Wine without Cheese? (Why a construction contract needs an order of precedence clause)(Law Note)

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Reader Mailbag:

For today’s law note, I’m addressing a comment that came to me last week from Dave O’Hern of Miller O’Hern Construction. Dave writes:

I am a general contractor doing a fuel tank replacement project for our county. In the specifications there is a spec for a UL 142 tank, on the plans the spec references UL 2085 – a much more expensive tank. My subcontractor bid the UL 142 tank. The specifications state that the specs and plans are on the same level of precedence.

The county wants me to furnish the more expensive tank without compensation citing the clause that states the plans and specs are complementary and what is called for by one is binding as if called by all and the most stringent requirement will apply.

My position is the word “stringent” according to Websters means “rigidly controlled, enforced, strict, severe.” The two specifications are written by Underwriter’s Laboratory and precisely decribe each type of tank clearly and without ambiguity for the purpose of rigidly controlling the qualities of the product. Consequently the two specifications are equally stringent. Stringent does not mean more expensive or what the pre-bid intent of the owner.

Is this sound reasoning, does it fall under Spearin and is there another defense I should take?

What Dave is experiencing is a poorly-constructed contract. Obviously, the goal in a set of construction documents is to not have any conflicts. However, between specifications, drawings, shop drawings, contract language, addendum, and change orders, the goal of absolute consistency in contract documents is ~~impossible~~ extremely hard to meet.

The usual way around this very likely problem is to state the order of precedence of the various contract and construction documents, so that in the event of a conflict between two provisions, everyone knows which one prevails. In the absence of any contract language stating the order of precedence, the parties are forced to argue contract law principles such as mutual mistake, which party is considered the contract drafter (and hence, disfavored), and other technical legal issues ~~that numb the mind~~ are only exciting to those of us crazy enough to go into the legal profession.

Sure, you can have wine without cheese, but why would you? The two should go together, in the same way that an order of precedence clause should go with any construction contract.

Dan has also raised the issue of “more stringent” requirements. In general, when a contract contains instructions that are susceptible to two or more reasonable interpretations, these are considered “ambiguities”. There is generally a duty on the contractor to point out conflicts between the documents. However, where a conflict between the documents is not noticed by any party prior to the bidding, the plans arguably are defective under the Spearin doctrine.

So, back to Dan’s question. Dan– your situation is a mess! I agree that your reasoning on the stringent requirements is sound; whether or not a Court will agree with your position remains to be determined. Time to hire a good construction lawyer in your jurisdiction to negotiate a resolution to your situation! (I see that you are in Arizona. If you don’t have a lawyer, let me know and I’ll try to get you a recommendation or two).

Have you ever encountered a contract like Dan’s? Did it cause any problems with conflicting documents later on? How did you handle the situation?

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Photo: 054/365: Wine, cheese and crackers via Addison Berry/Creative Commons license.

Why Misery Loves Company (aka Concurrent delay on the Construction Project) (law note)

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You know the old saying, “Misery loves company?” It’s true. Even in the construction world.

What happens if, while the design team is asleep at the switch, the contractor is also delaying the project, or the owner is dithering about a materials selection? Since there was more than one cause of the project delay, does that let you off the hook? Maybe so.

The above scenario is, in its bare-bones basics, an example of concurrent delay.

What is concurrent delay? Concurrent delay is delay to the critical path of construction, caused at the same time by multiple events not exclusively within the control of one party. In other words, it is when two or more parties both contribute to the delay of the project.

In such a case, neither may recover damage from each other, unless there is proof of clear apportionment of the delay and expenses. See Biemann & Rowell Co. v. Donohoe Cos.,147 N.C. App. 239, 245, 556 S.E.2d 1, 5 (2001).

Where both parties contribute to the delay, neither can recover damages, unless there is proof of clear apportionment of the delay and the expense attributable to each party. In such an instance, the only remedy for both parties may be an extension of time to the contract.

Have you experienced a case where concurrent delays existed on a Project? Were you able to apportion the delay damages, or did all the culpable parties pay the price? Share below.

Also, please sign up for email delivery of blog posts directly to your inbox!

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Photo: Misery by Molly Helzschlag via Creative Commons license.

Owner Drafted Indemnity Provisions: Kryptonite for designers?

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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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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 nhinch@muellerreece.com 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. You can sometimes find the book much cheaper from your usual big online book site, so check around]

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

Pay when Paid & Pay if Paid

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Recently I was contacted by several readers asking questions about “Pay when Paid” clauses. For those of you who may have missed it, I’ve previously addressed it here: Pay When Paid Clauses in the NC Construction Contract.

For a good discussion of the application of N.C. Gen. Stat. 22C-2, the Court of Appeals opinion American Nat. Elec. Corp. v. Poythress Commercial Contractors, Inc., 167 N.C.App. 97, 101, 604 S.E.2d 315, 317 (2004) is worth a read.

In that case, the electrical subcontractor sued the general contractor for delay claims. The contract provided that the contractor would only be liable to the subcontractor for delays if the contractor was compensated for such delays by the owner. While such a term is clearly a “pay if paid” provision, the Court called the provision a “pay when paid,” and declared it unenforceable in North Carolina. It seems likely, therefore, that the Court would find that both provisions have the same legal effect in North Carolina– that is, both are unenforceable.

One time when a “pay if/when paid” provision could be enforceable? Residential construction of fewer than 12 units.

As always, consult your local attorney because such clauses very widely in their enforceability from state to state.

Questions or comments on “pay when paid” or “pay if paid”? Drop me a line in the comments section, below.

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Photo: “Pay Here” via Freefoto.com / Creative Commons License.

Construction Law in North Carolina

The original blog for architects, engineers, designers, & other construction professionals

Tag Archives: terminology

Wine without Cheese? (Why a construction contract needs an order of precedence clause)(Law Note)

Reader Mailbag:

Why Misery Loves Company (aka Concurrent delay on the Construction Project) (law note)

Owner Drafted Indemnity Provisions: Kryptonite for designers?

Which Contract Form Should You Use? (Guest Post)

Pay when Paid & Pay if Paid