By: Craig Martin, Construction attorney with Lamson Dugan & Murray
At the end of every year, I schedule meetings with my construction clients to go over their prime and sub- contracts. I specifically ask them to bring the last three contracts they signed with owners and subcontractors because I want to know how that contract has been patched and modified over the past year. I have found that contrac- tors add clauses to their contracts, much like a patchwork quilt, and these “new” clauses may very well conflict with other parts of the contract.
Why do form contracts get changed?
Early in my career, I would often ask why a contactor would “tweak” a perfectly good construction contract. Over the years, I have learned you may have to go along to get along, and that might mean changing some language in the contract to appease the other side.
Invariably, the employee responsible for making that change for that subcontractor, saves the new version of the contract on the computer. Then, when the next project comes along, the “new” contract clause is still in the con- tract and no one thinks about whether you should take it out for the next project. If this happens several times during the year, you can see how the once pristine construction contract is now a patchwork quilt of construction clauses.
Why is this a big deal?
I certainly understand you may have to tweak some lan- guage in the contract to appease a subcontractor, but when those changes are left in the contract, they can create in- consistencies in the contract which may make enforcement difficult.
From a practical matter, the goal of your contract is to en- force your rights as easily and quickly as possible. If you have a clean and clear indemnity clause in your contract, a court could rule that your subcontractor has to indemnify you for certain damages early on in the lawsuit. If the indemnity pro- vision is not as clear, or if another inconsistent indemnity clause is in the contract, the lawsuit may have to go to trial to get resolved.
A recent lawsuit provides a good example of this situa- tion. The lawsuit involved a claim between a contractor and an engineer the contractor hired to perform quality assur- ance work. The contractor’s contract required the engineer to indemnify the contractor against all claims involving the manner and sufficiency of the work. But the engineer added language that said it was not responsible for the contractor’s failure to properly perform the construction work.
The contractor sued the engineer alleging the engineer failed to catch problems with the work during construction and demanded the engineer pay $3M, the cost of the rework. The engineer responded, saying the contract clause it added to the contract said the engineer was not responsible for the contractor’s failure to perform the construction work.
The court found the contract had conflicting terms, which ultimately rendered the subcontract ambiguous. This find- ing of ambiguity meant the case would have to go to trial to figure out what the parties really meant when they included the conflicting terms in the contract.
How can you avoid this problem?
Contractors, like all clients, want to avoid trial. The best way to avoid trial is to make sure your contracts are clean. If a subcontractor demands a certain provision be added, make sure it’s only added to that contract for that job. Make sure your contract administrator knows to go back to the origi- nal form on every project to avoid adding more and more patches to the contract throughout the year. And, review your contracts every year. Make sure you don’t have a patch- work quilt of conflict contract provision. Better yet, engage experienced construction counsel to help you review your contracts, every year, to avoid this patchwork problem.
Craig Martin is a construction attorney with Lamson Dugan & Murray, LLP law firm and is a member of the collaborative Johnson Team. The Johnson Team consists of a collaborating group of spe- cialists serving LICA members on matters of significance – planning, protection, and preservation of their businesses and families. If you have any questions, Craig’s e-mail is cmartin@ldmlaw.com
At the end of every year, I schedule meetings with my construction clients to go over their prime and sub- contracts. I specifically ask them to bring the last three contracts they signed with owners and subcontractors because I want to know how that contract has been patched and modified over the past year. I have found that contrac- tors add clauses to their contracts, much like a patchwork quilt, and these “new” clauses may very well conflict with other parts of the contract.
Why do form contracts get changed?
Early in my career, I would often ask why a contactor would “tweak” a perfectly good construction contract. Over the years, I have learned you may have to go along to get along, and that might mean changing some language in the contract to appease the other side.
Invariably, the employee responsible for making that change for that subcontractor, saves the new version of the contract on the computer. Then, when the next project comes along, the “new” contract clause is still in the con- tract and no one thinks about whether you should take it out for the next project. If this happens several times during the year, you can see how the once pristine construction contract is now a patchwork quilt of construction clauses.
Why is this a big deal?
I certainly understand you may have to tweak some lan- guage in the contract to appease a subcontractor, but when those changes are left in the contract, they can create in- consistencies in the contract which may make enforcement difficult.
From a practical matter, the goal of your contract is to en- force your rights as easily and quickly as possible. If you have a clean and clear indemnity clause in your contract, a court could rule that your subcontractor has to indemnify you for certain damages early on in the lawsuit. If the indemnity pro- vision is not as clear, or if another inconsistent indemnity clause is in the contract, the lawsuit may have to go to trial to get resolved.
A recent lawsuit provides a good example of this situa- tion. The lawsuit involved a claim between a contractor and an engineer the contractor hired to perform quality assur- ance work. The contractor’s contract required the engineer to indemnify the contractor against all claims involving the manner and sufficiency of the work. But the engineer added language that said it was not responsible for the contractor’s failure to properly perform the construction work.
The contractor sued the engineer alleging the engineer failed to catch problems with the work during construction and demanded the engineer pay $3M, the cost of the rework. The engineer responded, saying the contract clause it added to the contract said the engineer was not responsible for the contractor’s failure to perform the construction work.
The court found the contract had conflicting terms, which ultimately rendered the subcontract ambiguous. This find- ing of ambiguity meant the case would have to go to trial to figure out what the parties really meant when they included the conflicting terms in the contract.
How can you avoid this problem?
Contractors, like all clients, want to avoid trial. The best way to avoid trial is to make sure your contracts are clean. If a subcontractor demands a certain provision be added, make sure it’s only added to that contract for that job. Make sure your contract administrator knows to go back to the origi- nal form on every project to avoid adding more and more patches to the contract throughout the year. And, review your contracts every year. Make sure you don’t have a patch- work quilt of conflict contract provision. Better yet, engage experienced construction counsel to help you review your contracts, every year, to avoid this patchwork problem.
Craig Martin is a construction attorney with Lamson Dugan & Murray, LLP law firm and is a member of the collaborative Johnson Team. The Johnson Team consists of a collaborating group of spe- cialists serving LICA members on matters of significance – planning, protection, and preservation of their businesses and families. If you have any questions, Craig’s e-mail is cmartin@ldmlaw.com