flexiblefullpage
billboard
interstitial1
catfish1
Currently Reading

How bulletproof is your construction contract?

Contractors

How bulletproof is your construction contract?

Three Dykema Gossett attorneys discuss how supply-chain problems are complicating these agreements.


By John Caulfield, Senior Editor | October 28, 2022
Supply chain snags complicate construction contracts
A knotty supply chain heightens the importance of well-crafted construction contracts. Image: Pixabay

Global supply-chain delays and shortages have had an impact on construction contracts in terms of enforceability and risk, and have increased the likelihood of litigation to settle differences between parties, as well as the need to negotiate contracts that anticipate and minimize potential disputes.

“The allocation of risk is paramount to [achieving] the best possible outcome,” stated David Vanderhider, a Partner in the San Antonio office of Dykema Gossett, a Detroit-based national law firm with a substantial construction litigation practice.

During an October 26 webinar that explored the legal considerations of supply-chain impacts on contracts, Vanderhider was joined by two Partners from Dykema Gossett’s Chicago office: Steven Mroczkowski, who is Co-leader of the firm’s Construction Group; and Melanie Chico, Asset Practice Group Leader.

Chico predicted that supply-chain problems, including those related to costs and labor, are likely to spill into 2023. To which Vanderhider followed that earlier attention to planning will be needed to prepare for delays and cost overruns. Mroczkowksi added that collaboration is the key to allocating risk fairly, and he’s been seeing fewer take-it-or-leave-it clauses on contracts. But he also noted that “there’s no one-size-fits-all” solution.

Contractual risk and reward

The bulk of the webinar was taken up with the partners discussing different contract clauses. For example, Mroczkowski has seen an uptick in litigation over the applicability of force majeure, which is intended to excuse nonperformance following a particular event. (This is commonly known as the “Act of God” provision.) Such clauses are enforceable when the event is beyond the reasonable control of the party. And what is often being litigated, he said, is whether the affected party took sufficient steps to reduce its risk.

Mroczkowski cautioned that force majeure can vary by jurisdiction and how a project’s financing is structured, which is why he advises clients to customize the language of their contracts to the realities of the given project. “Sometimes, risk allocation boils down to an amendment in a contract,” observed Chico.

Another growing area of dispute, the partners said, is a contract’s Notice requirement, which spells out when a party is entitled to additional compensation or time. Chico said that too many notice clauses are loosely drawn up, and lack specificity when it comes to who, what, when, and why.

Indeed, the partners agreed that the precision of a particular clause’s language usually determines each party’s level of protection in a contract, especially at a time when outside forces that affect contractual agreements are in flux.

Litigate or arbitrate

Contracts are still being written too loosely
Construction contracts are still being written too loosely, leaving doors open for interpretation.
 

During the webinar, the partners touched on suspension and termination provisions, limitation of liability clauses, waivers for consequential damages (which owners are generally interested in), safety requirements, and insurance requirements. (Vanderhider said that insurance policies covering errors and omissions/professional liability “are trending,” and revolve around notice provisions.)

He said he’s been seeing contracts with more provisions that allow owners to withhold payments, with a notorious change in emphasis from “pay when paid” to “pay if paid,” which shifts more risk onto subcontractors. Chico added there are options “to be creative here,” such as payment clauses that kick in or are capped at certain thresholds, are limited to certain building materials, are tied to index pricing, or offer early payment for supply and storage actions.

The partners also took some time to debate how best to resolve disputes in general.

Vanderhider typically favors litigation, claiming that arbitration doesn’t always save time or money, and can place limits on the presentation of evidence and witnesses. “Many of the more common contract forms don’t reflect the reality of today’s economic climate,” he asserted. But Vanderhider also conceded that arbitration makes it easier for parties to keep evidence private

Chico, on the other hand, prefers arbitration, “mostly because it’s faster” than letting a lawsuit play out. She and Vanderhider agreed that dispute clauses in contracts are most effective when they are consistent throughout the construction chain. Mroczkowski recommended, too, that contracts include a provision mandating some level of arbitration so as not to halt the project while the parties try to resolve differences.

In conclusion, Mroczkowski cited four takeaways for contractual risk mitigation:

•Focus on your priorities

•Be proactive anticipating supply-chain impacts

•Ensure consistency in certain key contract terms

•Ensure compliance with local laws.

