Wednesday, July 2, 2008

Back To Basics -- Managing Legal Risks And Liabilities

The Utah construction industry has had unprecedented growth and success over the past few years. Despite some ongoing positive things in Utah construction, there are some signs of slowing, particularly in the residential market.

In the good economic times, there is often a tendency to become lax in considering and managing legal risks. In such a positive market, it is often more profitable to worry about the next project rather than be concerned with the risks and potential problems on the current projects. However, in tight construction markets, such a lax attitude cannot continue because there are fewer projects and tighter margins.

Now is a good time to get back to the basics in managing the legal aspects of your business and construction projects. And, there is no better place to start than with your contracts. Even though your general contracts, subcontracts, supplier agreements, credit applications, etc. have served you well, over time they can get out of date as statutes change and can become disjointed as they are “tweaked” from time-to-time. One of the most common problems is that someone may borrow another company’s contract and implement it into their company without serious thought as to how it will work for their unique way of doing business. You should make sure that your contracts are consistent with your company’s goals and expectations and that the various risks are allocated according to those goals and expectations.

Financial risk can be managed, to a degree, through collection procedures and documentation. Although Utah law was changed with regard to lien waivers and restrictive endorsement, the majority of construction businesses still have not implemented the new requirements. If you issue checks with restrictive endorsement waivers and you have not changed the language to be consistent with the new statute, your restrictive endorsements will not be effective to waive mechanic’s lien rights. The new restrictive endorsement language can be found at Utah Code Annotated § 38-1-39(4)(d)

Insurance is another way to manage certain legal risks and liabilities on construction projects. However, most insurance companies exclude many of the risks from which construction industry participants need protection. These may include stucco, mold, and other important issues. These coverages can be negotiated back into insurance contracts but many construction industry participants do not know that such coverage is not routinely included. In addition, many do not understand even the basics of the insurance coverage they pay for. It is time to dust off that insurance policy and read it from beginning to end. More importantly, it is time to understand the coverage, negotiate with your insurance company for the additional coverage you require and to learn how to manage the risks for which you are unable to insure or for which coverage is too expensive.

It is time to get back to the basics of managing your legal risks and liabilities. These are just three important ways to get started with in that process.

No comments: