5 Tips for Writing a Construction Contract

From time to time, I have someone guest post here on the Construction Law Monitor, giving our readers a fresh perspective on construction law topics. Today, Emma Martin has contributed a post that I think is really great. She is a writer for CB Structures, a family owned construction and engineering company that specializes in garage builders and pole building design. What’s great about her post is that it discusses a very legal topic – construction contracts – from the perspective of someone in the business. Enjoy her insights, and to learn more about construction contracts, read from this category on our blog: Construction Contracts.

construction-contractsA contract is an extremely important document for anyone who undertakes the type of business partnership necessary to get a construction project off the ground.  But why is a contract necessary?  For one thing, it lets everyone involved know exactly what is expected from all parties.  For example, you will likely talk through an agreement pertaining to the price for labor as well as set deadlines for certain aspects of construction to be complete.  Putting it down in writing ensures that everyone is on the same page and that all are protected.  Should your contractor fail to deliver agreed-upon services, you have a legally binding document to bring into court as a security of recourse.  In addition, your contractor has the same should you fail to pay.  In short, contracts are a must.  So how do you go about getting one?

1. Get professional help.  The easiest way to get a contract is to hire a lawyer to write it up.  There are law firms that specialize in contract law and they can take your information and draft a document that is tailored to your specific needs.  This can be pricy, but the upside is that any loopholes that lose you money are on their head, and you can always sue them for recompense should your contract fail to hold up in court.  It’s like doubling your insurance.

2. Start simple. If you’ve never written a contract before, you are going to need some help to ensure that it’s done right.  Most people hire a law firm or other experienced contract writer to take care of this for them, but if you’re determined to go it alone (or you simply don’t have the extra cash to hire help), then at least search online for a template to get you started.  It will include the general legal text required to make your contract binding, although you will have to fill in the details.  Just be aware that you get what you pay for.

3. Pen the particulars. Two things that must be included in your contract are dates and payment amounts.  You need deadlines in place to ensure that your project is done in a timely manner.  Of course, you’ll have to keep in mind that any changes you make will affect deadlines, but assuming that everything remains the same, you should be able to count on your contractors to deliver what they promise (and a contract ensures that they will, or they will pay for it).  In addition, you will likely want to hold payment until certain milestones have been met.  For example, you are expected to pay a certain amount up front (25-50%, for example) as a retainer, as well as providing funds for all materials.  But you don’t want to pay in full until the job is complete, so be sure to detail your payment schedule in the contract.

4. Sign on the dotted line. Once both parties have agreed upon all items in the contract, it needs to be signed to go into effect.  This should be done with a notary (or legal representation) present to witness and two copies should be signed so that each party can retain an original.

5. Make changes. Unfortunately, changes are likely to occur even after the agreement has been finalized.  Bad weather, late arrival of materials, or other unavoidable road blocks are common in construction.  This, along with any change of plans on your part, could set back the schedule.  So just be aware that a little flexibility will likely be required and you will need to fill out a change order to add on to the original contract so that you are covered in case of a legal dispute.

    Oregon Supreme Court Affirms Abraham And Dances With Economic Loss Rule

    Over the past six months, we’ve posted about an Oregon case making its way up the court’s tiers: Abraham v. T. Henry Construction, Inc.

    The case is important because it carved an exception to the economic loss rule, which typically prohibits a tort claim between contracting parties when the claims arises out of a failure to perform contractual obligations. In Abraham, a plaintiff in a construction defect case was allowed to sue its builder for negligence for failing to comply with the building codes. This despite the builder’s contractual obligation to comply with the building codes.

    The Oregon Supreme Court accepted review at the Abraham decision at the dawn of this year, and just last week issued an opinion affirming it. An interesting quote explains the court’s conclusion:

    [W]e agree with plaintiffs that…earlier cases support the conclusion that common law negligence principles apply — notwithstanding a contractual relationship — as long as the property damage for which the plaintiff seeks recovery was a reasonably foreseeable result of the defendant’s conduct. Thus, a negligence claim for personal injury or property damage that would exist in the absence of a contract will continue to exist unless the parties define their respective obligations and remedies in the contract to limit or foreclose such a claim. Parties may limit tort remedies by defining their obligations in such a way that the common-law standard of care has been supplanted…or, in some circumstances, by contractually limiting or specifying available remedies

