Principais leis que impactam os negócios da DG no Brasil

Beverly Tompkins on January 13, 2026

Principais leis que impactam os negócios da DG no Brasil

Por Denizom Oliveira e Gustavo Manssur Santarosa

Somos gratos a Beverly Tompkins pelo convite para contribuir com a série “Legal Bites”. É um prazer para nós compartilhar alguns insights a partir do nosso lado do equador. Trabalhar entre Brasil e Estados Unidos, por vezes, se assemelha a operar a mesma linha de produção em duas plantas distintas: os equipamentos são idênticos, mas a forma como o sistema reage ao ambiente local pode surpreender até o engenheiro mais experiente.

Brasil e Estados Unidos compartilham uma sólida cultura de engenharia, um compromisso com a segurança de alimentos e uma tendência a manter os projetos avançando apesar de eventuais tempestades regulatórias. Ainda assim, os marcos jurídicos que orientam projetos de construção e engenharia em cada país são moldados por histórias e estruturas institucionais distintas. Isso se torna especialmente visível em projetos de alimentos e bebidas, nos quais a interface entre construção, compliance, licenciamento e fiscalização pública é constante.

O objetivo deste “Legal Bite” é destacar alguns dos elementos específicos do direito e da prática regulatória brasileiros. As informações a seguir refletem questões que a DG Brasil enfrenta diariamente em seus projetos, que vão desde plantas de processamento de laticínios até fábricas de bebidas, padarias e linhas de processamento térmico.

1. Risco trabalhista e de emprego em projetos de engenharia

O direito trabalhista brasileiro é, ao mesmo tempo, abrangente e complexo. As reformas implementadas desde 2017 buscaram aumentar a produtividade, reduzir custos de contratação e promover maior segurança jurídica. Embora as autoridades tenham criado regras específicas para o setor da construção, em razão de sua intensa utilização de mão de obra, projetos de construção e engenharia continuam altamente expostos a riscos trabalhistas. De forma não muito diferente do que ocorre com desenvolvedores nos Estados Unidos, um empreiteiro pode registrar um canteiro de obras como uma entidade independente, como forma de limitar responsabilidades fiscais e trabalhistas associadas a um projeto específico.

Uma característica que distingue o direito brasileiro do direito norte-americano, com impacto direto em setores intensivos em mão de obra, é a possibilidade de responsabilização subsidiária das partes contratantes. No contexto de uma planta de processamento de alimentos, isso significa que, se um subcontratado responsável por tubulações em aço inox ou por instalações higiênicas deixar de cumprir obrigações trabalhistas, existe o risco de que o contratante principal (por exemplo, a DG) e, em alguns casos, o(a) Contratante, sejam responsabilizados de forma indireta pelos atos ou omissões do subcontratado e chamados a responder por eles. Para administrar esse risco, contratos de construção no Brasil, tanto entre proprietários e contratantes principais quanto entre contratantes principais e subcontratados, normalmente exigem comprovação contínua de regularidade da folha de pagamento, recolhimento de encargos previdenciários e cumprimento das normas de saúde e segurança no canteiro de obras.

Dada a natureza mista de direitos e obrigações dos diversos envolvidos nesse tipo de arranjo, e considerando que o direito brasileiro e suas autoridades, em geral, não foram concebidos para contratos complexos de construção, é necessária uma análise aprofundada do projeto, da estrutura jurídica de seus participantes e de seus contratos, a fim de estabelecer e gerir entidades separadas de forma compatível com as condições locais.

2. Garantia legal sobre obras de construção (artigo 618 do Código Civil brasileiro)

Em regra, projetos privados de construção e engenharia no Brasil não são fortemente regulados. O Código Civil brasileiro contém algumas disposições gerais voltadas a contratos de construção menos complexos, que, em geral, não se aplicam a contratos mais sofisticados, como os de Engineering, Procurement and Construction (EPC).

Ainda assim, sob o direito brasileiro, a obrigação legal mais relevante aplicável a projetos de construção decorre do artigo 618 do Código Civil. Esse dispositivo estabelece um prazo mínimo de garantia de cinco anos para quaisquer defeitos relacionados à solidez ou à segurança técnica da obra final.

Na prática, em uma planta de alimentos ou bebidas, essa garantia legal pode ser acionada em situações nas quais problemas estruturais ou de segurança comprometam a instalação. Exemplos incluem defeitos na estrutura do edifício que afetem sua capacidade de suporte de carga, falhas em sistemas de piso que coloquem em risco a drenagem e a higiene em áreas de alto cuidado, ou problemas em mezaninos técnicos que impactem a instalação segura de utilidades de processo.

Embora as partes ainda negociem cláusulas contratuais de garantia, procedimentos de notificação e mecanismos de correção, a doutrina e a jurisprudência brasileiras tendem a tratar essa garantia como um patamar mínimo e inderrogável no que se refere a defeitos estruturais e de segurança. Na prática, isso significa que qualquer tentativa contratual de afastar a aplicação desse dispositivo exige especial cautela tanto na redação quanto na negociação do contrato.

Para mitigar riscos de responsabilização com base no artigo 618 do Código Civil, a DG Brasil dá especial ênfase à elaboração de cláusulas adequadas de garantia, ao desenvolvimento de projetos claros, aos desenhos “as built” e a relatórios de comissionamento.

É importante distinguir as garantias contratuais de serviços do prazo legal quinquenal previsto no artigo 618 do Código Civil. As garantias contratuais são definidas pelas partes e regulam padrões de desempenho, correção de defeitos e procedimentos correlatos dentro do prazo acordado. Já o prazo de cinco anos previsto no artigo 618 constitui um prazo legal obrigatório para o exercício de pretensões relacionadas a defeitos que afetem a solidez ou a segurança da obra. Decorrido esse prazo, extingue-se o direito de ação. As garantias contratuais podem coexistir com essa regra, mas não podem excluir ou reduzir essa proteção legal.

3. Licenciamento sanitário, de segurança e ambiental em múltiplos níveis

A saúde e a segurança no Brasil são regidas por um conjunto de leis, normas e regulamentos nos âmbitos federal, estadual e municipal. Não existe um único diploma legal unificado que abranja todos os aspectos do direito de saúde e segurança. No plano federal, a Portaria nº 3.214/1978 do Ministério do Trabalho reúne normas técnicas relativas ao ambiente de trabalho, incluindo exposição a agentes químicos, ruído, riscos mecânicos, temperatura e condições insalubres, aplicáveis em todo o território nacional.

Paralelamente, o direito ambiental brasileiro está estruturado em um sistema de normas legislativas e administrativas estabelecido pela Constituição Federal, que distribui competências regulatórias entre União, Estados e Municípios. Esse arranjo constitucional permite que cada nível de governo legisle e atue dentro de sua esfera de competência, de forma muitas vezes complementar e concorrente. Nesse contexto, a Lei Federal nº 6.938/1981 instituiu a Política Nacional do Meio Ambiente e estabeleceu o licenciamento ambiental como requisito obrigatório em todo o país para atividades potencialmente poluidoras ou degradadoras do meio ambiente.

O processo de licenciamento ambiental normalmente envolve três tipos distintos de licenças para um mesmo projeto:

  • Licença Prévia (LP), concedida na fase de concepção, que avalia a viabilidade ambiental e pode exigir estudos e relatórios.
  • Licença de Instalação (LI), que autoriza a construção e a instalação dos equipamentos relevantes, uma vez detalhado o projeto e definidas as medidas de proteção.
  • Licença de Operação (LO), concedida após a verificação de que as medidas de controle ambiental foram efetivamente implementadas, autorizando o início da operação da unidade.

