USA – LOUISIANA Law and Practice Contributed by: Jeffrey P. Good, Susan M. Tyler and B. Trevor Wilson, Jones Walker LLP
allocate the project risks to the party best able to control and manage the risk, and which derives some benefit from doing so. Some of the more important contract provisions regarding risk allo - cation are as follows. Scope of Work Definition One of the best ways to avoid financial risk and disputes between the parties is by establish - ing a clear definition of the scope of work being undertaken, and how differences in the parties’ interpretation of that scope will be resolved over the course of the project. Dispute Resolution Provisions Parties must structure the dispute resolution process in these provisions before their rela - tionship becomes contentious over the course of the project. Items to consider include step negotiation, the employment of dispute review or dispute adjudication boards, and whether the ultimate dispute resolution mechanism should be litigation or arbitration. Indemnity Indemnification provisions, an important com - ponent of risk management, make one party financially responsible for the occurrence of a specified risk. Under Louisiana law, construc - tion contracts cannot contain “broad-form” indemnity provisions, whereby a party indemni - fies another against personal injury and property damage claims arising out of the indemnitee’s own negligence. Rather, indemnity obligations are limited to occurrences arising out of the neg - ligence of the party giving the indemnity. Damage Waivers It is common for construction contracts in Loui - siana to include waivers of consequential dam - ages, which are defined as damages that may arise directly but not necessarily from breach of
the construction contract. Examples include loss of revenue, production, profits, use and rental income. 7.4 Management of Schedule-Related Risk The first line of defence in managing sched - ule risk is the institution of appropriate report - ing requirements and other project controls to ensure that the contractor is performing the work in a timely fashion, and that project risks that affect the schedule – such as differing site conditions or material delivery problems – are identified early and their impact on the schedule mitigated. Contractually, Louisiana law permits an owner and a contractor to stipulate the damages to be recovered in case of non-performance, defec - tive performance or delay in performance of an obligation in the construction contract. Most commonly, stipulated damages provisions relate to late completion of milestones or the overall project. In the case of a contractual breach, the liquidated damages clause relieves the non- breaching party of the need to prove actual damages. Liquidated Damages Liquidated damages may not be imposed as a penalty, and must be intended to compensate the owner for the contractor’s delay. Thus, the stipulated amount must represent a reason - able estimate of the anticipated or actual loss resulting from the failure to complete the work on schedule, made at the time the contract was executed. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance The most commonly used device for securing contractor performance on a project is a con -
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