Saturday, October 23, 2010

Quick Construction Contract Tips: Attorneys' Fees Provisions

It is estimated that the construction industry in the New York Tri-State area annually exceeds $25 billion.  With that much at stake it is no surprise that the construction industry has become increasingly complex from a business and legal standpoint.  Often contractors feel that it is not worth their time or money to have their attorney review their smaller contracts.  Surprisingly, and unwisely, some contractors also don't have their attorney review large contracts. 

One provision that all contractors should be aware of is the attorneys' fees provision.  In New York, the general rule is that parties to litigation are responsible for their own attorneys' fees.  Even if you are victorious, and the other party was completely wrong, the normal rule is that you still pay your own legal fees and cannot recover them as part of the action.  The normal rule can be changed in two ways: First, if a particular statute provides you with attorneys' fees; and Second, if your contract addresses attorneys fees. 

While there are a number of situations in which statutes in New York will address attorneys' fees in the construction business, the two most common attorneys fees statutes are the Article 3A of the Lien Law (the trust laws) and New York's Prompt Payment Act (GBL Article 35E).  Contractually, you are free to address the attorneys fees issue in your contract.  There are a number of ways that attorneys' fees can be addressed in your contract.  The provision can say that both parties agree to pay attorneys fees of the prevailing party in any action brought under the contract.  The provision can say that only one party recovers its attorneys fees (for example, the provision could say that the contractor is entitled to recover its attorneys fees in the event it must sue the owner for payment).  Regardless, you should be aware of what your contract says and make sure you not only understand it, but that it says what you want it to say.  Personally, I leave the choice up to my clients and everyone feels differently.   On smaller claims, you might want to be able to recover your attorneys fees because otherwise the costs of litigation can exceed the claim value.  But on large claims you may not want attorneys fees provisions because odds are that the claim will be justified, from a cost standpoint, with our without attorneys fees and you don't want to subject yourself to possible attorneys fees against you if it isn't necessary.

As with any contracts, I strongly recommend that you consult with an attorney to discuss what works best for you. 

Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law.  He can be reached at (631) 752-7100 or

No comments:

Post a Comment