Em uma planta de alimentos ou bebidas, essas licenças podem abranger questões como efluentes de sistemas CIP, tratamento de resíduos com alta carga orgânica, operação de caldeiras e sistemas de refrigeração, bem como emissões atmosféricas de secadores ou fornos. Embora a obrigação de licenciar decorra de legislação federal, as licenças são, em regra, emitidas por órgãos ambientais estaduais e moldadas por exigências estaduais e, na prática, municipais. Como resultado, uma planta de laticínios ou bebidas no Estado da Bahia pode estar sujeita a condições de licenciamento substancialmente distintas daquelas aplicáveis a uma instalação equivalente no Estado de São Paulo.

Em razão desse regime regulatório ambiental, os cronogramas de projetos no Brasil tendem a ser mais sensíveis a marcos regulatórios do que projetos comparáveis nos Estados Unidos. A redação de contratos de construção para o setor de alimentos e bebidas frequentemente reflete as três etapas de licenciamento previstas na Lei Federal nº 6.938/1981 e suas respectivas condicionantes ambientais, ou aloca de forma clara ao proprietário a responsabilidade pelo licenciamento quando este é o responsável por obtê-lo e mantê-lo.

4. Anticorrupção e responsabilização corporativa objetiva

O regime anticorrupção brasileiro é fundamentado em normas de direito interno e internacional. Sua ênfase na responsabilização das pessoas jurídicas está intimamente ligada à Convenção da OCDE sobre o Combate à Corrupção de Funcionários Públicos Estrangeiros em Transações Comerciais Internacionais, de 17 de dezembro de 1997, que estabelece a responsabilidade corporativa por atos de corrupção envolvendo agentes públicos estrangeiros.

O sistema jurídico brasileiro levou essa missão muito a sério. Em um país frequentemente estereotipado (com ou sem razão) como especialista em soluções criativas, o direito respondeu com a adoção de um dos modelos mais rigorosos de responsabilidade corporativa da região da América Latina.

Nos termos da Lei nº 12.846/2013, as empresas podem ser responsabilizadas objetivamente por atos lesivos contra a administração pública, nacional ou estrangeira, independentemente de dolo ou da comprovação de corrupção efetiva. No contexto da engenharia, isso pode incluir, por exemplo, a disposição de resíduos de construção em local não autorizado ou em desacordo com as condições da licença ambiental, o que pode ensejar atuação administrativa de autoridade pública. Mesmo na ausência de suborno ou de vantagem indevida, tal conduta pode ser caracterizada como ilícita nos termos da lei. Por essa razão, espera-se que empresas que operam no Brasil mantenham programas de compliance robustos, capazes de prevenir, detectar e tratar infrações regulatórias.

Seja no âmbito do licenciamento ambiental, de alvarás de construção ou de autorizações operacionais, o marco anticorrupção brasileiro é relevante para projetos de alimentos e bebidas que dependem de interação com o poder público. Contratos brasileiros frequentemente incluem referências expressas à Lei Anticorrupção e ao seu decreto regulamentador, cláusulas detalhadas de compliance e direitos de auditoria.

A Lei nº 12.846/2013, conhecida como Lei Anticorrupção e regulamentada pelo Decreto nº 8.420/2015, introduziu diversas inovações no ordenamento jurídico brasileiro:

  • instituiu a possibilidade de responsabilização objetiva das pessoas jurídicas por atos relacionados à corrupção;
  • incentivou expressamente a adoção de medidas preventivas por meio de programas de compliance efetivos;
  • criou a possibilidade de celebração de acordos de leniência com empresas que cooperem com investigações de atos ilícitos.

Embora a Lei Anticorrupção tenha como foco principal a corrupção no setor público, outras normas brasileiras tratam de práticas correlatas, incluindo o Código Penal (Decreto-Lei nº 2.848/1940), a Lei de Improbidade Administrativa (Lei nº 8.429/1992), o Regime Jurídico dos Servidores Públicos (Lei nº 8.112/1990), a Lei de Licitações (Lei nº 8.666/1993) e a Lei das Estatais (Lei nº 13.303/2016). O Brasil também ratificou convenções internacionais, como a Convenção da OCDE já mencionada, a Convenção Interamericana contra a Corrupção, a Convenção das Nações Unidas contra o Crime Organizado Transnacional e a Convenção das Nações Unidas contra a Corrupção.

Para projetos de alimentos e bebidas que envolvem interação com autoridades públicas no Brasil, o marco legal anticorrupção implica que as empresas podem enfrentar consequências administrativas e, em certos casos, criminais por práticas corruptas sob padrões de responsabilidade objetiva, enquanto os agentes públicos estão sujeitos a regimes próprios de responsabilização. Como resultado, contratos de construção no Brasil costumam conter referências expressas à legislação anticorrupção, acompanhadas de obrigações detalhadas de compliance, declarações e direitos de auditoria destinados a mitigar riscos regulatórios e demonstrar aderência aos padrões de integridade aplicáveis.

5. Complexidade tributária e especificidades locais

A legislação tributária brasileira é uma das mais complexas e abrangentes do mundo, criando desafios significativos tanto para investidores quanto para contratantes nacionais e internacionais. A localização do projeto e a forma de contratação no Brasil são inseparáveis do tratamento tributário. A DG Brasil respondeu a esse cenário integrando, de forma recorrente, análises tributárias e jurídicas desde as fases iniciais de seus projetos.

Para serviços de construção, aplicam-se, em especial, as seguintes regras tributárias:

  • o Imposto sobre Serviços de Qualquer Natureza (ISSQN), de competência municipal, normalmente cobrado a alíquotas entre 2% e 5%, embora alguns municípios adotem métodos estimativos com base na área construída, no tipo de obra e no valor de mercado dos serviços;
  • o Imposto sobre Circulação de Mercadorias e Serviços (ICMS), de competência estadual, que em geral incide sobre bens e materiais produzidos pelo prestador fora do canteiro de obras;
  • as contribuições ao PIS-Pasep e à COFINS, às alíquotas de 0,65% e 3%, respectivamente, sobre a receita das obras de construção;
  • a contribuição previdenciária patronal sobre a folha de salários, normalmente à alíquota de 20%, com a possibilidade de substituição pela Contribuição Previdenciária sobre a Receita Bruta (CPRB), nos termos da legislação brasileira.

Além disso, em 2023, por meio da Emenda Constitucional nº 132/2023, o Brasil aprovou uma ampla reforma tributária que substituirá gradualmente diversos tributos federais, estaduais e municipais incidentes sobre bens e serviços por um novo modelo de imposto sobre valor agregado. As principais disposições começaram a produzir efeitos em janeiro de 2026, com um longo período de transição, no qual o sistema atual e o novo coexistirão.

Para serviços de construção e engenharia, inclusive no setor de alimentos e bebidas, isso significa que a modelagem tributária de projetos que se estendam além de 2026 deverá considerar tanto o regime atual quanto as novas regras decorrentes da reforma de 2023, cuja regulamentação detalhada ainda está em desenvolvimento. A coexistência dos dois regimes durante o período de transição exigirá planejamento cuidadoso sempre que cronogramas de projeto, fases de aquisição ou pagamentos se projetarem para além de 2026. Ademais, quando equipamentos de alimentos e bebidas são importados ou fabricados localmente, essas considerações tributárias influenciam diretamente a alocação de responsabilidades fiscais nos contratos, a estruturação dos escopos de fornecimento e instalação e a organização dos preços.

