CONSTRUCTION CONTRACT REVIEW: Form Standards and Considerations

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At Nexsen Pruet, we frequently review construction contracts and address concerns and questions about them.  We negotiate, review, and customize contracts on everything from standard industry agreements—generally comprising tried and true, familiar clauses—to one-off agreements for large multi-party arrangements for the design, procurement, and construction management of large commercial, industrial, or institutional projects. 

With industry standard forms, the first consideration is which forms to use.  The most familiar and most commonly-used forms are promulgated by the American Institute of Architects (designated by the form number and publication year, like A102-2017) and by the Engineers Joint Contract Documents Committee (EJCDC), a collaboration of the National Society of Professional Engineers, the American Council of Engineering Companies, and the American Society of Civil Engineers.  A more recent collaboration that publishes families of construction contract forms is ConsensusDocs, now about 15 years old, representing over 35 construction industry trade and professional organizations.  These forms come in various families of integrated, coordinated documents that fit the common delivery systems: design-bid-build, design/build, construction manager at risk, negotiated stipulated sum, cost-plus, etc., as well as many less familiar arrangements and variations.  There are forms suited to all shapes and sizes of design and construction projects. 

Most of the blanks to be filled in are business terms and do not necessarily require an attorney’s input.  However, because every project and each client’s risk tolerance is different, changes to the wording of the form is often warranted.  Many documents will automatically generate a list of all changes made to the unaltered form.  Such a list of modifications to the document can be helpful in reviewing the agreement.  When properly selected and adapted, the forms have many advantages over custom agreements drafted from scratch.  The work of adapting them is quicker, less expensive, and usually more comprehensive.  And usually the language in the agreement has been court-tested, which prevents many disputes and helps in the resolution of intractable disagreements.  

Perhaps unsurprisingly, scores of internet sites offer all sorts of free or for-purchase construction contract forms.  Perhaps these can be useful in some circumstances, but the simpler these forms are, the less useful they are in anticipating the needs of the parties and directing their conduct.

The Construction Section of the North Carolina Bar Association maintains a helpful residential construction contract form for its members, which is updated from time to time to account for new developments in construction contracting and legal precedents.

Even though there are so many choices out there, most large corporations and public owners prefer to use their own standard form agreements when they undertake large projects.  This way they do not have to customize forms to conform to local laws, re-negotiate major risk allocations, or worry about assuring that their base contract terms match their general conditions, i.e. the terms and conditions that provide detail on how the parties are to fulfill their undertaking in the agreement.  This does not necessarily mean that the terms of the agreement are non-negotiable.  A read-through of such an agreement may reveal that there are some clauses that are inappropriate, unfair, or even contradict the parties’ intentions.  

There are several high-level parts of construction contracts that should be carefully considered when evaluating a particular contract:

• Deviations from the basic course of performance, including:
  • Notices of changed conditions or changes in the scope of work
  • Conditions constituting default and the right to cure
  • Mechanisms for resolution of disputes
• Incorporation by reference of other documents and agreements
• Circumstances when payment may be withheld; for example, a clause allowing payment to be withheld but requiring work to continue
• Flow-down clauses requiring lower-tier parties to comply with terms of a different agreement
• Responsibility for investigation and remediation of site conditions
• Extent and reliability of information provided by owner
• Obligation to detect or to eliminate conflicts, errors, omissions, or inconsistencies
• Contractual limitations of liability for claims
• Waivers or exclusions of claims and liabilities
• Obligations to comply with ill-defined or unknown standards
• Ownership of, and rights to use, design or other intellectual property
• Insurance and indemnity provisions (watch for loaded words like: warrant, covenant, indemnify, defend)

Some generally unfair clauses to watch for include those that:

• Waive common contractual defenses
• Impose unreasonable responsibility to indemnify and defend counter-parties
• Impose financial penalties
• Impose unreasonable deadlines for enforcement of rights
• Impose greater potential liability for negligence than insurance can cover
• Provide asymmetrical legal remedies

Attorneys can help to spot and modify clauses that shift risk in unusual and unfair ways.   Construction law is not only about fixing problems after they arise; much of it is helping clients to avoid problems with good contract language.  The Construction Practice Group at Nexsen Pruet can help to protect you from unfair burdens and excessive risk in your next project.