Contract Drafting Best Practices: Strive for Consistent Contract Documents

Construction and Procurement Law News, Q3 2016

Firm Alert

Author(s)

Most successful construction projects require the watchful eye of a design professional or construction manager who orchestrates all phases of the design and construction, including all seemingly minor pieces. Similarly, an owner is more likely to have success in developing a project that is on time, within budget, and without disputes if it engages a contract drafter at the time of project conception who is responsible for drafting and negotiating all of the contract terms and attachments, no matter how technical or minor. Without such an orchestrator, the project may suffer from disputes (including litigation like that in the preceding article), disagreements, and loopholes due to an unnecessarily complex web of inconsistent and contradictory contractual obligations, forms, and scopes of work among the several different professionals and contractors on the project.

Alignment of contract forms

It is not uncommon for owners to use different contract forms to draft their several agreements with their contractors, architects, and managers. This often occurs when the owner is not in control of the contract documents. For instance, the owner may use an AIA agreement with the architect, different custom form agreements with the separate contractors, and a ConsensusDocs agreement with the construction manager. Obviously, this can create gaps in liability and disparate obligations among the many parties. The indemnity obligations may not be aligned, the dispute resolution procedures may be different, liability for soils conditions may not be appropriately allocated, and coordination may not be properly addressed.

Accordingly, it is imperative that an owner employ a contract drafter who can oversee the negotiations for all of the contracts and choose a suite of construction documents that are closely aligned, that properly account for the level of owner’s involvement, and that accurately contemplate the presence of other contractors and design professionals on the project. It is also advisable that the owner use contract documents that are consistent in substance and form, if possible.

Legal review of scope of work and other technical attachments

Some owners are surprised when the legal team that is drafting the terms and conditions also wants to review and revise the scope of work, performance guarantees, and other technical attachments. But, a lack of legal input in reviewing such contract documents can result in significant risk to the owner, as the legal team may not know or understand what the commercial team is doing and vice versa.

For instance, the team that drafts the scope of work may not be involved in contract negotiations and may never review the terms and conditions of the construction contract. As a result, the scope of work may contain owner obligations, change order rights, and defined terms that are inconsistent with the terms and conditions.

Furthermore, contractors sometimes use scopes of work from other projects to draft the scope of work for the current project. If the contractor is not careful or not privy to the pertinent contract negotiations, the draft scope of work may not align with the overall design of the project, may create gaps in construction of the facility, or may insufficiently define the contractor’s obligations. Therefore, legal review, or review by someone at least familiar with the contract negotiations and the overall project design, of both the terms and conditions and all attachments to the contract, especially the scope of work, is advisable. This review should eliminate additional or inconsistent rights and obligations and tailor the scope of work to the specific needs of the project.

Using the correct form

Too often, the parties to a construction agreement never attach the various construction forms – such as the completion certificate, payment applications, change orders, and lien waivers – to the various contracts. As a result, when it is time to use one of these typical construction forms, the project managers grab an “off the shelf” form that may not be applicable to the contract at issue. The change order form and payment application may not correspond with the price mechanism in the applicable contract, the concept of completion may not the consistent with the contract document, or the lien and claim waivers may either be invalid or fail to waive the same rights and obligations as contemplated in the controlling contract. This can cause confusion and disputes for all involved.

A good contract drafter will attach the appropriate forms necessary to administer the project as attachments to the contract, even so-called short form contracts. The parties should then ensure that the project managers are required to use those particular forms. The owner should also endeavor, to the extent possible, to attach and use the same type of forms, with similar terms and conditions, to every agreement for the project to ensure consistency.

The owner may enjoy many other benefits by hiring a singular contract drafter to review, draft, and negotiate all contract terms and attachments for a project, such as substantial savings on time and costs. Regardless, it is advisable that an owner consult an experienced contract drafter at the outset of any project to consider the full benefits of having an “orchestrator” of the construction documents.