Considerações finais

Esperamos que esta visão geral do direito brasileiro tenha fortalecido a compreensão da DG US acerca do ambiente jurídico no qual a DG Brasil opera. Como mencionamos no início, comparar Brasil e Estados Unidos sob a ótica jurídica é um pouco como comparar duas linhas de produção que fabricam o mesmo produto, mas operam com infraestruturas distintas. Os fundamentos são familiares, mas as condições operacionais fazem toda a diferença.

O direito brasileiro possui muitas camadas adicionais e, por vezes, a sensação é de que, a cada camada removida, uma nova regulamentação foi editada por outro nível de governo. Por essa razão, não pretendemos que esta edição brasileira do “Legal Bites” seja a palavra final sobre o tema. Nossa expectativa sincera é que o que foi abordado aqui estimule um diálogo contínuo entre a DG US e a DG Brasil.

Por favor, entrem em contato com a Beverly para enviar comentários ou sugerir temas que gostariam que abordássemos em uma próxima edição.

 

Denizom Oliveira e Gustavo Manssur Santarosa representam o escritório de advocacia DFSP, localizado em São Paulo, Brasil..

Key Laws that Impact DG’s Business in Brazil

Beverly Tompkins on January 9, 2026

Key Laws that Impact DG’s Business in Brazil

By Denizom Oliveira and Gustavo Manssur Santarosa

We are grateful to Beverly Tompkins for the invitation to contribute to the “Legal Bites” series. It is a pleasure for us to share a few insights from our side of the equator. Working across Brazil and the United States sometimes feels like running the same production line in two plants: the equipment is identical, but the way the system reacts to the local environment can surprise even the most experienced engineer.

Brazil and the U.S. share a strong engineering culture, a commitment to food safety and a tendency to keep projects moving despite the occasional regulatory storm. Yet the legal frameworks guiding construction and engineering projects in each country are shaped by distinct histories and institutional structures. This becomes especially visible in food and beverage projects, where the interface between construction, compliance, licensing and public oversight is constant.

The purpose of this “Legal Bite” is to highlight a few of the different elements of Brazilian law and regulatory practice. The information that follows reflects issues DG Brazil navigates daily on its projects ranging from dairy processing facilities to beverage plants, bakeries and thermal processing lines.

1. Labor and employment risk in engineering projects

Brazilian labor law is both general and complex. Reforms since 2017 have aimed to increase productivity, reduce employment costs and promote legal certainty. Although authorities have created specific rules for the construction sector, due to their people-intensive nature, construction and engineering projects remain heavily exposed to labor issues. Not unlike developers in the U.S., a contractor may register a construction site as an independent entity as a way to limit tax and labor liability linked to a particular project site.

One distinguishing feature of Brazilian law from U.S. law that directly affects people-intensive industries is the potential for subsidiary liability of contracting parties. In the context of a food processing facility, this means that if a subcontractor responsible for stainless steel piping or hygienic installation fails to comply with labor obligations, there is a risk that the main contractor (e.g., DG) and, in some cases, the project owner could be held vicariously responsible for the subcontractor’s acts or omissions and may be called upon to respond. To manage this risk, Brazilian construction contracts between owners and prime contractors and contracts between prime contractors and subcontractors typically require ongoing proof of payroll compliance, social security payments and adherence to health and safety standards on site.

Given the mixed nature of rights and obligations of stakeholders in this kind of arrangement, and taking into account that Brazilian law and authorities generally do not contemplate complex construction contracts, a thorough analysis of the project, the legal structure of its participants, and its contracts is necessary to establish and manage separate entities in accordance with local conditions.

2. Statutory five-year warranty on construction works (Article 618, Brazilian Civil Code)

For the most part, private construction and engineering projects in Brazil are not heavily regulated. Brazilian Civil Code contains some general provisions for less complex construction contracts which generally do not apply to more complex contracts such as those for Engineering, Procurement and Construction (EPC) projects.

That said, under Brazilian law, the most significant statutory obligation on construction projects is a rule in Article 618 of the Brazilian Civil Code. This provision establishes a minimum five-year constructor warranty period for any defects relating to the final project’s technical integrity or safety.

In practical terms, for a food or beverage facility, this statutory warranty can be triggered in situations where structural or safety issues compromise the plant. Examples include defects in the building structure that affect load-bearing capacity, failures in flooring systems that jeopardize drainage and hygiene in high-care zones, or problems in technical mezzanines that impact the safe installation of process utilities.

Even though contracting parties still negotiate contractual warranty clauses, notice procedures and remedial mechanisms around them, Brazilian doctrine and case law generally treat this warranty as a non-negotiable baseline for structural and safety defects. What his means in practice is that any attempt in the contract to depart from the application of this statute requires particular care in drafting and during contract negotiations.

To avoid liability under Article 618 of the Brazilian Civil Code, DG Brazil places significant emphasis on drafting appropriate warranty provisions in contracts, developing clear drawings, record drawings, and commissioning reports.

It is important to distinguish contractual service warranties from the five-year statutory period under Article 618 of the Brazilian Civil Code. Contractual warranties are defined by the parties to an agreement and regulate performance standards, correction of defects, and related procedures within the agreed timeframe. By contrast, the five-year period in Article 618 is a mandatory statutory deadline for asserting claims related to defects affecting the structural integrity or safety of the work. Once this period expires, the right to bring a claim is extinguished. Contractual warranties may coexist with this rule, but they cannot exclude or reduce this statutory protection.

3. Multi-layered health, safety and environmental licensing

Health and safety in Brazil are governed by a combination of laws, rules and regulations at federal, state and municipal levels. There is no single unified statute that covers all aspects of health and safety law. At the federal level, Ministry of Labor Act nº. 3,214/1978 compiles a set of technical notes for the work environment, including exposure to chemicals, noise, mechanical dangers, temperature and unsanitary conditions, which are enforced across all states.

In parallel, environmental protection law in Brazil is organized within a system of legislative and administrative codes established by the Federal Constitution, which establishes regulatory authority among the Union, the States, and the Municipalities. This constitutional framework allows each level of government to legislate and act within its respective sphere, often in a complementary and concurrent manner. Within this structure, Federal Law No. 6,938/1981 instituted the National Environmental Policy and established environmental licensing as a mandatory requirement throughout Brazil for activities capable of causing pollution or environmental degradation.

The process for environmental licensing usually involves three distinct types of licenses for a single project:

  • Preliminary License (Licença Prévia), granted at the conception stage, which assesses environmental feasibility and may require studies and reports.
  • Installation License (Licença de Instalação), which authorizes construction and installation of relevant equipment once the design is detailed and protection measures are defined.
  • Operation License (Licença de Operação), granted after verification that environmental control measures have been effectively implemented, authorizing operation of the facility.

In a food or beverage plant, these licenses may cover issues such as wastewater from CIP systems, the handling of effluents with high organic load, the operation of boilers and refrigeration equipment, and air emissions from dryers or ovens. Even though the obligation to license originates in federal legislation, the licenses themselves are typically issued by state environmental agencies and are shaped by state and, in practice, municipal requirements. As a result, a dairy or beverage facility in the State of Bahia may encounter licensing conditions that differ substantially from those applicable to an equivalent facility in the State of São Paulo.

As a result of Brazil’s environmental regulatory regime, project schedules in Brazil tend to be more sensitive to regulatory milestones than comparable projects in the United States. The language in contracts for food and beverage construction projects often reflects the three licensing stages established under Federal Law No. 6,938/1981 and their corresponding environmental conditions or clearly allocate responsibility to the owner when it is the owner who is responsible for obtaining and maintaining licensure on a project.

4. Anti-corruption framework and strict corporate accountability

Brazil’s anti-corruption framework is based on international and domestic law. Its emphasis on corporate accountability is closely tied to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions of 17 December 1997, which establishes corporate responsibility for the corruption of foreign public officials.

