Five Contract Provisions to be Aware of

As a lawyer representing clients in the construction industry, I review a lot of contracts.  In my experience all too often clients overlook the "legalese," the "fine print," the "boiler plate,"  and focus on defining the work scope, pricing, and schedule.  These latter items are obviously very important.  However, if a dispute arises, what often matters and what judges and arbitrators focus on, is the "legalese," "fine print," and "boiler plate."  Here, then, are my TOP FIVE contract provisions to be aware of:

1.   The Contract Documents.  Because construction contracts can be complex documents, oftentimes the document you sign does not physically include important parts of the contract.  Documents that are not attached can become part of the contract by being described and referred to in the contract as part of the contract.  Furthermore, most subcontracts contain a provision that incorporates the owner-general contractor agreement into the subcontract.  These subcontracts will include a "flow-down" provision requiring the subcontractor to be legally bound to the general contractor to the same extent that the general contractor is bound to the owner.  Courts have often enforced provisions in the owner-general contractor agreement against a subcontractor where the subcontract document itself was silent on a particular issue.  Bottom line:  understand what is included in the contract documents and get access to those that are not attached to the agreement you sign.

2.   Notices.  Contracts typically require notice of all kinds of things: differing site or other unexpected conditions; requests for more time or money due to some event; claims against the other party for acts or failures to act that cause harm, and so on.  These provisions will often require that the notice be in writing, be sent within "x" amount of days of the triggering event to a particular representative of the party, and contain specific information.  Many times, the provision will conclude that failure to give the notice as specified results in a waiver of the right to recover what is being requested.  Bottom line:  Find these provisions before the contract is signed but no later than before work begins, make note of them to personnel involved in managing the contract and follow them carefully.  Courts in Virginia will enforce notice provisions, even to dismiss what would otherwise be a viable claim.

3.   Change Orders.  Contracts usually contain some procedure for how to request and process modifications to the contract, typically referred to as "change orders." When handled correctly, change orders are as binding on the parties as their original contract.  The process for giving notice, providing data, or requesting a change order should be understood and followed. If a provision states that extra work will not be paid for without a change order, try to get the change order in place before the work begins.  Virginia courts have repeatedly denied claims for extra work where a party failed to follow change order requirements.

4.   Indemnification.  Indemnity is basically the act of defending and protecting another from harm caused by the party providing indemnity.  The scope of indemnity is established by the wording used in a contract.  In most construction contracts, a general contractor agrees to indemnify the owner for harm resulting from acts or omissions of the contractor and those working for the contractor.  General contractors should obtain from its subcontractors, at a minimum, the same scope of indemnification as the general contractor is required to provide the owner.  Careful attention should be paid to the scope of indemnity that a party is asked to provide in a contract (preferably, before signing it).  Oftentimes, parties sign very broad indemnity agreements exposing them to a variety of risks they should not have assumed.

5.   Choice of Law, Forum Selection, Dispute Resolution Processes.  Laws differ from state to state and parties can choose which state's law should apply to their agreement.  Contractors based in Virginia should choose Virginia law if possible.  Similarly, parties can choose a particular court or jurisdiction for the resolution of their disputes.  A Virginia contractor working on a Virginia project will not want to have to prosecute a claim or defend itself in, for example,  Massachusetts or Michigan or Texas, but it will have to if it agrees to a foreign court or jurisdiction for that purpose in its contract.  Finally, mediation, arbitration and litigation are all very different processes.  Contracts may provide a series of steps that parties must go through to resolve disputes.  Know these procedures, and understand that sometimes you cannot go to court or arbitration until you have gone through prior procedures required by the contract.

Spotts Fain publications are provided as an educational service and are not meant to be and should not be construed as legal advice. Readers with particular needs on specific issues should retain the services of competent counsel.