What to look for in well-drafted construction contracts? Many architects and contractors use the American Institute of Architects (AIA) pre-printed, “fill in the blank” form contracts. Although these AIA forms are a good, fundamental starting point, most attorneys draft extensive riders to supplement them. The riders are frequently proposed by the owner’s lawyer because the AIA form is drafted to favor the interests of the architect or contractor.
Some contractors on small projects may forgo formal construction contracts altogether and give the owner an estimate, payment schedule and a brief description of the scope of work. Although this gives the contractor flexibility to figure it out along the way, it can prove disastrous for the owner. Once the contractor begins demolition, it is too late for the owner to negotiate. Also, if demolition has begun and the architect is making changes in the design, then the owner is going to have to pay for costly change orders. The contractor can only be held accountable for building according to the architect’s plans as they existed when the contractor bid on the project. If the design is incomplete, the project will be bid at a lower price and will result in more change orders. In the bidding process, the contractor should advise the owner as to whether the architect’s designs are clear. Sometimes it is best not to hire a contractor recommended by the architect. If they are independent, it creates a system of checks and balances.
The negotiation of the contract is most effective when the construction project is clearly defined. Although no contract can predict every potential problem that can occur in a large construction project, this helps the parties anticipate what their biggest concerns may be.
Despite the best planning, often there are changes made because of an owner’s changing needs, issues obtaining special materials, substitutions, etc. There can be unforeseen building issues after starting work that will need to be addressed and fixed before work can move forward. These issues can result in changes in the scope of work and the cost of the project. In addition to the change orders there may need to be amendments to the contract. Knowing these will likely happen, delays have to be accounted for in construction contracts. One method is to insert language in the contract regarding per diem monetary penalties for each day the project is behind schedule. Although it can be difficult to enforce these provisions, inserting this language can still build in methods to control delays and incentivize everyone to timely complete the project.
If and when disagreements arise without a contract, there will not be any provisions or language to address the dispute. This generally leads to litigation where an arbitrator or judge will have to interpret the parties’ intentions, a lengthy and costly undertaking.
Hiring an experienced construction lawyer and drilling down on the specifics of the project prior to the negotiation are both major factors in the ultimate success of any construction project.