Brazil’s legal system has taken this mission very seriously. In a country often stereotyped (fairly or not) as having a certain “talent” for creative problem-solving, the law responded by adopting one of the strictest models of corporate liability in the LATAM region.

Under Law No. 12,846/2013, companies may be held strictly liable for harmful acts against domestic or foreign public administration, regardless of intent or proof of actual corruption. In an engineering context, this may include, for example, a contractor disposing of construction waste in an unauthorized area or in breach of environmental licensing conditions, thereby triggering administrative action by a public authority. Even absent any bribery or undue advantage, such conduct may be characterized as an unlawful act under the statute. For this reason, companies operating in Brazil are expected to maintain robust compliance programs capable of preventing, detecting, and addressing regulatory violations.

Whether for environmental licensing, construction permits or operational authorizations, Brazil’s anti-corruption framework matters for food and beverage projects that depend on interactions with public authorities. Brazilian contracts frequently include express references to the Anti-Corruption Law and its decree on implementation, detailed compliance clauses, and audit rights.

Law No. 12,846/2013, known as the Anti-Corruption Law and regulated by Decree No. 8,420/2015, brought several changes to the Brazilian legal system:

  • Introduced the possibility of strict liability of companies for corruption related acts.
  • Explicitly encouraged preventive measures through effective compliance programs.
  • Created the possibility of leniency for companies that cooperate with investigations of unlawful acts.

Although Brazil’s new anti-corruption law focuses on corruption in the public sector, other Brazilian statutes address corruption and related practices, including the Criminal Code (Decree-Law No. 2,848/1940), the Administrative Misconduct Law (Law No. 8,429/1992), the Public Officials Law (Law No. 8,112/1990), the Public Procurement Law (Law No. 8,666/1993) and the State-Owned Companies Law (Law No. 13,303/2016). Brazil has also ratified conventions such as the OECD Convention already mentioned, the Inter-American Convention against Corruption, the United Nations Convention against Transnational Organized Crime and the United Nations Convention against Corruption.

For food and beverage projects that interface with public authorities in Brazil, Brazil’s anti-corruption legal framework means that companies may face administrative – and, in certain cases, criminal – consequences for corrupt practices under strict liability standards, while public officials are subject to their own specific liability regimes. As a result, Brazilian construction contracts commonly include express references to anti-corruption statutes, together with detailed compliance obligations, representations, and audit rights designed to mitigate regulatory risk and demonstrate adherence to applicable integrity standards.

5. Tax complexity and the use of project-based structures

Brazilian tax legislation is one of the most complex and comprehensive in the world, creating significant challenges for national and international investors and contractors alike. Project location and contracting in Brazil are inseparable from tax treatment. DG Brazil has responded to this framework accordingly and regularly integrates tax and legal analysis at the earliest stages of its projects.

For construction services, the following tax rules apply:

  • The municipal tax on services (Imposto sobre Serviços de Qualquer Natureza – ISSQN), usually levied at rates between 2 percent and 5 percent, although some municipalities may adopt estimated methods based on constructed area, type of construction and market value of services.
  • The state value added tax (Imposto sobre Circulação de Mercadorias e Serviços – ICMS), which generally applies to goods and materials produced by the service provider outside the construction site.
  • PIS-Pasep contribution and the social security contribution for the financing of social security (COFINS), at rates of 0.65 percent and 3 percent respectively on revenue from construction works.
  • The employer’s social security contribution on payroll, usually at 20 percent, with the potential of being overridden by a contribution on gross revenue (CPRB), as provided by Brazilian law.

In addition, in 2023 through Constitutional Amendment No. 132/2023, Brazil approved a broad tax reform which will gradually replace several existing federal, state and municipal taxes on goods and services with a new value added tax model. The main provisions started to take effect in January 2026, with an anticipated long transition period in which the current system and the new one will coexist.

For construction and engineering services, including food and beverage facilities, this means that tax modeling for projects extending beyond 2026 must account for both the current system described above and the new rules to be implemented under the 2023 reform, whose detailed regulation is still under development. The coexistence of the two regimes during the transition will require careful planning whenever project schedules, procurement phases or payments expand into the post-2026 period. In addition, when food and beverage equipment is imported or fabricated locally, these tax considerations directly influence how contracts allocate responsibility for taxes, how supply and installation scopes are structured, and how pricing is organized.

Final remarks

We hope that this overview of Brazilian law has strengthened DG US’s understanding of the legal framework in which DG Brazil operates. As we noted at the outset, comparing Brazil and the U.S. from a legal perspective is a bit like comparing two production lines that make the same product but run on entirely different utilities. The fundamentals are familiar, but the operating conditions make all the difference.

Brazilian law has many additional layers, and at times it feels as though each time you peel one back, another regulation has been enacted by a different level of government. For this reason, we do not intend for this Brazilian issue of “Legal Bites” to be the last word on this subject. It is our sincere hope that what we covered today will spark a continuing dialogue between DG US and DG Brazil.

Please reach out to Beverly with any comments or future topics you would like us to cover in a future issue.

 

Denizom Oliveira and Gustavo Manssur Santarosa represent the DFSP law firm located in São Paulo, Brazil.

No Damages for Delay

Beverly Tompkins on October 17, 2025

How Much Can I Rely on a No Damages for Delay Clause in a Contract?

By Beverly Tompkins

"Bayonne Bridge, New Jersey"

In this issue of Legal Bites, we explore the consequences of a no damages for delay clause in a subcontractor agreement that was the subject of a New York case from 2024. But first, it is important to know a few things about the law surrounding no damages for delay contract clauses.

While the devil is always in the details, here are a few high-level points to keep in mind regarding the law surrounding no damages for delay clauses.

    • No damages for delay clauses are generally enforceable in most states.
    • Where no damages for delay clauses are prohibited by state law, the prohibition is primarily limited to public projects. No damages for delay clauses are typically fair game on private projects in these states.
    • In most states where no damages for delay clauses are enforceable, enforceability is subject to certain exceptions. Such exceptions generally include, but are not limited to:
      • Delays caused by bad faith or malice
      • Delays resulting from the breach of fundamental contractual obligations
      • Unforeseen and uncontemplated delays that were not reasonably foreseeable at the time of the contract
      • Delays so excessively long they amount to an abandonment of the contract

Our New York case focuses on the last two exceptions.

In NASDI LLC v. Skanska Koch Inc. Kiewit Infrastructure Co. (“SKK”), the dispute arose from a project for the reconstruction of the Bayonne Bridge. NASDI was the demolition contractor who subcontracted to the general contractor, SKK. NASDI’s subcontract with SKK contained a no damages for delay clause.

Through no fault of NASDI, NASDI was delayed on the project for 19 months. As a result, NASDI terminated its subcontract with SKK. In its notice of termination to SKK, NASDI claimed that SKK “abandoned” the subcontract. In response, SKK declared NASDI in default of its subcontract and hired a replacement contractor to complete NASDI’s scope of work. To complete NASDI’s scope of work cost SKK $24M which it demanded from NASDI as a result of NASDI’s alleged default. In response, NASDI filed suit against SKK alleging breach of contract, among other things. The lower court found that the no damages for delay clause in NASDI’s agreement barred its breach of contract claim. NASDI appealed.

The Appeals Court’s decision regarding whether NASDI was entitled to delay damages established the current state of the law in New York concerning the enforceability of no damages for delay clauses in construction contracts. No damages for delay clauses are generally enforceable in New York. New York also recognizes certain exceptions to a no damages for delay clause such as those mentioned above. On appeal, NASDI claimed that two such exceptions applied to its case.

