ENR Survey: The Clients and Clauses That Companies Avoid
By most standards, developer Cameron Group LLC appears to be an excellent prospect as a client: It has an impressive portfolio of malls, and its principals have gleaming résumés, many acquired while working at The Pyramid Cos., a Syracuse, N.Y.-based developer.
So, when Cameron needed mechanical and electrical drawings for a long-delayed new retail development that the firm hoped would transform a weedy parcel in Mission, Kan., Henderson Engineers Inc. went to work for a Cameron corporation, The Gateway Developers LLC. Henderson claims it finished the drawings in late 2012 and billed $405,690.70.
More than two years later and despite a personal guarantee by Cameron Principal Thomas Valenti, Gateway Developers has yet to pay, according to a lawsuit filed by Henderson in December in Kansas state court in Johnson County. Whether Gateway and Valenti have reasons for apparently withholding the payment is unknown, as Valenti did not respond to requests for comment.
Better economic times have arrived in the U.S., and along with them have come ever-more aggressive efforts by developers and project owners to off-load risk. From designers to general contractors to niche subcontractors, everyone is fielding demands and contracts that require them to either work without compensation or take on liability far beyond their traditional or desired scope.
To protect themselves, many construction companies’ first risk-control principle is to just say no.
ENR’s annual confidence survey included two new questions about how companies decide what clients and contract clauses to avoid; about 180 of the 220 responses to the confidence survey also supplied answers to ENR’s two risk-related questions.
The respondents said they are wary of condominium apartments and inexperienced private developers. They also said they treat as contractual "kryptonite," clauses and terms that include consequential damages and liquidated damages.
The details were more interesting, as many companies have woven into a strategic security blanket risk aversion as a simplified form of risk management.
One Indiana engineer says it steers clear of speculative work for developers or public-private partnerships. A South Carolina contractor says it leaves to its competitors any high-retainage and extended-duration projects because, on those jobs, the average age of receivables has doubled to 80 days from 42 days. Other companies see big trouble in design-build.
The question is when risk aversion outlives is usefulness and becomes a self-defeating limitation. Construction defects on condominium projects receive a lot of publicity and worry insurers and contractors.
One building in New York City, 500 Fourth Ave. in Brooklyn, is a good example. City officials have ordered owners not to use their balconies because of concerns about defects. The building’s developer and contractor did not return calls for comment.
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