USA - NEW JERSEY Law and Practice Contributed by: Steven Fleissig, David Freylikhman, Cory Mitchell Gray and David Jensen, Greenberg Traurig LLP
Depending Builders’ Risk Coverage Depending builders’ risk coverage, which may be provided 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 subrogation for such insured loss - es. In such cases, the parties should consider allocation of deductible responsibilities; in par - ticular 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 subcontractor default insurance, which is used with greater frequency over the last several years. These policies do not insure the interests of the owner and often include large deductibles and/or self-insured retention. Policy premiums are often paid up front based upon estimated enrolled volume with an accounting true-up at completion. However, the policies typically will not survive a contract termination (other than for contractor insolvency). It is, therefore, important to assess the coverage afforded under a sub - contractor 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 pre - pared by the contractor or construction man - ager. In particular, the contractor’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 contracts to include liquidated damages for
contractor delay and, often, depending on the nature of the project and timing considerations, they may also include early completion bonuses. Any such bonuses tend to be based on economic terms and, while not uncommon, they are not an industry standard or norm. Delay events should be subject to prompt and timely notice with an obligation to substantiate impact to the critical path of the work. Owners should consider the extent of weather events that may be assumed within the contractor’s construction schedule, and clearly define force majeure events. Also to be considered are economic impacts from delays including potential pricing escala - tion as a result of such delays. New Jersey law will recognise “no damage for delay” contract limitations (ie, an extension of time being to the exclusive remedy for excused delay) provided that statutes may prohibit such limitations in public works contracts to the extent the delay is caused by a contracting entity’s bad faith, active interference, or tortious conduct. Furthermore, New Jersey courts have permitted recovery for delay damages, notwithstanding any such contractual limitation, when: • the delay was of a type not contemplated by the parties; • the delay amounts to abandonment of the project or contract; or • the delay was caused by active interference or bad faith of the party seeking enforcement. It is, therefore, essential that any such provisions are carefully drafted to reflect the intent of the parties. Relatedly, unpredictability may increase with respect to the treatment of delay claims and such provisions in the continued wake of the COVID-19 pandemic and surrounding its rip -
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