First, NASDI argued that a 19 month delay on the project was “unforeseen and uncontemplated” and, as such, the no damages for delay clause should be unenforceable. Second, NASDI argued that the 19 month delay was so “unreasonable” that it effectively equated to SKK abandoning NASDI’s subcontract.

The Appeals Court found that NASDI’s “unforeseen and uncontemplated” argument was inapplicable because lengthy delays are generally foreseeable and not uncontemplated on complex construction projects such as the Bayonne Bridge reconstruction project. The court also didn’t buy NASDI’s argument that the delay was “unreasonable” and held that the mere length of a delay does not automatically render it unreasonable. The court cited other cases where no damages for delay clauses were upheld where the delays at issue were of an even longer duration than 19 months.

The outcome of this case—that the no damages for delay clause in NASDI’s subcontract was enforceable—is good news for design-builders and general contractors alike. Our new state-specific Subcontractor Agreement templates contain no damages for delay clauses where enforceable, so you should with confidence push back on delay claims by subcontractors when our agreement with a subcontractor contains a no damages for delay clause. Just remain mindful that depending on the circumstances of a delay claim by a subcontractor, exceptions can apply rendering a no damages for delay clause unenforceable and entitling a subcontractor to delay related damages.

Consult with Legal on any delay claims submitted by subcontractors on your projects so that we can determine the appropriate response.

Contracts Corner

By Jennifer Keitt

Naming Parties Correctly in Contracts: Why It Matters

A. Regulatory Compliance

Use of the correct entity name in DG contracts ensures that we are contracting as the entity registered to deliver the services in our scope of work where the project is located.

B. Insurance and Risk

Insurers can disclaim coverage if the entity name in a contract does not match the insured’s name on an insurance policy. Checking to ensure the correct DG entity name is used in a contract ensures that insurance is in place and available on our projects in the event of a claim.

C. Enforceability

Courts look to the named parties in a contract to determine who is bound by the contract. If the wrong name is used, enforcing the terms may be difficult or impossible. In addition, sending legal notices to the wrong entity creates inefficiency in resolving disputes.

Best Practices

As you can see, it is critical to verify the official legal name of each party before finalizing a contract with a client, subcontractor, or vendor. To avoid such unintended risks, we are introducing the following best practices for DG’s Legal Department and others involved in contracts.

  1. Verify names of each contracting party, addresses, and corporate identifiers.
  2. Cross-check DG entity name with the Registration Matrix.
  3. Always use the full entity name and entity type or legal designation (i.e., “Inc.”, “LLC”, etc.) of the contracting parties. Examples:
      • “ABC Technologies, ”
      • “XYZ Holdings LLC”
  4. Ensure the preamble and signature block list the same entity. The following is an example of “mix-matched parties” in an agreement.
      • The preamble may identify “Samantha Smith” as the client, but the signature block lists “S. Smith Developers LLC.”

Taking the time to scrutinize these details before signing a contract is not just best practice; it is essential risk management.

Pay if Paid vs Pay When Paid

Beverly Tompkins on October 3, 2024

Pay if Paid vs Pay When Paid:
Know the Difference

By Beverly Tompkins

In 2023, the South Carolina Court of Appeals handed down an important decision which focuses on pay when paid and pay if paid clauses in contracts. The Court’s opinion highlights the importance of understanding the distinctions between these two clauses and the differences that exist from state to state regarding their enforceability.

The Case Notes

In J&H Grading & Paving, Inc. v Clayton Construction Company, Inc., 441 S.C. 272 (2023), Clayton Construction Company, Inc. (“Clayton”) was the general contractor for the construction of a new car dealership. Clayton subcontracted with J&H Grading & Paving, Inc. (“J&H”) for site work. The contract between Clayton and J&H contained the following language.

Final payment of the balance due shall be made to [J&H] no later than seven (7) days after receipt by [Clayton] of final payment from Owner [for J&H’s] work. 

J&H submitted its final payment application to Clayton on April 26, 2017. On August 1, 2017, Clayton responded saying that it had not been paid by the owner and, as such, could not issue its final payment to J&H until Clayton had received payment. Clayton did not dispute the amount of J&H’s final payment application and there was no dispute that J&H had not performed the work. Clayton also had no reason to withhold any monies from J&H for other reasons related to J&H’s work under the subcontract.

J&H filed a certificate of mechanics’ lien on the property on February 27, 2018. Clayton responded by referring to the pay when paid provision in the contract, stating that it did not owe J&H because Clayton still had not been paid by the owner.

J&H filed a lawsuit against Clayton and the owner for foreclosure of the mechanics’ lien among other things. A year later, J&H, Clayton, and the owner entered into a settlement agreement in which the owner agreed to release the remaining amounts owed to J&H directly to J&H as payment for the subcontract. J&H released its claims against the owner but reserved the right to claim attorney’s fees and interest against Clayton.

A trial was held on the discrete issue of whether J&H was entitled to attorney’s fees. J&H argued Clayton had conditioned its final payment on payment from the owner, which was expressly prohibited under South Carolina law which provides:

Notwithstanding any other provision of law, performance by a construction subcontractor in accordance with the provisions of its contract entitles the subcontractor to payment from the party with whom it contracts. The payment by the owner to the contractor…is not…a condition precedent for payment to the construction subcontractor. Any agreement to the contrary is not enforceable.

The trial court found in favor of J&H and concluded it was entitled to attorney’s fees. Clayton appealed.

The appellate court determined that South Carolina law expressly prohibits a general contractor from conditioning payment to a subcontractor upon payment to the general contractor by an owner and that any agreement to do so is contrary to South Carolina law and unenforceable.

The Foundation

Before we get to the key takeaways of this case and the rationale behind the court’s decision, it is important to understand what pay when paid and pay if paid clauses mean in a contract and the distinctions between the two. Simply put, a pay when paid clause addresses timing for when a subcontractor will be paid by a contractor. The following is an example of a pay when paid clause:

The Subcontractor shall be paid within ten (10) business days after receipt of payment from the Owner by the General Contractor for Subcontract work.

A pay if paid clause on the other hand is all about shifting the risk of nonpayment by the owner to the subcontractor. Here is an example of a pay if paid clause.

Contractor’s receipt of payment from the Owner is a condition precedent to Contractor’s obligation to issue payment to the Subcontractor. The Subcontractor fully understands that it bears the risk of non-payment by the Owner.

The law regarding pay when paid and pay if paid clauses differs from state to state. Whereas some states deem pay if paid clauses enforceable, about a dozen states, including the State of South Carolina, restrict the use of pay if paid clauses in subcontracts. Some states such as Colorado require that if a pay if paid clause is in a contract, it must contain specific language such as the contractor’s receipt of payment from the owner is a condition precedent to the subcontractor getting paid, and language that expressly states that the subcontractor assumes the risk of nonpayment if the contractor does not receive payment from the owner. The laws on the books in about 24 states say that a subcontractor can still file a lien on a project for monies owed even though their subcontract contains a pay if paid clause.

Most of the states recognize pay when paid provisions. However, if a contractor has not been paid by an owner, having a pay when paid provision in the contractor’s contract with a subcontractor does not allow a contractor not to pay a subcontractor indefinitely. The law in the case of pay when paid contracts applies the legal standard of reasonableness to the period of time in which a contractor has not been paid by an owner which can be uncertain and frustrating. The decision in J&H Grading & Paving, Inc. added yet another wrinkle in this patchwork of laws on payment provisions in subcontracts.

