Contracts — Knowledge is Power
Last week I brought up the fact that construction projects
are ripe for litigation, and how to get prepared if it seems
the project is going south. This week we’ll look at
the importance of knowing what you’re getting into
at the front end of a project — or in other words,
when you sign the contract.
When it comes to contracts, knowledge is power. With a little
insight, it may be possible to reduce the chances of getting
into a budget-busting dispute. Construction disputes often
involve a failure to understand or comply with the contract
The contract documents, which generally include the plans,
project manual (i.e. general conditions, supplemental conditions,
technical specifications, etc.), and the contract itself,
not only define the scope of work, but they also provide
a set of rules and procedures that all parties are to follow.
This includes change order procedures, payment procedures,
contract termination rights, insurance requirements, indemnity
and a host of other important information.
The contract itself also usually defines the powers and
limitations that each party has in enforcing those rules
and procedures. This is an extremely powerful document,
no doubt about it, but many people fail to really read the
entire contract before they sign it, much less gain a full
understanding of what they are agreeing to.
Judging from the sheer bulk of some contracts, hundreds
of hours may have been invested in a contract attempting
to make them as comprehensive and foolproof as possible.
Yet, it may still fall short of being straightforward and
clear for a number of reasons.
Here are nine things to look for in the contract documents
to make sure you understand what you may be getting into.
This is just an example of some of the common sources of
disputes and is by no means an exhaustive list.
1. Defective plans or specifications. Look for anything
that would be unreasonably difficult to perform and then
clarify what is specifically required in the contract itself.
This may be something physically impossible or a conflict
within the contract terms. Do not think you will be covered
if you list the item as excluded in your proposal or bid.
Unless you write in the contract itself that your proposal
or bid is included, once you sign the contract, your proposal
or bid is not part of the agreement.
2. Unclear or generic scope of work. If the scope of work
does not have a clear and detailed description of the specific
tasks, getting credit for extras or changes may be difficult
because these will not be easily measured against the original
intended scope of work
3. Difficult procedures for receiving payments. Many general
contractors’ contracts say that the subs get paid
only if, or when, the general gets paid. While our courts
have outlawed these provisions, people still tend to follow
them during the course of the project. Who wants to wait
for the end and battle it out in court just to get paid?
Also, be aware of payment procedures that allow the owner
or general to reject the entire pay application due to a
minor defect in the application itself.
4. Inconsistent details. A common example is the stated
quantity or quality of a certain material listed in the
specs for the project does not match up with what is shown
on the plans. Or what is shown on the plans as an existing
condition does not match the actual site conditions. It
is imperative that those discrepancies be addressed in writing
as soon as you know there is a problem.
If you know of the issue before the contract is signed,
do NOT sign the contract until the issue has been resolved
and the appropriate changes are made to the contract before
5. Unrealistic or undefined project schedules. If an owner
or general provides you with the schedule, make sure it
is reasonable for your work. If you can’t make theschedule,
don’t sign the contract.
6. Vague timing for submittal reviews or requests for information.
The contract documents should specify how long it will take
the architect to review submittals or respond to requests
for information, so that you will know what to expect to
coordinate the information with the timing of work being
performed on your project. This also allows you to send
in a potential claim of the architect drags their feet.
7. Strict notice procedures for delays, extras and changes.
It is imperative that you understand the deadlines for how
soon you have to advise either the owner or general after
you realize that extras or changes in the work are needed
or there is going to be a delay. Many contracts have provisions
that if you do not provide written notice within the time
required, you waive any right to get additional compensation
for that extra, changed work or delay. Courts have enforced
these provisions, so make sure you comply!
8. Decisions in the owner’s or contractor’s
sole discretion. Anything that allows an extremely subjective
opinion as a final determination does not bode well for
the person on the receiving end of that decision.
9. Incorporation of the prime contract. Subcontracts that
reference the prime contract unusually mean that the subcontractor
is obligated to the general to the same extent the general
is obligated to the owner as it relates to the sub’s
work. This applies to notices, insurance and indemnity.
Unless the sub reads and understands what obligations the
prime contract imposes on the general contractor, there
is no way the sub knows what they are getting into.
The fact of the matter is, when a project is going well,
the contract itself is rarely looked at. But, if anything
goes wrong, everyone runs to the contract first to see who
is at fault. If you understand — and follow —
your obligations from the beginning, chances are, it won’t
be you that everyone points a finger at.
Scholefield, Esq., holds an active PE license in Colorado,
an undergraduate engineering degree from the University
of Florida, and received her JD from the University of San
Diego. Source Code: 20080222tca
Call us now to discuss how you can benefit
by using a different approach to managing to your legal