Category Archives: Contracts

Owner Drafted Indemnity Provisions: Kryptonite for designers?

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be careful sign
Be careful with indemnity provisions (and small animals)!

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Are you being asked to sign contracts that are prepared by the Owner?  If so, do you have a policy in place to have each such contract, Master Agreement, or Statement of Work be reviewed by your attorney?  You should.  An ounce of caution is worth a pound of cure, as they say.

One of the most important contract terms to review in any contract is the indemnity provision.  I’ve discussed how indemnity provisions work in the past.  If you haven’t already read that post- do it now.  (Go ahead, I’ll wait).

Today, I want to address indemnity in the context of non-form contracts presented to you by an Owner for execution.  Generally these are presented with no expected negotiation on your part.  Remember, however, that everything can be negotiated.  A few small changes up front can save you lots of time and expense later if there is ever a lawsuit. 

Because these contracts are drafted by the Owner (or, rather, his horribly biased zealous attorney), they tend to be overreaching and broad.  Recent contracts I have reviewed ask the architect to indemnify the owner for the design team’s negligence, “regardless of whether or not other parties are also negligent.”  That phrase is very troubling, and should be stricken.  Otherwise, the Owner will have an argument that because the design team was negligent, they must indemnify the Owner for all negligent acts (other than the Owner’s own negligence), including those by other parties.   

A better, proportional indemnification provision should include indemnification “to the extent the claim is found to be caused by the negligence of the design team.”  (Even better, of course, would be a limitation of liability based on your design fees, but I recognize that it is often impossible to negotiate such a limitation with some blood-sucking sophisticated Owners.)

Do you have comments about indemnity provisions in contracts you have been asked to sign?  Drop me a note in the comment section, below.

Photo via Creative Commons License.

Which Contract Form Should You Use? (Guest Post)

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Nathan Hinch

Today’s Guest Post is by Nathan B. Hinch, an associate at Mueller & Reece, LLC in Bloomington, Illinois, concentrating in the practice of commercial, construction, environmental, and real estate law.  He can be reached at [email protected] and on twitter @NathanHinch. 

 Form Construction Contracts – How Do They Compare, and How Should They Be Used?

By Nathan B. Hinch

Imagine that you are a contractor from the mythical State of Verbalville, a land where the handshake deal is the norm and no one ever puts anything in writing.  If a developer/owner awarded you a project and asked you to sign an AIA Document A101™ form construction contract, along with AIA Document A201™ General Conditions, would you sign it without reading the document?  Of course not.  Assuming that you were willing to consider bucking the verbal trend and sign the document at all, you would likely read it over very carefully first.  You might also consult an attorney, to help you understand the potential risks and liability issues involved with the contract, including the enforceability of the contract under Verbalville State law, and suggest changes to the document.

Now imagine that you are a contractor in my home State of Illinois and are awarded a project in North Carolina.  If the developer/owner handed you a ConsensusDOCS® 200 form construction contract with general conditions and asked you to sign, would you do so without reading it?  Would you consult a professional attorney before signing?  What if you were familiar with the form documents from your work in Illinois?  Would it matter if it was an EJCDC document instead?

I have worked with AIA, ConsensusDOCS®, and EJCDC form documents, and all three are excellent resources that in the right hands can help save time and money for construction projects.  But here’s the point – form contracts are wonderful tools that can help allocate risk and clarify the roles and responsibilities of the parties, but that is all they are.

In the construction field, the leading form contracts have been drafted by teams of experts representing the interest groups in general and supporting teams of attorneys.  If you have never used or read one of these before, I would encourage you to take an evening and read through at least one of those mentioned above.  Given the detail of the documents, it may be difficult to imagine that these forms, without editing, are likely not specific enough for your project.  But keep in mind as you read that these are national forms and are meant to be of use throughout the U.S.  By definition these forms do not generally consider 1) variations in State law requirements and 2) your particular project needs or goals.  For that reason, credible forms such as those produced by AIA, ConsensusDOCS®, or EJCDC will encourage users to consult an attorney before using the document for specific projects.  They are not meant for “plug and play” use.