The Takeaway

In J&H Grading & Paving, Inc., the Court relied on the state’s Prompt Pay Act which requires payment to a subcontractor within 90 days. The Court used this period of time as the absolute outer limit that a subcontractor must be paid under a pay when paid clause even if the contractor has not received payment from the owner. The Court then determined that the contractor’s lack of payment to the subcontractor beyond 90 days was unreasonable and that the pay when paid language in the subcontract was effectively rendered pay if paid. The Court reiterated that in the State of South Carolina, a general contractor is prohibited from conditioning payment to a subcontractor upon payment to the general contractor (i.e., pay if paid) and that any agreement to do so is unenforceable.

Even though there was no dispute regarding the amount owed to J&H or that J&H had satisfactorily performed the work, the decision in J&H Grading & Paving, Inc. affirms that a contractor can still withhold payment to a subcontractor for the subcontractor’s failure to comply with the terms of the contract (e.g., they caused delays, performed defective work, or liens were filed by their sub-tier subcontractors because the subcontractor failed to pay them and had received payment from the contractor for the sub-tier subcontractors’ work).

Conclusion

With improvements to Dennis Group’s standard Subcontractor Agreement that will roll out over the course of the next month, an eventual designated resource on the Legal team, and new procedures in place to guarantee the enforceability of the payment language in the contracts we enter into with subcontractors and vendors on our projects in various states, Dennis Group will be poised to avoid traps for the unwary such as this one involving a general contractor, subcontractor and a pay when paid provision in a subcontract for a South Carolina project.

 

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dgcom on February 14, 2024

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Understanding Signing and Sealing Requirements for Engineers and Architects

Beverly Tompkins on February 12, 2024

Understanding Signing and Sealing Requirements for Engineers and Architects

By Beverly Tompkins

Navigating the rules and regulations surrounding signing and sealing drawings and other instruments of service (collectively “Work Product”) as an engineer or architect can be complex, with variations based on project location, document type, and other project specifics. In this issue of Legal Bites, we attempt to demystify the signing and sealing rules of the state boards of engineering and architecture by walking you through some examples from states that are significant DG project locations, but first off, what does an engineering or architectural seal mean?

The act of signing and sealing Work Product signifies that (1) the work was prepared by the design professional or under the design professional’s direct control or personal supervision; (2) the signing and sealing design professional is of the opinion that the documents meet usual and customary standards of practice; and (3) the documents are appropriate for review and approval by the applicable code enforcement official.

What Requires Signing and Sealing?

Signing and sealing drawings and specifications is generally mandatory on construction projects involving civil, structural, electrical, mechanical (as well as other engineering disciplines), or architectural services. Some state rules differentiate between public and private clients when stating whether Work Product needs to be signed and sealed whereas other states require that only Work Product being filed with a public authority gets signed and sealed. Inconsistencies also exist between states concerning which documents prepared by an engineer or architect need to be signed and sealed as demonstrated by the following rules from California, Georgia and Utah.

All electrical engineering plans, specifications, calculations, and reports (hereinafter referred to as “documents”) prepared by, or under the responsible charge of, a licensed electrical engineer shall include his or her name and license number…All electrical engineering plans and specifications that are permitted or that are to be released for construction shall bear the signature and seal or stamp of the licensee and the date of signing and sealing or stamping. All final electrical engineering calculations and reports shall bear the signature and seal or stamp of the licensee and the date of signing and sealing or stamping…(CA Electrical Engineering Rule 6735.3. Signing and sealing of electrical engineering documents)

The term, “documents,” as used herein shall mean engineering and/or land surveying work issued in the form of plans, drawings, maps, surveys, reports, specifications, design information, and calculations…(GA Engineering Rule 180-12-.02 Sealing of Documents)

Any final plan and specification of a building prepared by or under the supervision of the licensed architect shall bear the seal of the architect when submitted to a client, or when submitted to a building official for the purpose of obtaining a building permit…(UT Architecture Rule 58-3a-602.  Plans and specifications to be sealed)

What About Digital Sealing?

With the shift by virtually every industry, including construction, to creating documents by exclusively electronic means, many design professionals wonder what is required to sign and seal electronic documents. Does it mean that they can scan an impression of their seal and affix the pdf image that results onto Work Product? What about their signature? Can this be a pdf image, too? As demonstrated below, we see variation amongst the states here, too. However, most states have moved toward requiring the use of a secure tool that maintains the security of the design professional signing and sealing, and the authenticity of the Work Product. Watch for a future issue of Legal Bites wherein we will introduce you to a state-by-state reference tool for determining whether digital sealing is required.

Documents to be electronically transmitted beyond the direct control of the licensee that are signed using an electronic signature shall contain the authentication procedure in a secure mode and a list of the hardware, software and parameters used to prepare the document(s). Secure mode means that the authentication procedure has protective measures to prevent alteration or overriding of the authentication procedure…The term “electronic signature” shall be an electronic authentication process that is attached to or logically associated with an electronic document. The electronic signature shall be:

(a) Unique to the licensee using it;

(b) Capable of verification;

(c) Under the sole control of the licensee; and

(d) Linked to a document in such a manner that the electronic signature is invalidated if any data in the document is changed. (GA Engineering Rule 180-12-.02 Sealing of Documents)

When a digital Signature is applied to an Instrument of Service, it must have an electronic authentication process attached to it that is uniquely associated with the Registrant, can be authenticated by the recipient, and is uniquely linked to the underlying documents in a manner that will invalidate the digital Signature if any part of the document is changed. (MA Engineering Rule 5:03: Professional Seal)

…Electronically generated seals and signatures are acceptable.  It is the responsibility of the licensee to provide adequate security when documents with electronic seals and electronic signatures are distributed….(UT Architectural Rule R156-3a-601. Architectural Seal – Requirements)

Other Sealing Idiosyncrasies

Beyond what needs to be signed and sealed and rules around digital sealing of Work Product, individual state boards of engineering and architecture can impose other requirements related to signing and sealing Work Product. For example, some states require that in addition to the seal, signature and date affixed to Work Product by the individual signing and sealing, information regarding the firm they are associated with or employed by must also be included on Work Product. The following is the State of Georgia’s rule on this point.

The registrant shall seal, sign and date and provide COA name, Authorization Number and expiration date of the COA all original final documents which are issued to a client or any public agency.  (GA Engineering Rule 180-12-.02 Sealing of Documents)

The rules often address how to sign and seal Work Product that consists of multiple sheets. Most states require that each sheet be signed and sealed; however, Georgia provides another option in the following rule.

If necessary due to number of sheets, in lieu of providing a seal, signature, date, and COA information on each drawing sheet, a summary sheet may be included in the form of a clearly drafted table or other format that identifies each registrants seal, signature, date, and COA information and which includes a narrative that clearly describes the element of work for which each registrant is responsible and indicates the most current version of each sheet. This summary sheet shall be included within the final documents. If a document is sealed, signed and dated and contains the entity’s COA information by more than one registrant, the portion of the work for which each registrant is responsible shall be clearly noted.

Whose Responsibility is it to Comply with these Rules?

The responsibility to meet the rules regarding signing and sealing Work Product is among the most important and critical responsibilities of a design professional. Moreover, a seemingly minor violation of the rules can result in disciplinary action by a professional board. It is the responsibility of the DG design professional acting in responsible charge of the professional services being delivered on a DG project (i.e., civil, structural, mechanical, electrical, architectural) and signing and sealing DG Work Product to verify the state-specific signing and sealing requirements applicable to a project.

Fortunately, this information is readily available on all state licensing boards’ websites. As such, we encourage all DG engineers and architects to keep apprised about the rules of the professional boards in the states where they are registered not only concerning the application of their seals on Work Product, but in other areas, as well, which we will cover in future issues of Legal Bites.

