Last week’s column highlighted the importance of minding your language in contracts. Two cases were offered. One was an “agreement” between an owner and his contractor that was never actually confirmed with a contract, the other a dispute that went to court over the language and intent of key contract terms.
When properly drafted, construction contracts can be complex and lengthy. In order to protect the interests of all project parties, there is a checklist of items that, if not included, at least needs to be considered. This is particularly important given the industry’s recent experiences with COVID-19 and the resultant implications that have run top-to-bottom on the construction ladder.
As Levi Barrett, Nathan Cohen and Mark Snyder of U.S. construction law firm Peckar and Abramson write, “While many are rightfully concerned with addressing the impacts of COVID-19 to their ongoing projects, those negotiating new contracts now are undoubtedly cognizant that they are negotiating in the midst of an unpredictable future that is tipping the historical negotiating balance.”
1. A clear and defined scope of work
“Even slight inconsistencies may become the source of later disputes.”
2. Limitation of liability
Provincial legislation varies across the country. However, as pointed out in a previous Legal Notes column focussing on latent defects, liability limits concerning work performed while under contract also need attention.
3. Warranty obligations
Legislated liability periods should not be confused with specific offers of warranty.
“The warranty should be limited in both scope, time and, if possible, the remedy included within the clause should be limited to the contractual warranty.”
Indemnity clauses are vital, since they protect one party for loss or damage as a result of another party. “Properly phrased indemnification clauses can protect your company from losses that are wholly the responsibility of the other contracting parties.”
5. Payment terms
Everyone wants to get paid, in full and on time. As pointed out in last week’s column, this requires a clear understanding of the implications when third party certifications are required in order to either pay or be paid.
6. Certainty of terms
Nothing can lead to a conflict between parties faster than inconsistencies or duplications within the agreement and any appendices.
“It is important to ensure clauses line up with the provisions of the main governing agreement and that flow-down provisions are taken into account.”
7. Change mechanisms
There will always be changes to the project after the original contract is signed. These might be requested by either the owner or the contractor.
“The approval process should be agreed upon by both parties to create an equitable mechanism for all parties.”
8. Contract termination
If the contract contains party rights to terminate the contract, it is important that such clauses include, “compensation for the work performed to the date of the termination as well as all costs incurred as a result of the termination.”
9. Choice of law and change of law
Usually the location of the project governs which law is applicable. However, laws and regulations can change within that jurisdiction.
“A change in law clause will set out whether the price of the work can change and who will bear those costs.”
10. Dispute resolution
Negotiation, mediation, arbitration, litigation or a process that combines all of these? The contract “should set out the form of the dispute resolution process that the parties would like.”
At the same, “If the parties do not agree to a specific form of process at the outset, they may later agree to negotiate, mediate, or arbitrate afterwards. However, often it is more challenging to agree to a process during a project when there is a dispute and the process is not laid out in the contract.”
As they say, “Plan the worst and hope for the best.”
John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to email@example.com