Public or Private Development Projects
Contractors may do work for both public and private entities. Both can be valuable sources of business, and it is common for contractors to have divisions that work with both types of clients. However, these contracts have many substantive differences, and the rules may not be the same (even if there are overlapping principles).
It is essential to know the general framework and the rules that govern each type of contract. These rules can impact the bid on the contract and will certainly govern the contract once it is signed and in effect. Any construction contract is a binding agreement between two parties, where one pays the other in exchange for a completed project that meets the specifications exactly. Anything involving a contract is a legal matter that all parties should take seriously.
All parties involved should have the representation of an experienced construction lawyer at all phases of the contract. Ideally, they should review any proposal before you submit it to ensure it meets the legal requirements of the request for proposals. If a contract requires negotiation, your attorney can review it and suggest any changes. They can negotiate to ensure all contract provisions are fair before starting the project. A construction lawyer can then draft an airtight contract that reflects the wishes of all parties.
Certainly, you should be represented by a construction lawyer if you have any disputes regarding the contract. Your case can end up in court, but it doesn’t have to with the right legal assistance and approach. Your attorney might resolve a dispute without litigation by negotiating with other parties or engaging in alternative dispute resolution. This can save you significant resources.
What You Need to Know About Public Development Projects
Public development projects are governed by a strict set of rules. No matter what branch of government is involved, it must follow its own procurement regulations from start to finish. Unless certain limited circumstances apply, the government must solicit bids from different contractors before it can select one for the job. The government will publish a request for proposals from contractors, and they will receive bids for the job.
The government may have its own specifications for the job. Alternatively, the government can procure the contract as a design-build job, where the contractor will submit both a design and a proposal for the actual job. The government can procure the design and the actual construction work separately.
The government is typically represented by one individual who has the authority to bind the government to the terms of a contract. This person is known as the contracting officer, and they have a warrant that allows them to commit the government’s money to the contract. The contracting officer is the one who signs the contract and interacts with the contractor in many phases of the job. Other government officials may not have the authority to bind the government financially.
How the Government Receives and Reviews Proposals
The government usually has a technical team that grades the proposals. Sometimes, the government may select the proposal that is the lowest price and is technically acceptable. In many instances, the government will select the best value, combining technical merit and price.
The government will award the job pursuant to a contract, just like a private contractor. The overlay is that the government must also follow its own rules in administering the contract. The government is the steward of taxpayer funds and must use the money wisely. At the same time, the rules also exist to be fair to the contractor, who is investing their own resources in the job.
Termination of Public Contracts
The contractor must still meet the strict requirements of a public contract. If the contractor does not comply with the terms of the contract, the government has the right to terminate the contract for default. It can also attempt to withhold payment if the contractor does not live up to the contract.
One major difference between public and private contracts is that the government can terminate the contract for convenience if it no longer needs the work. This right is a very broad one. The contractor gets paid for the work they have done on the contract. When they enter into the contract, a contractor must understand that the government’s needs may change over time. It is virtually impossible to overturn a termination for convenience because the government’s right is practically unlimited. Even if the contract does not include a termination for convenience clause, one will likely be read into the contract.
In such situations, contractors should have a construction lawyer reviewing the agreement and all termination documentation to ensure the government is following the rules.
Policy Factors in Government Contracts
Government contracts aim to achieve certain societal aims in addition to resulting in a usable and deliverable project. There is often more to a contract than just the agreement for a project. The contractor may have to follow certain aims along the way, which can become part of the contract.
Unlike private development contracts, government rules and the administration of contracts are influenced by public policy factors. For example, contracts may be set aside for small businesses or those owned by disadvantaged minorities. The government may also impose other terms and conditions on the contract because money is often spent to further goals other than simply a building job.
For example, there might be additional rules about how much workers are paid and the benefits they should receive. Government contracts may mandate paid sick leave and other worker entitlements, so the contractor needs to factor those in when they bid on the job.
Contractors should seek help from construction attorneys to ensure they cover all necessary bases in bids and contracts.
Private Contracts Can Have Their Own Terms
Private development projects are also the result of an agreement between the customer and the contractor. However, private contracts are not subject to the same rules. The two parties are free to set their own provisions, and they do so in the contract they sign before the job.
