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 owner’s lawyer frequently proposes the riders because the AIA form is drafted to favor the architect’s or contractor’s interests.
Some contractors on small projects may forgo formal construction contracts and give the owner an estimate, payment schedule, and a brief description of the scope of work. Although this allows the contractor flexibility to figure it out, 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 already started and the architect is making changes in the design, then the owner will 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, resulting in more change orders. In the bidding process, the contractor should advise the owner whether the architect’s designs are straightforward. 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.
Negotiating 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, changes are often made because of an owner’s changing needs, issues obtaining unique 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 project’s cost. In addition to the change orders, there may need to be amendments to the contract. Knowing these will likely happen, construction contracts must account for delays. 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 methods to control delays and incentivize everyone to complete the project promptly.
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 must interpret the parties’ intentions, a lengthy and costly undertaking.
Hiring an experienced construction lawyer and drilling down on the specifics of the project before the negotiation are significant factors in any construction project’s ultimate success.