Related Stories

Office Buildings | Apr 28, 2022

A 48-story office tower to rise over boomtown Austin

In downtown Austin, Texas, a planned 48-story office tower, The Republic, recently secured its first major tenant—allowing for the groundbreaking by midyear.

Codes and Standards | Apr 27, 2022

White House guidance on Buy American for infrastructure includes waiver process

Recently released guidance on the Buy American provision within the $1.2 trillion Infrastructure Investment and Jobs Act released by the Office of Management and Budget includes a waiver process.

Sports and Recreational Facilities | Apr 27, 2022

New Univ. of Texas Moody Center houses men’s and women’s basketball, other events

The recently completed 530,000 sf University of Texas Moody Center is the new home for men’s and women’s basketball at the Austin campus.

Green | Apr 26, 2022

Climate justice is the design challenge of our lives

As climate change accelerates, poor nations and disadvantaged communities are suffering the first and worst impacts.

Multifamily Housing | Apr 26, 2022

Fitness centers for multifamily housing: Advice from 'Dr. Fitness,' Karl Smith

In this episode for HorizonTV, Cortland's Karl Smith shares best practices for designing, siting, and operating fitness centers in apartment communities.

Mixed-Use | Apr 26, 2022

Downtown Phoenix to get hundreds of residential and student housing units

In fast-growing Phoenix, Arizona, a transit-oriented development called Central Station will sit adjacent to Arizona State University’s Downtown Phoenix campus. 

Hotel Facilities | Apr 25, 2022

U.S. hotel construction pipeline up 2%, with 5,090 projects in the works

The total U.S. hotel construction pipeline stands at 5,090 projects and 606,302 rooms at the end of the first quarter of 2022, up 2% by projects, but down 3% by rooms, according to the Q1 2022 Construction Pipeline Trend Report for the United States from Lodging Econometrics (LE). 

Codes and Standards | Apr 25, 2022

Supply chain constraints, shifting consumer demands adding cost pressures to office fit-outs

Cushman & Wakefield’s 2022 Americas Office Fit-Out Cost Guide found supply chain constraints and shifting consumer demands will continue to add pressure to costs, both in materials and labor.

Sports and Recreational Facilities | Apr 25, 2022

Iowa's Field of Dreams to get boutique hotel, new baseball fields

A decade ago, Go the Distance Baseball formed to preserve the Iowa farm site where the 1989 movie Field of Dreams was filmed. 

Building Team | Apr 22, 2022

EarthCam Adds Senior Leadership Roles to Facilitate Rapid Growth

EarthCam today announced several new leadership positions as it scales up to accommodate increasing demand for its webcam technology and services.

boombox1
boombox2
native1

More In Category

Construction Costs

Data center construction costs for 2024

Gordian’s data features more than 100 building models, including computer data centers. These localized models allow architects, engineers, and other preconstruction professionals to quickly and accurately create conceptual estimates for future builds. This table shows a five-year view of costs per square foot for one-story computer data centers. 


Sustainability

Grimshaw launches free online tool to help accelerate decarbonization of buildings

Minoro, an online platform to help accelerate the decarbonization of buildings, was recently launched by architecture firm Grimshaw, in collaboration with more than 20 supporting organizations including World Business Council for Sustainable Development (WBCSD), RIBA, Architecture 2030, the World Green Building Council (WorldGBC) and several national Green Building Councils from across the globe.



Healthcare Facilities

Watch on-demand: Key Trends in the Healthcare Facilities Market for 2024-2025

Join the Building Design+Construction editorial team for this on-demand webinar on key trends, innovations, and opportunities in the $65 billion U.S. healthcare buildings market. A panel of healthcare design and construction experts present their latest projects, trends, innovations, opportunities, and data/research on key healthcare facilities sub-sectors. A 2024-2025 U.S. healthcare facilities market outlook is also presented.

halfpage1

Most Popular Content

  1. 2021 Giants 400 Report
  2. Top 150 Architecture Firms for 2019
  3. 13 projects that represent the future of affordable housing
  4. Sagrada Familia completion date pushed back due to coronavirus
  5. Top 160 Architecture Firms 2021