 

Negligence & Gross Negligence

Beverly Tompkins on October 16, 2023

Negligence and Gross Negligence: What’s the Difference?

By Beverly Tompkins

We often encounter language in our contracts with clients that includes the legal concepts of negligence and gross negligence. These terms are typically found in the indemnity clause of a contract and can also appear in exclusions in limitation of liability and waiver of consequential damages clauses, but what do they actually mean?

Negligence

The legal definition of negligence is made up of four distinct elements. First, there needs to be a duty owed to the party who is claiming negligence. A duty can be established by contract, a duty to exercise reasonable care, and even customary norms. DG’s professional services are measured by an industry standard of care which is that degree of care and skill ordinarily exercised by those practicing the same profession, under the same circumstances, and in the same location. In other words, the measure of DG’s services is subject to evaluation by its peers.

Second, for negligence to be established there needs to be a breach of a duty owed to the claimant. If a claimant establishes evidence through expert witness opinion that DG’s services fell below its standard of care, DG can be found negligent.

Third, a claimant needs to establish that the damages they are claiming were caused by the party they allege was negligent. DG’s projects often have over 100 subcontractors working on them, as well as other parties hired directly by our Owner clients. By way of a somewhat silly example, our client’s office cleaning vendor should not be held responsible for damages caused by a plumbing contractor’s defective installation of plumbing fixtures as the cleaning vendor did not cause the Owner’s damages.

Fourth, the claimant must suffer damages to prevail on a negligence claim. A prime example in our business is if DG prepares drawings and specifications for a project and they contain several deficiencies that are not caught until after construction. The Owner in this case would be entitled to recover the monetary damages they sustained in having to pay a contractor to de-install and re-install what was constructed. On the other hand, if the claimant incurs no monetary damages, they cannot prevail on a negligence claim. To illustrate where this might occur is if DG corrects errors and omissions that it catches in its designs before construction at no cost to the Owner and no further damages flow from the same errors and omissions. In this case, the Owner should not be able to recover monetary damages.

Gross Negligence

Gross negligence is also a breach of the duty of care, but unlike ordinary negligence, gross negligence is so severe of a breach that it constitutes recklessness. Reckless conduct implies that a party was aware — or should have been aware — that their actions would harm another person, yet they still chose to act. Gross negligence can best be described as conscious conduct that is so careless that it appears deliberate.

Gross negligence is commonly alleged in cases involving personal injury and fatalities on construction projects. The following case illustrates how a jury found a General Contractor to be grossly negligent when a worker for a glass subcontractor fell ten stories to his death while working on a hospital construction project in Texas. The Court of Appeals affirmed the trial court’s award of $7.9 million in compensatory damages and $5 million in punitive damages. The Court concluded that (1) the General Contractor retained the right to control its subcontractor’s fall protection measures and thus owed a duty to the worker, (2) the General Contractor’s failure to ensure adequate fall-protection measures proximately caused the worker’s fall, and (3) the General Contractor was grossly negligent.

The Court found gross negligence on the part of the General Contractor because it would be apparent to anyone in the General Contractor’s position that there was an extreme risk of serious injury to anyone working on the tenth floor of the building where the only fall protection observed was a safety belt and lanyard when there should have been an independent lifeline. As further evidence of the General Contractor’s gross negligence, a representative for the General Contractor testified that they were aware of the inadequate fall protection used by the worker but consciously chose to do nothing about it.

Key Takeaway

While DG has an excellent safety program and record and our safety professionals assume great responsibility for the health and safety of persons on our projects, the above case is a stark reminder that if someone is injured or dies on one of our projects, our conduct and practices leading up to the injury or death will be closely scrutinized. Deviations from observing safety rules and regulations, conduct that does not conform to applicable safety policies and procedures (including those of our own), and an attitude of indifference can result in a finding of gross negligence. A gross negligence verdict can result in excessive punitive damages above and beyond direct damages typically associated with ordinary negligence.

 

Work Now, Dispute Later

Beverly Tompkins on June 10, 2023

Work Now, Dispute Later

By Beverly Tompkins

Who doesn’t like a good story? From time to time, I will attempt to teach our readers about risk management using case law. Most court cases start with a story. In the case of litigation involving construction projects, these stories can be quite familiar to us and relatable to our business.  

In this month’s issue of Legal Bites, I share a story from a case about a subcontractor who refused to perform work until they received a written change order. Read on to learn how things turned out for both the subcontractor and general contractor. 

The case of McCarthy Concrete, Inc. v. Banton Construction Company stemmed from a large train station project in Rensselaer County, NY. Banton was the general contractor. McCarthy was a concrete subcontractor. The bid documents for the project required that concrete be poured. McCarthy’s subcontract excluded “concrete pumping”. However, after the project had already started, McCarthy was informed that the remaining concrete on the project had to be pumped (among other changes).  

McCarthy informed Banton that the change from poured to pumped concrete would result in a price increase which Banton did not dispute. However, McCarthy and Banton could not agree on the amount of the price increase. Banton issued a 72-hour notice to McCarthy stating that if McCarthy failed to commence the extra work within the 72 hours, Banton would terminate McCarthy for default. McCarthy refused to proceed with the extra work as directed by Banton without an executed change order. As a result, Banton terminated McCarthy’s contract and retained another concrete sub to complete McCarthy’s scope of work.  

McCarthy sued Banton for additional compensation, including retainage and claimed that they had been wrongfully terminated by Banton. Banton asserted a counterclaim against McCarthy for breach of contract and recovery of the costs they incurred completing McCarthy’s work.   

The trial court ruled in favor of McCarthy on the basis that the increase in McCarthy’s costs as a result of the change in concrete placement on the project was material. The trial court also dismissed Banton’s counterclaim. Not surprised, Banton was unhappy with these results, so they appealed. 

Focusing on the following language of the contract between McCarthy and Banton (which is commonly found in most construction contracts), the appellate court reversed the trial court’s decision.  

“[p]ending resolution of any claim, dispute or other controversy, nothing shall excuse [McCarthy] from proceeding with the prosecution of the [w]ork.”  

The court held that when McCarthy refused to do the extra work once Banton directed them to it, that McCarthy breached the contract and that Banton was in the right to terminate them. The court said in its opinion: 

“ [McCarthy’s] refusal to perform the changed work without an express agreement as to increased costs has the effect of holding Banton hostage [because] the work, which was part of much larger project, was stalled.” 

So, the court held this way in the interest of economy. Delays are costly and it makes little sense to hold up an entire job fighting over the value of a change order.  

The court also granted Banton’s counterclaim, allowing Banton to set off its completion costs against the subcontract retainage due to McCarthy. 

The key takeaway from this case for general contractors and subcontractors alike is that contract language requiring continuation of the work while disputes are resolved means just that. The best practice is to proceed with the work and maintain the right to pursue claims later, if necessary. In other words, work now and dispute later. 

 

Consequential Damages

Beverly Tompkins on April 10, 2023

Consequential Damages: What are they and what should DG’s contracts say about them?

By Beverly Tompkins

To fully understand how contracts for DG projects should address consequential damages, it is important to understand what consequential damages are and how they differ from direct damages. Direct damages are losses that one would reasonably expect to be incurred by a non-breaching party to a construction contract when the other party breaches the contract. Examples of direct damages include unpaid contract amounts and costs to repair defective work. 

Consequential damages, on the other hand, result from special circumstances that are not usually foreseeable by the contracting parties at the outset of a project. These damages flow indirectly from a breach of contract or performance of services on a construction project. Lost business revenue by an Owner is a good example of a consequential damage.  

