USA – NEW JERSEY Law and Practice Contributed by: David Freylikhman, Cory Mitchell Gray, David Jensen and Jody Saltzman, Greenberg Traurig LLP
7.3 Management of Construction Risk Construction risk in this jurisdiction is often managed by (among other things): • indemnification; • warranties; • limitations of liability; • delay damage limitations and other waivers of damages; • provisions relating to insurance; • bonding and subcontractor default insurance; • subcontract pass-through provisions; • contingency (in the case of a guaranteed maximum price contract); • other economic provisions and controls (such as shared savings or other incentives); • liquidated damages; • construction retainage and contractual holdback/ chargeback provisions; and • other economic provisions and controls (such as shared savings, early completion bonuses, specific provisions regarding tariffs or other possible pricing escalations, or other deal-centric terms). New Jersey law prohibits an owner or other party from requiring contractual indemnity for damages arising out of bodily injury to persons or damage to property caused by, or resulting from, the sole negligence of the owner, or such other proposed indemnitees. Parties should, therefore, be mindful to tailor indem- nity clauses appropriately so as to not risk having the provision deemed unenforceable. Owners should be mindful to properly review and tailor insurance pro - grammes to minimise potential uninsured exposures and require, by contract, that the contractor’s com - mercial general liability and excess/umbrella coverage be endorsed to include the owner as an additional insured, assuming the intended primary coverage is provided by the contractor and not an owner’s project policy. There are continued concerns about supply chain disruptions and pricing volatility and, as a result, contractors and suppliers are qualifying pricing and scheduling commitments more so than has histori - cally been the case. Owners should be mindful of such
qualifications and consider appropriate contract con - tingencies. Relatedly, consideration should be given to practical remedies versus contractual remedies, since it is not uncommon to have a contractual recourse or remedy that does not, in practical terms, actually resolve the issue at hand (namely allowing for the construction of the project to maintain pace and/or recover from such events). Depending Builders’ Risk Coverage Depending builders’ risk coverage, which may be pro - vided by either the owner or contractor, will insure property loss to the work in progress and is typically provided with the insurer’s waiver of claims for subro - gation for such insured losses. In such cases, the par - ties should consider allocation of deductible respon - sibilities – in particular for insured losses caused in whole or in part by the contractor or subcontractors, such as water damage where deductible exposures tend to be higher. Subcontractor Default Insurance Owners should also consider the limitations of sub - contractor default insurance, which has been used with greater frequency over the last several years. These policies do not insure the interests of the own - er and often include large deductibles and/or self- insured retention. Policy premiums are often paid upfront based on estimated enrolled volume with an accounting true-up at completion. However, the poli - cies typically will not survive a contract termination (other than for contractor insolvency). It is, therefore, important to assess the coverage afforded under a subcontractor default insurance programme and to consider how covered claims are treated under the construction contract. 7.4 Management of Schedule-Related Risk Contract provisions typically require contractors and subcontractors to adhere to established milestones, with corresponding schedules prepared by the con - tractor or construction manager. In particular, the con - tractor’s work should be subject to a “time is of the essence” clause, and construction schedules should identify key interim and completion milestones, as well as critical path activities. It is not uncommon for con -
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