USA - SOUTH CAROLINA Law and Practice Contributed by: Matt Norton and Christian Kolic, K&L Gates
7.5 Additional Forms of Security to Guarantee a Contractor’s Performance Owners frequently seek additional assurance as to performance by contractors by way of a pay - ment and performance bond issued by surety. The use of letters of credit in construction pro - jects in South Carolina is not common. 7.6 Liens or Encumbrances in the Event of Non-payment Persons performing work or providing materials with respect to construction and development of property who are not paid for such work or materials are entitled to file a lien on the property as security for the amounts owed. In addition, liens may be filed by persons providing security services, by surveyors, by leasing (but not sell - ing) real estate brokers, by persons providing landscaping services, and by persons providing design services (architects and engineers). Mechanic’s liens may be discharged from the real property by the posting of a bond; the lien then attaches to the bond and is released from the real property. Further, in a proper cir - cumstance a court may order the removal of a mechanic’s lien. 7.7 Requirements Before Use or Inhabitation Buildings may not be occupied until a certificate of occupancy has been issued. The requirements for obtaining a certificate of occupancy include the inspection of the major functional portions of the building (including electrical and plumbing) during the construction process and verification that construction was done in accordance with the approved plans and specifications.
– commonly referred to as “design-bid-build”. Typically, the design function is assigned to third-party architects. Less frequently, a design- build contract is used, in which the contractor itself provides the design services. 7.3 Management of Construction Risk Management of construction risk is largely through the use of third-party inspectors; ie, architects or other construction professionals. These inspectors make periodic inspections – typically coincident with each construction loan draw or advance – and assess the percentage of completion and verify that the improvements on the ground are consistent with the amount of funds disbursed to date. The use of fixed-price contracts with appropriate delay penalties is another method of addressing construction risk. Another common approach for the management of construction risk by lenders is to require a guaranty of completion from a parent or other affiliate of the owner entity. Lenders also typically require a substantial equity investment either pri - or to or coincident with advances of construction loan proceeds. The equity investment may or may not be segregated and pledged to a lender. Additional equity deposits are frequently required by lenders in the event a construction loan becomes “out of balance”. 7.4 Management of Schedule-Related Risk Schedule-related risk in construction projects is managed by use of third-party inspectors and the inclusion in the underlying construction contract of substantial penalties for delays in meeting intermediate milestone dates and the completion date. In addition, lenders frequently incorporate construction milestones into the financing documents.
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