It is entirely reasonable for DG to contractually assume responsibility for losses that arise directly from our negligence, and we are appropriately insured to do so. However, because of their unpredictable nature and potentially exorbitant cost, we should avoid signing up for consequential damages. The following hypothetical illustrates why. 

Say DG is working on a large greenfield project. We are on budget and on target to complete the project before the end date memorialized in the contract. Equipment is getting delivered and installed. The PM is making vacation plans. Suddenly, a critical piece of product equipment starts malfunctioning. All attempts to fix it fail and the project is veering off schedule.  

The Owner sends written notice to the project team informing them that they have been relying on the completion date to go into production and fill an order for their largest customer. The Owner informs the project team that they will hold DG responsible for any and all consequential damages as a result of project delays. The PM checks DG’s contract. It does not contain a waiver of consequential damages. 

The Owner’s damages in this case are consequential in that they do not directly relate to the missed project completion date. Instead, the Owner’s damages relate to loss of production. We can generally quantify what an Owner’s direct damages might be if our services are negligently performed and need to be re-performed, or the work of our subcontractors is defective and needs to be repaired. However, the losses that the Owner would suffer if they could not make product are a huge unknown and it would be extremely difficult to anticipate DG’s potential exposure and insure against such risk. For this reason, we should seek waivers of consequential damages in our contracts.  

Contract Tips on Consequential Damages 

1. It is critical to have a carefully drafted waiver of consequential damages clause that we can rely on if something goes wrong on a project. The following is an example of a reasonable waiver of consequential damages clause. 

Contractor and Owner waive all claims against each other for consequential damages arising out of or relating to this Contract. This mutual waiver includes (1) damages incurred by Owner for losses of use, income, profit, financing, business and reputation, and (2) damages incurred by Contractor for losses of financing, business and reputation, and for loss of profit except anticipated profit arising directly from the Work.  

2. It is important to understand precisely what damages are and are not waived in a consequential damages clause. It is becoming more common to see exclusions in waivers of consequential damages that effectively render a waiver useless. Watch out for such illusory waivers of consequential damages. 

3. Don’t forget your subcontracts! DG’s standard subcontract forms include a mutual waiver of consequential damages. This is beneficial for both DG and our subcontractors. However, it is important that we align any waiver of consequential damages (or lack thereof) in our agreement with the Owner with our subcontracts.  

        • If we have no waiver of consequential damages in our contract with the Owner, we should not include a waiver of consequential damages in our subcontracts. Why? If a client alleges DG is responsible for consequential damages that arise out of the performance of our subcontractors, DG is responsible for covering the Owner’s losses and cannot recoup them from our subcontractors.  
        • If a waiver of consequential damages in our agreement with an Owner is effectively no waiver at all as discussed above, we should flow down the same language to our subcontracts so that there is no gap in what we owe to the Owner and what we can recover from our subcontractors.  
 

How to Review a Non-Disclosure Agreement or Confidentiality Agreement

Beverly Tompkins on February 23, 2023

How to Review a Non-Disclosure Agreement or Confidentiality Agreement

By Beverly Tompkins

Introduction

From time to time, Dennis Group (DG) gets asked to sign Non-Disclosure Agreements or Confidentiality Agreements (“NDA”). We typically receive NDAs when we are pursuing a project or at the beginning of a project. It is important to know what DG’s obligations are under an NDA and to conduct ourselves accordingly. The following guide will help you review and understand the language of an NDA.

Definition of Confidential Information

The definition of Confidential Information is a key clause in an NDA. Confidential Information typically includes items such as information concerning the subject matter of the NDA (e.g., our client’s or potential client’s project). Confidential Information can also include financial information, trade secrets, intellectual property, proprietary and other sensitive information of the party seeking protection from the NDA. Sometimes NDAs are mutual meaning that the agreement protects the Confidential Information of both parties.

What to Watch for: Make sure that you understand the scope of what is defined as Confidential Information. It is often useful to require that the party disclosing Confidential Information label it as such so that there is no misunderstanding and so that we care for and treat the information appropriately. Do not underestimate how broad the scope of Confidential Information can be. It can also include DG’s work product.

Exclusions from Confidential Information

NDAs typically contain language that clarifies what should not be considered Confidential Information. Information that was in the public domain or already in the receiving party’s possession at the time of disclosure, or information required to be disclosed pursuant to law are a few examples.

Confidentiality Obligations

In addition to understanding the breadth of what does and does not constitute Confidential Information in an NDA, it is important to know what our actual obligations are. NDAs typically state that the Confidential Information must be held by the recipient in strict confidence and that the Confidential Information must not be used for any other purpose. Most NDAs also state that Confidential Information must not be disclosed without the prior written consent of the party disclosing the information.

What to Watch for: How we must treat Confidential Information pursuant to an NDA can be more stringent than how we are accustomed to treating our own confidential information. No matter what our intended use of Confidential Information may be, whether it be for marketing purposes or otherwise, we should always seek written permission from the disclosing party when in doubt.

Term of Agreement

The term of an NDA is the period of time during which our obligation to maintain confidentiality lasts. The term of an NDA is typically a period of years. We usually see 3, 5 or 10-year terms.

What to Watch For: In rare instances, we may find that the obligation to maintain confidentiality pursuant to an NDA is perpetual. We should push back on such obligations because they are overly burdensome from an administrative standpoint.

Application to Third Parties

When we enter an NDA, it typically applies to employees, consultants, subcontractors, and agents. Therefore, we should discuss our confidentiality obligations on a project with our project teams and, at a minimum, send them and our subcontractors a copy of the NDA. We should also ask employees and subcontractors to confirm in writing that they have read the NDA and agree to be bound to it to the same extent as DG is bound. Email is fine for this purpose. For a more formal form of NDA acknowledgment, contact General Counsel.

Remedies for Breach

Money damages as a result of a breach of confidentiality are difficult to ascertain and the appropriate remedy for a breach of confidentiality under an NDA is injunctive relief. In this case, the non-breaching party goes to court and seeks an order directing the breaching party to stop disclosing the Confidential Information.

What To Watch For: Sometimes NDAs contain indemnification clauses for breach of confidentiality. For the same reason that injunctive relief is more appropriate than money damages in the event of a breach (i.e., money damages are unforeseeable and immeasurable), we do not want to agree to indemnify the other party for our potential breach of an NDA.

Return or Destruction of Confidential Information

NDAs often contain a provision dealing with the return or destruction of Confidential Information at the time of termination of the agreement. This may include an obligation to certify in writing that we have destroyed all documents containing Confidential Information that we received. This may be difficult to do 5+ years after the fact and we typically want to retain at least one copy of any project documents for archival purposes.

Red Flags/When to Seek Legal Advice

Exclusivity/Non-Competition

An exclusivity clause is a promise not to work for a competitor of the party with whom we are entering an NDA. Due to the nature of DG’s business, we should never accept such a provision in a contract. Such promises limit DG’s business for other clients and impacts DG’s obligations under existing agreements.

Intellectual Property

Keep an eye out for language in an NDA that suggests that the other party obtains rights in DG’s intellectual property. One example might be DG’s standard details that we intend to use on the project that is the subject of the NDA and on other projects for different clients. If we do not carefully review language in an NDA concerning DG’s intellectual property, we risk inadvertently transferring our rights in such intellectual property to the other party.

Conclusion

The next time you receive an NDA on one of your projects, read through it while relying on this guide. NDAs are usually 5 pages or less in length, so it should not take you long. You will be surprised how much better you understand the language and its implications. Keep in mind that currently only Tom Dennis and the Senior Partners have authority to sign NDAs on behalf of DG.