In many cases, the customer will solicit multiple bids from contractors, but they are not obligated to do so. It is generally in a customer’s best interest to solicit bids from multiple contractors unless they already have a previous relationship with a builder that has worked well for them. However, the customer may not want to spend an excessive amount of time reviewing many bids because it can be costly and time-consuming.
Several people may administer private contracts, and there is no question about whether the person can legally bind the contractor. If the customer gives a directive to the contractor, the contractor must follow it, but the customer must pay extra if the order results in a constructive change to the contract.
The customer may not even realize they have ordered a constructive change to the contract, so it is their responsibility to know how any directives relate to the existing terms of the contract. Otherwise, it will cost them more money.
Private development contracts are governed solely by the terms of the agreement and common or state law that applies to contracts and construction cases. There is no overlay of government rules that supplement how the contract is administered. Some other general legal principles might apply, such as environmental regulations and laws, like the Americans with Disability Act.
Private Contracts Have Their Own Disputes Mechanism
In a private contract, there will likely be a dispute resolution mechanism in the contract itself to address any issues that arise between the contractor and the customer. For example, the parties can require a dispute to go to binding arbitration or mediation instead of litigation. A government contract has a general dispute resolution mechanism but may not have specific procedures governing the dispute.
Similarities Between Public and Private Contracts
Both public and private contracts are governed by many of the same general principles. For instance, the contractor must perform strictly in accordance with the contract. If they fail to do so, they can be subject to termination for default. In the public realm, the government must meet a very high bar for the termination to withstand judicial scrutiny. In addition, both private and government customers can file a claim against the contractor if they performed work not in accordance with the terms of the contract.
Further, both public and private entities might need to pay the contractor more if they changed the terms of the contract, ordered additional work, or altered the manner of performance. For example, the customer may accelerate the performance of the contract, resulting in additional costs to the contractor.
Regardless of whether there is an express or constructive change to the contract, the customer will need to pay additional money. The two parties can agree on a modification to the contract, where the customer pays additional money for the change order. Alternatively, the two parties may litigate if they cannot reach an agreement.
As a contractor, always have a construction lawyer overseeing any modifications to an existing development project contract, whether with the government or a private entity.
Public-Private Partnerships
Public-private partnerships present a host of issues, whether in the negotiation of the agreement or the performance of it. Common issues in public-private partnerships include:
- Cost overruns
- The contractor walks off the job because of constructive changes
- The developer’s conduct in dealing with the public (such as the charges that they impose)
- Drafting the memorandum of understanding between the public and private entity
- The government’s appropriation for the project
- Conflicts of interest among individual parties to the agreement
One commonality between public and private contracts is that parties need legal counsel at various stages of the process. For example, a contractor may need a construction law attorney to review their proposal and bid before they submit them to ensure they are following all the legal requirements in the RFP.
In a private contract, there is more flexibility for the two parties to customize the terms of the agreement, unlike a public contract, which has more standardized or inflexible terms. In the private realm, the contractor may negotiate the terms with the customer, resulting in changes to the initial contract.
In both the private and public spheres, parties need a construction lawyer if disputes arise. The government already has its own construction lawyers on staff who will be involved in a dispute, and the contractor needs their own construction attorneys to represent them in a dispute.
It may be possible to head off litigation by early involvement in a potential dispute. With the right legal representation, the two parties may negotiate a modification to the contractor that may result in additional time to perform or money for a change. The contractor might agree to fix work with which the customer has an issue.
Otherwise, the two parties may head to litigation. In the public realm, the dispute may either be heard in a federal or state court or in front of an administrative law judge. The contractor will have the choice of where to file the claim, and they should make this choice with assistance from their construction attorney. If they begin in the administrative forum, they can then take their case to court if they are dissatisfied with the result. In each realm, the contractor has the right to keep litigating up to the highest level of the appeals court.
Overall, whether a contract is for a public or private development project, the representation and guidance of a construction lawyer is invaluable from the start. For expert legal counsel in all aspects of construction law, consult or contact Lopez Law Group to protect your interests and guide you through every phase of your project.