For a great reference comparing these forms, see Gillies, Heckman, and Perlberg, THE Construction Contracts Book: How to Find Common Ground in Negotiating Design and Construction Clauses, American Bar Association 2008.  The EJCDC and ConsensusDOCS websites both provide a matrix from this book for PDF download.  The book may be purchased from the ABA website here.

[Ed note:  I second Nathan’s book recommendation, which is a great resource for anyone considering the pros and cons of each set of form documents.]

Nathan and I look forward to answering your comments, thoughts, and questions.  Drop us a note!

 

EJCDC Document Training (Tue Tip)

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Photo (c) EJCDC

We’ve talked previously about Form Construction Contracts, including ConsensusDocs, AIA, and even shown a comparison chart between the two.  Now it is the Engineer’s Joint Contract Documents Committee’s (EJCDC’s) turn. 

The American Council of Engineering Companies (ACEC) is holding a training seminar on key parts of the EJCDC form contracts.  The seminar, entitled “Critical Design-Build Contract Provisions: Understand Legal Issues That Can Put Your Firm in Hot Water“, is scheduled to address several topics and the EJCDC take on those issues, including:

  • Errors and Omissions–Handling of E & O under design-build is complicated due to inability to invoke the betterment rule.
  • Licensing Laws–Since the Design-Build entity holds itself out to be both the “designer-of-record” and the “constructor-of-record”, appropriate professional registrations and business licenses need to be in place.
  • Protests of D-B Bids and Proposals–What to do with protests of design-build procurements includes practical lessons for engineers
  • Design Reviews–Conduct of design reviews under design-build may differ from traditional periodic reviews, because an owner can place itself in a responsible position by dictating changes during the review process rather than relying on the D-B entity to deliver an end-result in conformance with the design.
  • Performance Guarantees–In some instances, owners seek to tie the design-builder to some strict performance standard.
  • Who Owns the Design–On some government design-build contracts, the owner is insisting on owning the design product.
  • Teaming Arrangements–There are many ways for engineers to participate in design-build contracts. Is your risk tolerance such that your firm can go “at risk” or would it be advisable for the firm to retain its agency status?

The Webinar is scheduled for Wednesday, April 20th from 1:30 to 3:00 PM, Eastern Time.  Fees are $199 (members) /$299 (nonmembers).  Click here to register.

Upcoming on the blog:  a guest post discussing one practitioner’s use of each of  three main form documents.  Stay tuned!

ConsensusDocs v. AIA: a useful chart (Tue Tip)

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one large and one small strawberry

Which strawberry (er, form contract) will YOU choose?

In advance of the ConsensusDocs training, thought you might like to see a handy comparison chart  of the common ConsensusDocs forms to their standard AIA counterparts.

The chart is produced by the folks at ConsensusDocs, so I’m sure any ambiguities were interpreted in their favor.  That being said, if you are considering using a different standard form contract for your next project, you might want to check it out!

Have you taken the plunge into the ConsensusDocs?  Prefer to stick by the tried and true AIA documents?  Are you an EJCDC maverick instead?  Drop me a line to tell me why you use the contract you do.

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Photo (c) This is Chris via Creative Commons License.

ConsensusDocs: Training on the new forms (Tue Tip)

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ConsensusDOCS logo

As previously discussed on this blog, one of the form contract sets available for construction projects is that of ConsensusDocs.  ConsensusDocs was created in 2007, based on the (now discontinued) Associated General Contractors of America forms.

The newest ConsensusDocs forms have been released–three years early.   As explained by Chris Hill on his Construction Law Musings  blog, the early release is due to the many changes in the construction industry since the release of the first documents in 2007.

Now there is a free webinar that will discuss the changes to the revised ConsensusDocs forms, including topics such as:

The webinar will take place:

Thursday, March 31st from 3:00 PM- 4:30 PM ET

Questions about ConsensusDOCS or other form contract documents?  Drop me a line in the comment section, below.