions for the owner.
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Design-build
In a design-build contract, the owner or employer hands over the responsibility for both the design and construction to a single entity, often the general contractor. This entity may have in-house design expertise or may subcontract with an architect for the design. The design-build approach provides the owner with a single point of responsibility for the entire project, reducing the owner's risk and the number of contracts they need to manage.
The design-build method can be beneficial for large-scale domestic buildings (such as apartments), large commercial buildings, infrastructure projects (such as roads and rails), and water desalination plants. It allows for enhanced collaboration during the design and construction phases and can fast-track the construction phase. However, it may result in less control over the final design for the owner and a higher contract sum to reflect the increased risks for the contractor.
There are specific laws and regulations that govern design-build projects, which can vary depending on the country, state, and nature of the project. In the United States, for example, construction law is governed by the judicial, legislative, and executive branches of the government, with sources of law including common law, statutory law, and regulatory and administrative law. Standard care requirements may be provided by statute or common law if not specified in the contract. Additionally, there are specific procedures and requirements outlined for government construction projects, such as the selection of architects and engineers and the publication of bid notices.
Overall, the design-build method can streamline the project delivery process by combining design and construction responsibilities under a single contractor, offering benefits such as enhanced collaboration and reduced risks for the owner. However, it is important to consider the specific laws, regulations, and contractual obligations that apply to design-build projects to ensure a successful outcome.
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Construction manager at risk
One of the unique aspects of the CMAR process is the ability of the CM to act as a consultant during the design and planning stage, allowing for constant communication between the owner, architect, and the lead contractor. The CM makes decisions with the owner's best interest in mind and provides cost estimates to the owner during the design process at pre-specified intervals, keeping the budget in check. If any cost estimates come in above the GMP, the owner, architect, and CM can work together to adjust the project scope, materials, or design to keep within the set budget.
The CMAR method may not allow for a quick project turnaround as other methods like design-build, and schedules can be somewhat compressed due to early collaboration with the construction manager. With the owner positioned between the two stakeholders, constant back-and-forth communication can become time-consuming. Using the DB method, designers and contractors can work together without owner input.
The most daunting aspect of the CMAR process for contractors is developing the GMP before the final design. An incomplete or inaccurate scope of work without proper contract contingencies could result in a loss of profit for the CM. The risk of project failure or surpassing the GMP falls on the CM, and they are highly motivated to deliver the project within the GMP. This could lead to pressuring subcontractors to deliver more for less or cutting corners with materials or labor.
To ensure a successful CMAR process, it is critical to choose the right CM with experience and industry relationships relevant to the project. It is prudent for both the owner and CM to put contracts in place regarding how to manage change orders, increases in the scope of work, or issues that arise during construction and who will bear the associated costs.
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Contracting and delivery procedures
One key aspect of contracting and delivery procedures is the role of the architect and engineer. In some cases, the governmental entity may select or designate an architect or engineer to prepare the construction documents for a project, especially if it involves architectural or engineering services that fall under specific practices as defined by law. The governmental entity's architect or engineer, however, cannot serve as the construction manager-at-risk to avoid conflicts of interest.
Another important consideration is the standard of care, which can be contractually agreed upon by the owner, designer, and contractor. While statutes and common law provide default standards, contracting parties may benefit from setting forth their own standards, as this allows for negotiation and potential avoidance of implied warranties. Additionally, contractors generally have the right to suspend work in the event of an uncured material breach by the employer.
Contracting procedures may also involve the use of standard-form contracts, such as those published by the American Institute of Architects, which have been industry standards for building construction. These forms provide terms for various aspects of construction projects, including arbitration procedures for dispute resolution. However, they have faced criticism for allegedly favouring owners and architects over contractors, leading to the development of alternative forms like the ConsensusDocs.
Furthermore, contracting and delivery procedures must comply with health and safety regulations, such as the federal Occupational Safety and Health Act (OSHA) in the US, as well as state-level occupational safety laws. Additionally, sales and excise taxes, typically ranging from 5% to 7%, are applicable to many construction projects in the US, impacting the financial considerations of such projects.
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Construction compliance
Construction companies must navigate various compliance requirements, which can vary depending on the project's location and nature. For instance, in the United States, construction projects are subject to different laws based on whether they are private or public, the jurisdiction, and the project's specific nature. Common law, statutory law, and regulatory and administrative law are the main sources of law governing construction contracts.
To ensure compliance, construction companies should be well-versed in obtaining the necessary permits, following safety protocols, meeting environmental regulations, and adhering to building codes. Building codes, for example, outline crucial minimum standards for safety, health, and sustainability, encompassing structural requirements, fire safety, and energy efficiency. Additionally, lien laws allow construction companies to file liens against properties if they are unpaid, which is an important consideration for cash flow management.
Safety standards are a significant aspect of construction compliance. In the US, OSHA (Occupational Safety and Health Administration) has introduced specific standards, including fall protection, hazard communication, scaffolding, and electrical safety. These standards aim to protect workers and ensure a safe work environment. Similarly, the NCC (National Construction Code) in Australia sets minimum standards for safety, health, comfort, accessibility, and sustainability, offering flexibility in meeting compliance requirements.
Training and education are also vital components of construction compliance. Licensed consultants provide training to construction workers to ensure they are well-equipped to handle equipment safety, fall hazards, and accident prevention. This not only empowers workers with the skills to protect themselves and their colleagues but also contributes to a positive company reputation and growth opportunities.
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Frequently asked questions
Construction law is a branch of law that deals with matters relating to building construction, engineering, and related fields. It covers a wide range of legal issues, including contracts, negligence, bonds and bonding, guarantees and sureties, liens and other security interests, tendering, construction claims, and related consultancy contracts.
Construction law covers a range of scenarios, including:
- A contractor's right to suspend work due to an uncured material breach by the employer.
- The ownership of intellectual property in relation to the design and operation of a property.
- The use of arbitration or litigation to resolve disputes.
- The application of sales and excise taxes to construction projects.
Construction contracts should consider the following:
- Whether the project is private or public.
- The jurisdiction in which the project is located.
- The nature of the project.
- The standard of care and any implied warranties.
- Compliance with health and safety regulations.
- The role of the architect, engineer, and construction manager.
- The percentage of work performed by the contractor vs. subcontractors.
