When it comes to construction contracts, there are many good industry form templates that can be used. All are templates and all are designed to be modified to conform to the jurisdiction’s law and, of course, the parameters of the project. There are industry form templates from the American Institute of Architects, ConsensusDocs, Engineers Joint Contract Documents Committee, and Design-Build Institute of America. All include good provisions. Regardless of the industry form template utilized, or whether your own template is utilized, contract drafting and negotiation is all about assessing risk and allocating risk to the party best equipped to manage that risk. Oftentimes, management of the risk is considered in conjunction with insurance coverage to cover that associated risk. Construction contract drafting and negotiation should not be taken lightly because “you want to know what you are getting into” so that you can best manage and address issues that arise, and you know issues always arise in construction.
Here are some general tips when it comes to construction contract drafting and negotiation:
- Work with a construction attorney. Yes, I had to go there, because too frequently parties want to draft the contract without legal assistance, or negotiate without legal assistance, and this is not always fruitful. Working with a construction attorney can at least help you assess the risk and ensure that a contract is sufficiently drafted or negotiated based on your understanding and appreciation of risk. I am routinely involved in some capacity when it comes to construction contract drafting and negotiation.
- Obtain documents that are incorporated or flowed-down into the contract. Most contracts will either incorporate other documents or, in the case of a subcontract, contain flow-down provisions that flow-down obligations from the prime contract into the subcontract. To best understand and appreciate the risk you are accepting, including risk associated with your scope of work, obtain these documents incorporated or flowed-down into the contract. Not doing so is a mistake when these documents will impose obligations or requirements on you.
- Review the insurance coverage language and consult with your insurance broker to make sure you have the required insurance. Insurance coverage is key. Many times, contracts require heightened insurance coverage requirements that, realistically, are not available to a certain contractor. Consider the insurance coverage requirements and consult with your insurance broker (and your construction attorney, if possible) regarding the insurance coverage, additional premium associated with the coverage, whether the coverage is available to you, and whether there is additional insurance coverage you should consider based on your scope of work.
- Have an appreciation of the following driving provisions that will be important no matter the project:
- Indemnification
- Insurance coverage
- Dispute resolution including forum selection, prevailing party attorney’s fees, joinder, and abatement or staying of certain disputes or claims
- Termination for default and for convenience
- Default and notification of default and any cure period
- Suspension of work
- Payment timing and requirements including any pay-if-paid language and conditions precedent to payment
- Claims procedures including timing requirements when to submit claims and the waiver of claims
- Change orders and directives
- Scope of work to make sure you understand the scope of work in the contract as it will likely include work and risk not included in your proposal
- No-damage-for-delay and all schedule-based language (since time is money)
The construction contract serves as the backbone governing your relationship with the project. Do not neglect the importance of the construction contract or deprioritize its importance.
Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.