Say you’re a general contractor on the right side in a dispute over a municipal contract and the government authority you are dealing with is pushing you to accept unfair contract terms or payment arrangements.
You need the money, but don’t want a protracted legal battle, so what do you do?
Every situation is different, but the answer could be that if you can afford to, never back down. The case of New Orleans contractor J. Caldarera Co. Inc., who says he is owed $8 million since 2011 for completed work but still is subject to a threat of being declared in default in his work on the Jefferson Parish Performing Arts Center, offers tips for negotiating the murky world of public contracts.
1. Stick to Your Guns
Since he worked out a deal with Jefferson Parish in June, he is being hailed by contractors across the state as a hero for standing up for his rights.
The project had an original cost of $26 million, which grew to $54 million, but was troubled before it began. At the pre-bid conference, Caldarera pointed out 110 design problems to an owner’s representative and the project’s designer.
“They said, "Forget the questions, they can be answered in the formal RFI process with whatever contractor is lucky enough to get the contract,’” Caldarera said.
Some of the 508 major errors in the project’s plans that required new drawings included just one ingress/egress for the 1,100-seat center and two elevators so poorly designed that they didn’t go all the way up to the top. Overhead electric doors were designed with no power source. The local fire marshal visited the job site 10 times, rather than the one or two times that’s usual in the area.
Despite these problems and not being paid more than $8 million for completed work he was owed since 2011, Caldarera stayed on the project after the parish offered him $1 million in January to continue to work.
After repeated delayed payments by the parish over the years, Jefferson Parish Council in early June was considering declaring Caldarera in default. The threat was issued after the job’s designer recommended to council that Caldarera be paid an additional $4 million for his work, which brought the total owed to his company to $12.7 million.
“The fact is we thought we were doing a good thing when we said we’d give [council] a $3 million break from the $12.7 million,” Caldarera said. “Under the general conditions of the contract, the designer had the exclusive authority to change the drawings.
That’s pretty serious to give that authority to one individual, but the contract states that express authority is binding, unless the owner or contractor appeals, says Caldarera.
In November, the council agreed to give Caldarera $1 million to keep him working on the project. After consistently assembling the structure for years and working with the parish in good faith, Caldarera had faced a council that wanted to change the terms of his contract drastically, or default him.
“They wanted to take away rights provided for in the contract. They were trying to prevent any future change orders for any reasons whatsoever,” Caldarera said.
So when council told him they’d vote on declaring him in default, he pushed back.
By the way, Jefferson Parish Council members declined to comment on the matter.
2. Know the Process
After the job’s second designer announced to the council Jan. 9 that the parish should pay Caldarera an additional $4+ million above the $8.2 he was owed, a line was scratched in the dirt.
“That’s when the whole thing blew up,” Caldarera said. “Instead of working through this to the benefit of the community, people kept on passing the blame till they put it on me.”
So when council made its most recent threat to declare him in default by their June 12 meeting, Caldarera stuck to his guns, because he knew he was right. And he referred to the law, demanding council give him a reason why he was in default and that they provide it to him by 5 p.m. the day before the meeting. But no reason came.
“Thank goodness they’ve seen the light,” Caldarera said, after the deadline passed.
A less seasoned owner might’ve bent under the pressure of a local government pushing him to accept major changes to a long-unfinished project. But the changes were so burdensome that Caldarera had no choice, in addition to being in the right in the first place.
The council wanted to change the contract from stipulating liquidated damages of $500/day to $25,000/day for the first 10 days and require that he forfeit a $3 million payment if he was 11 days late.
3. Understand the Contract
Caldarera didn’t become one of New Orleans’ top contractors by not understanding the fine print. Plus, he teaches Bid Law to companies in seminars across the state.
“Owners cannot make a contract so onerous that it strips rights of the contractor provided in the original contract,” Caldarera said. “An owner has two duties: to pay and to ask questions.”
4. Have Broad Shoulders
The owner of the 400-employee company was fortunate to have the financial resources to continue working on the project, despite not being paid what he was due for years.
And when the payments from Jefferson Parish did come, he divvied it up to pay subcontractors. (“I treated them like my five daughters: I treat them equally,” he explains.)
Most of the work on the arts center was self-performed by the general contractor. Other smaller firms, given the same predicament, might not have survived the pay lag.
The parish came to an agreement with Caldarera in June which requires completion of the work on the project within one year of the first of three payments totaling $9.8 million. He expects to finish the work ahead of the deadline.