Construction contracts can run hundreds of pages long. Despite all of this verbiage, however, the same problems seem to arise again and again in project after project. Many of these problems are completely avoidable. The following are just a few examples of common construction project problems along with some advice on how to deal with them at the contract negotiation stage.
Scope of Work
The scope of work provisions are perhaps the most important provisions in a construction contract and arguably some of the most overlooked. Typical problems that produce conflict in this area include: (i) inadequacies or incompleteness in the owner’s design documents, only later discovered, gives rise to a need to change the scope of work, and (ii) linguistic ambiguities in the construction contract are interpreted differently by the contractor and the owner.
The way to head off these problems before they arise is to secure a warranty from the owner that his design documents are complete, coordinated with each other, and free from defects; to spend time drafting the scope of work provisions with great care and foresight. A bit of extra care at the negotiation stages of the project might save millions of dollars down the road.
Contractors almost always agree to indemnify the owner against any liability to a third party that arises as a result of their work – personal injury liability, for example, as well as property damage and even intellectual property infringement. A contractor should attempt to limit its indemnification liability to those liabilities it can insure against. The subcontractor should also ask the owner to indemnify it against third-party liability caused by design defects.
Warranties and Bonds
There is no way that a construction contractor for a major project can avoid providing a myriad of warranties and bonds for its various contractual duties. The trick at the negotiation stage is to limit your liability as much as possible. A contractor should generally insist on a general warranty of one year for materials and labor and demand precise commencement and ending dates for all warranties.
A contractor should also “flow down” its risk to subcontractors as much as possible by (i)
insisting on equal warranties from subcontractors, and (ii) having major subcontractors provide their own maintenance bonds. This approach should reduce your risk to a manageable level.
Project delays are perhaps the greatest liability a contractor faces. Naturally, the contract should include a carefully drafted force majeure clause that eliminates the contractor’s liability for delays that are not their fault. It should also provide for very specific compensation to the contractor when the delay is the fault of the owner. Ideally, acceleration of work requirements should be the owner’s sole remedy for most contractor-caused delays.
At CKB Vienna LLP, we can help you draft construction project contracts that keep you out of court or arbitration by heading off disputes before they arise. If your dispute has already begun (or seems inevitable), we can help you win while preserving your business relationships to the extent that you require.
Telephone us at 909-980-1040 or fill out our online contact form to learn how we can best assist you. We serve clients throughout the Rancho Cucamonga area, including Alta Loma, Etiwanda, Upland, Fontana, Ontario, Chino Hills, and Claremont.