HUD Logo
USA%20Flag  
Site Map         A-Z Index         Text   A   A   A
HUD   >   Program Offices   >   General Counsel   >   Frequently Asked Questions   >   Construction Contract
Multifamily Document Reform Implementation Frequently Asked Questions

 

Construction Contract (and Supplement)

you have a question related to this document, please submit it to MultifamilyDocumentReview@hud.gov.

 

  1.  In the construction contract, we require the disclosure of all side agreements between the owner and contractor. Should these side agreements be listed in Article 2 (“Identification of Contract Documents”)? Does Field Counsel have any role in reviewing these side agreements?

 

  1. 3/15/2012
    What is the Retainage Reduction Rider referenced in both the Building and Loan Agreement and the Construction Contract?
  1. 3/16/2012
    How are liquidated damages calculated? Is there a formula that is used for calculation?
  1. 4/13/2012
    The language in Article 9 begins with "In jurisdictions where permitted by law,".  What exactly is the clause referring to as "permitted by law"? The ability to file a lien, or the ability of the Owner to restrict the Contractor's right to file a lien? Since most subcontractors would not be willing to sign a document taking away their lien rights before they have been paid for the work they completed, it seems unreasonable to require the Contractor to pass this requirement down. The result would be that the Contractor would have difficulty in finding subcontractors willing to sign subcontracts. Are there any alternatives to this statement or any allowable modifications?

  1. 4/24/2012
    In construction disputes, some states by statute award attorney fees to a successful contractor but do not award attorney fees to a successful owner. In order for the owner to claim attorney fees, a provision for the fees must be in the construction contract. I do not see a provision for attorney fees in our construction contract documents.
    The A201 does not seem to meet this need. This situation creates a substantial imbalance between the owner and contractor and could encourage marginal or frivolous claims by the contractor. Most modern commercial contracts provide for attorney fees to a prevailing party in a dispute. Is it reasonable to allow such a provision as a modification based upon local law? Would the same logic apply to the Architect's Agreement?

  1. 6/18/2014
     For projects where advances for building components stored offsite are not applicable, may paragraph A of Article 5 (Requisition and Payment Procedures) of the Construction Contract (Form HUD-92442M) be modified to strike the provisions relating to payment for the value of components stored offsite? The revised paragraph would read as follows: "A. Each month after the commencement of Work hereunder . . . plus (2) the value of materials and equipment not incorporated in the Work, but delivered to and suitably stored at the site; less (3) ten (10) percent holdback [as this percentage may be reduced in accordance with the provisions of the Retainage Reduction Rider attached hereto, if applicable](or as reduced by HUD in writing) and less (5) prior payments. The "values" of (1), and (2) shall be computed in accordance with the amounts assigned to classes of Work in HUD-92328."

 

 

 

 

 
1.  In the construction contract, we require the disclosure of all side agreements between the owner and contractor. Should these side agreements be listed in Article 2 (“Identification of Contract Documents”)? Does Field Counsel have any role in reviewing these side agreements?

Disclosure of side agreements is required by Article 1 of the Construction Contract. To the extent the Borrower and contractor have entered into written agreement of any sort or oral arrangement related to payment that have not been listed as a contract document or otherwise disclosed to HUD, such agreements must be disclosed to HUD. Field counsel do not have a role in reviewing these side agreements.

Back to top

2.   3/15/2012
What is the Retainage Reduction Rider referenced in both the Building and Loan Agreement and the Construction Contract?

The retainage reduction rider is not a HUD form.  The owner and contractor create the rider to describe how the retainage will be reduced in accordance with Program Obligations.  For additional guidance, see Section 12.15.D of the MAP guide.

Back to top

3.  3/16/2012
How are liquidated damages calculated? Is there a formula that is used for calculation?


The narrative expression is: 1 cent for each ¼ per cent of construction interest rate for each $1000 of mortgage amount.
Written arithmetically and expressed in dollars (not cents) the formula should read:
$.01 x construction rate/.0025 x mortgage amount/1000 = $ per day
This may be restated as:
$4 x construction rate x mortgage amount/1000 = $ per day
We calculate the liquidated damages per unit as follows:
Total $ Liquidated Damages Per Day/ # units in project = $ Liquidated Damages per unit per day.

Back to top

4.  4/13/2012
The language in Article 9 begins with "In jurisdictions where permitted by law,".  What exactly is the clause referring to as "permitted by law"? The ability to file a lien, or the ability of the Owner to restrict the Contractor's right to file a lien? Since most subcontractors would not be willing to sign a document taking away their lien rights before they have been paid for the work they completed, it seems unreasonable to require the Contractor to pass this requirement down. The result would be that the Contractor would have difficulty in finding subcontractors willing to sign subcontracts. Are there any alternatives to this statement or any allowable modifications?

"In jurisdictions where permitted by law" refers to the enforceability of restrictions on the contractors' or subcontractors' rights to file liens. In those jurisdictions where such provisions are not enforceable, such restrictions were removed in the previous version of the construction contract. The current contract makes clear that the requirement only applies where permitted under state law.

While the phrase "in jurisdictions where permitted by law" is new to the construction contract, the requirements of Article 9 are not. Modifications of this requirement are not permitted.

Back to top

 

5.  4/24/2012
In construction disputes, some states by statute award attorney fees to a successful contractor but do not award attorney fees to a successful owner. In order for the owner to claim attorney fees, a provision for the fees must be in the construction contract. I do not see a provision for attorney fees in our construction contract documents.
The A201 does not seem to meet this need. This situation creates a substantial imbalance between the owner and contractor and could encourage marginal or frivolous claims by the contractor. Most modern commercial contracts provide for attorney fees to a prevailing party in a dispute. Is it reasonable to allow such a provision as a modification based upon local law? Would the same logic apply to the Architect's Agreement?

Changes may be made if they (1) are mandated by state law or (2) are deal-specific and have been submitted and approved by the OGC Office of Insured Multifamily Housing. If the changes do not fall into those categories, they must go through the notice and comment process pursuant to the
Paperwork Reduction Act. Systematic changes may not be made until the form is revised.
 

Back to top

6.  6/18/2014
For projects where advances for building components stored offsite are not applicable, may paragraph A of Article 5 (Requisition and Payment Procedures) of the Construction Contract (Form HUD-92442M) be modified to strike the provisions relating to payment for the value of components stored offsite? The revised paragraph would read as follows: "A. Each month after the commencement of Work hereunder . . . plus (2) the value of materials and equipment not incorporated in the Work, but delivered to and suitably stored at the site; less (3) ten (10) percent holdback [as this percentage may be reduced in accordance with the provisions of the Retainage Reduction Rider attached hereto, if applicable](or as reduced by HUD in writing) and less (5) prior payments. The "values" of (1), and (2) shall be computed in accordance with the amounts assigned to classes of Work in HUD-92328."

In the case of the proposed construction contract changes, to the extent that there are no advances to be made for building components stored offsite, the calculated value of the deleted language would equal zero. Thus, there would be no substantive impact in revising the language as proposed and as such, no changes will be made to the language.

 

Back to top


Back to Multifamily Document Reform Implementation Frequently Asked Questions