Construction Law: Contract Clauses, Part One

More Than a Legal Formality

by Dillon Fulcher, Cotney Construction Law

 

 

 

 

 

 

 

 

(Editor’s Note: Dillon Fulcher is an attorney at Cotney Construction Law with extensive experience on a range of construction and related matters. Cotney Construction Law is an advocate for the roofing industry and General Counsel of Western States Roofing Contractors Association. Fulcher can be reached at (866) 303-5868.)

 

Signing on the dotted line is more than a legal formality. It is an acceptance of, and submission to, the rights and responsibilities detailed in a contract. Every contract should be the product of conscious deliberations between the contracting parties, not merely the result of a brief internet search. While drawn-out negotiations are not appropriate for all projects, a diligently drafted contract could be the difference between turning a profit and suffering a loss. While no single clause can mitigate all inherent risks of construction contracting, this two-part series discusses provisions that should be included in every construction contract.

 

Attorney’s Fees

An attorney’s fees clause stipulates that in the event of a dispute or lawsuit between contracting parties, the party who prevails is entitled to have its legal expenses reimbursed by the non-prevailing party. A sound argument could be made that second only to provisions entitling you to payment for your services, an attorney’s fees agreement is the most important contract provision. Without a clause providing for recovery of attorney’s fees, you will have to bear the legal costs associated with protecting yourself from another party’s breach. For instance, if an owner fails to pay, the cost to procure a lien may exceed the amount of money you are owed, making a litigious pursuit of that money uneconomical. In that situation, the inclusion of an attorney’s fees clause increases your bargaining power because, in addition to recovering the amount you are owed, the other party is contractually obligated to your ever-increasing attorney’s fees for as long as the claim goes unpaid. Furthermore, ensure that an attorney’s fee provision is not working against you in the sense that it only entitles the opposing party to the recovery of attorney’s fees.

 

Indemnification

An indemnification provision is a risk-shifting mechanism. Usually these provisions request that your company, the indemnitor, take on the responsibility for issues caused by the other party, the indemnitee. These clauses are also known as hold harmless provisions. You should be wary of any language that requires your company to indemnify, defend, and hold harmless an indemnitee for anything caused by the indemnitee. Only agree to be responsible for issues that your company caused. Never sign a contract requiring your company to be responsible for another party’s negligence.

 

Unauthorized Work Changes

Your contract should explicitly state that your company is not responsible for changes to the scope or design of the original contract work unless you have agreed in writing to such a change. Additionally, your contract should outline payment procedures in the event that you sign off on a change. Document every change that is proposed, not only those that you have accepted.

 

No Promise of Final Price

Fluctuations in labor and material rates are a fact of business. Despite the skill and diligence of your estimator, there are simply too many factors that impact final costs. Accordingly, do not commit your company to an absolute price. You can disclaim that any representations of price are not a guarantee that the stipulated price will not be exceeded. Expressly state that representations as to price are an estimate, nothing more.

 

Final Confirmation of Roofing System Manufacturer

While your initial roof system recommendations will be based on experience and published standards, your contract should provide the client with notice that recommendations and specs are subject to final confirmation by the chosen roof system’s manufacturer. By providing for this notice in the contract, you will be making clear that your recommendations at the outset are subject to any subsequent changes in specifications made by the manufacturer and that price and scope may need to be adjusted accordingly.

 

By including the above clauses in your contract, your company will be taking significant steps towards having a contract that can proactively prevent costly disputes. A construction attorney can assist with properly adding the clauses discussed above and many more risk mitigation provisions to your contract.

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