Top Five General Tips for All Construction Contracts

For this week’s Guest Post Friday here at Musings we welcome Spencer Wiegard.  Spencer is a Partner with Gentry Locke Rakes & Moore, LLP.  He is a member of the firm’s Construction Law and Commercial Litigation practice groups. Spencer focuses his practice in the areas of construction law and construction litigation. Spencer is a member of the Board of Governors for the Virginia State Bar Construction Law and Public Contracts Section, and a member of the Legislative Committee of the Associated General Contractors of Virginia and the Executive Committee for the Roanoke/SW Virginia District of the Associated General Contractors of Virginia.

I would like to thank Chris for inviting me to author today’s guest post. Over the past few days, I have found myself wading through the terms and conditions of a lengthy and complicated construction contract, while at the same time aggressively negotiating for Houston house leveling cost readjustments. As I slogged through the legalese, I was reminded of a presentation that I gave earlier this year to the Roanoke District of the Virginia Associated General Contractors. The district’s executive committee asked me to speak to its members concerning the broad topic of “Construction Contracts 101.”  At the beginning of my presentation, I passed along my top five general tips for all construction contracts. Although some of these tips may sound like common sense, I often encounter situations where these basic rules are violated by experienced contractors, subcontractors, suppliers and design professionals.  My top five general tips for all construction contracts are:

1.         Reduce the terms of the agreement to writing.

a.         The written agreement should include all important and relevant information and terms.  If it was important enough to discuss prior to signing the contract, it is important enough to include in the written contract;

b.         At a minimum, include who, what, when, where, how, and how much;

c.         Both parties should sign the written agreement; and

d.         Don’t ignore handwritten changes to the contract, as these changes may either mean that you don’t have a deal, or they may become part of the contract when you sign it.

2.         Read the contract.

 a.         Carefully read the whole contract;

 b.         Read all of the “contract documents,” including all attachments and addenda;

 c.         Be careful of “flow-down” or “pass-through” provisions in subcontracts;

i.          If the subcontract incorporates the prime contract documents, get them all and carefully review them;

ii.         A “flow-down” or “pass through” clause provides that the subcontractor assumes toward the general contractor all of the duties and obligations that the general contractor has assumed to the owner in the prime contract;

iii.        A “flow-down” or “pass through” clause also provides that the terms and conditions of the prime contract are incorporated by reference into the subcontract and become a part of the subcontract.

3.         Use the correct party names.

a.         If a party is a corporation, LLC, partnership, etc., use the correct full legal name of the entity;

b.         Make sure the endorsements include a statement of in what capacity a person endorses the agreement on behalf of an entity; and

c.         If the contracting entity is a sole proprietor, describe him or her as “the person’s name, d/b/a the trade name.”

4.         Note any documents or information that you must provide to the other party and note all notice periods and deadlines.

a.         Make two separate lists of these requirements, and keep the lists in a conspicuous place where project managers, officers, and/or management can quickly access this information; and

b.         Frequently refer to these lists to ensure that you comply with all of these requirements.

5.         Don’t assume that you are stuck with the language of the contract form.

a.         Even if you have little bargaining power, you may be able to negotiate changes to the most taxing or arduous clauses; and

b.         Consider what amount of risk you are comfortable taking on before you agree to an onerous term.

If you have any questions or concerns about the language in a proposed contract, call a knowledgeable construction lawyer.  Consider asking your lawyer to review any proposed construction contract, especially those for large, “business killer” projects.

As always, Spencer and I welcome your comments below.  Please subscribe to keep up with this and other Guest Post Fridays at Construction Law Musings.