USA – HAWAII Law and Practice Contributed by: Jon Pang, Lisa Broulik and Matthew Cohen, Case Lombardi, A Law Corporation
7. Construction 7.1 Common Structures Used to Price Construction Projects Various structures are used to price construction projects, which distribute and mitigate risks between contractors and owners. Fixed price (lump sum) and “Cost-Plus” contracts are the primary types of con - struction contract in Hawaiʻi. Fixed price contracts shift the responsibility risk onto the contractor to deliver the goods or the complete performance of the services or construction for a contractually set price. Under the “Cost-Plus” structure, the contrac - tor is reimbursed for allowable project costs and, in addition, receives an agreed-upon fixed fee. The total compensation, however, is customarily capped at a maximum price (GMP), providing the owner with some cost certainty. Generally, lenders favour a fixed price contract because the construction budget can be more accurately predicted. 7.2 Assigning Responsibility for the Design and Construction of a Project Two common project delivery methods in Hawaiʻi are the traditional design-bid-build method and the design-build method. Design-Bid-Build The traditional design-bid-build structure involves an owner entering into a contract with the architect and/ or engineer to design the project, and the owner enter - ing into a separate contract with a contractor through competitive bidding to construct the project. Design-Build Typically, the alternative design-build method pro - vides faster project delivery times and involves an owner entering into a contract with a single entity to provide both design and construction services for the owner’s construction project. 7.3 Management of Construction Risk Devices used to manage construction risk include indemnification clauses, warranties, retainage and insurance. Construction claims are subject to the state’s statute of limitations and statute of repose.
7.4 Management of Schedule-Related Risk Contractors and subcontractors are expected to com - ply strictly with project schedules and deadlines. Fail - ure to do so may result in the contractor being held liable to the owner for delays in delivering the project. To encourage contractors to provide timely services and compensate owners for damages resulting from project delays, a valid liquated damages clause allows an owner to monetarily recover damages incurred as a result of the contractor’s failure to complete the pro - ject as scheduled. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance One of the most common forms of security used to guarantee a contractor’s performance in Hawaiʻi is a performance bond, which ensures the contractor completes the project in accordance with the con - tract. If the contractor defaults, the surety must ensure that the project is completed or that the owner is com - pensated in accordance with the bond. 7.6 Liens or Encumbrances in the Event of Non-Payment Licensed contractors, materialmen and certain designers are permitted to file a lien against a prop - erty in the event of non-payment, provided they com - ply with Chapter 507 of the Hawaiʻi Revised Statutes. Unlicensed contractors may not obtain a mechanics’ lien. The lienor must file an “Application For A Lien” along with a “Notice of Lien” with the circuit court of the circuit where the property is situated not later than 45 days after the date of completion of the improve - ment against which it is filed. An owner may discharge a mechanics’ lien at any time by paying the claim, obtaining a voluntary release from the contractor, let - ting the three-month enforcement deadline pass, or depositing a bond/cash for twice the lien amount with the circuit court in which the property is located. 7.7 Requirements Before Use or Inhabitation Issuance of a Certificate of Occupancy (COO) by the county’s responsible agency is required before a pro - ject can be inhabited or used for its intended pur - pose. A project must pass all inspections and comply with applicable codes, including the county’s building code, before a COO will be issued.
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