    Does this undermine the distinction between contract and tort and permit every breach of contract to be brought as a tort claim?  Or in other words, completely undermine the economic loss rule?  The Oregon Supreme Court digresses here with an example of why it’s decision is limited and does not undermine the ELR:

    An example will help demonstrate the difference between actions taken in the performance of a contract that can be the basis for a contract claim only, and those that may also provide a basis for a tort claim. If an individual and a contractor enter into a contract to build a house, which provides that the contractor will install only copper pipe, but the contractor installs PVC pipe instead (assuming both kinds of pipe comply with the building code and the use of either would be consistent with the standard of care expected of contractors), that failure would be a breach of contract only. That is so because the contract defined the contractor’s obligation to use a particular material (and no other), which the contractor then failed to do…If the failure to install the copper pipe caused a reduction in the value of the house, the plaintiff would be able to recover that amount in an action for breach of contract. That would be a claim that, as this court stated in Georgetown, “is based solely on a breach of a provision in the contract[.]”

    On the other hand, if the contractor installed the PVC pipe in a defective manner and those pipes therefore leaked, causing property damage to the house, the homeowner would have claims in both contract and tort. The homeowner could recover in contract both for the failure to install copper pipe and for the failure to perform the contract in a reasonably skillful manner.  The homeowner also would have a tort claim for property damage to the house caused by the leaking pipes if the homeowner could prove that the contractor’s failure to meet the standard of care caused the property damage. In those circumstances, the obligation to install copper instead of PVC pipe is purely contractual; the manner of installing the pipe, however, implicates both contract and tort because of the foreseeable risk of property damage that can result from improperly installed pipes.

    Read the Oregon Supreme Court’s full opinion online by clicking here.

    Tokyo Buildings Stand up to Quake

    Over the weekend much of the world gazed horrifically at the sights coming out of Japan in the wake if the 8.9 magnitude earthquake and subsequent tsunamis. One of the amazing and hopeful sights was to see that the buildings in Tokyo and other cities lived up to the “bend but don’t break” motto.

    Shocking video taken shows that the buildings did just as designed and withstood the earth’s movement. Japan is an area of the world that has dealt with numerous earthquakes in its past, therefore has adapted very stringent building codes. These undoubtedly saved lives this weekend.

    Apparently, in 1979 and 2000 Japan made monumental changes in its building codes which made buildings all the more safe. Buildings built after these changes even advertise as to higher safety and citizens pay a higher premium to live there.

    Engineering experts say that the buildings performed just as designed. Some are designed to sway just as a tall tree in the wind. The foundations of skyscrapers are constructed upon steel and rubber shock absorbers which allow for the buildings to move along with the earth.

    The New York Times posted a very informative article on how the Japanese government has made attempts to prevent disaster effects and make its citizens safer.

    Strict building codes are in place for a reason and governments should constantly be looking for new technology to help make our lives safer and more efficient. For earthquake prone areas like the U.S. west coast, the weekend events should be a big learning lesson.

    Changes To ConsensusDocs Come 2 Years Early

    Engineering News Record (ENR) (among other publications, including my good friend Chris Hill’s Construction Law Musings Blog) recently reported that the construction contract documents published by ConsensusDOCS were substantially updated.

    The update comes just a little over three years since the launch of the ConsensusDOCS program, which is a collaboration of organizations who publish a set of construction documents to rival the industry-leading AIA forms. These updates are actually two years early. They weren’t due until 2013, but were updated early according to the group because “the economics of the construction industry today looks nothing like it did [in 2007]”

    So, what’s new?

    According to an analysis by ENR.com, here are some of the changes:

    • A change in terminology. “Constructor” replaces “contractor” and “design professional” replaces “architect.”
    • An objective “standard of care” is added to the documents.
    • Greater flexibility to provide documents in electronic format. For a great discussion about going paperless on a construction project, take a look at this article by Matthew DeVries on his Best Practices Construction Law Blog: Paper to Paperless on the Modern Construction Project.
    • Contract documents are better defined.
    • Property owner can audit construction books, and subcontractor can get finanical information from the owner.
    • Erroneous constructor termination for cause changes to a “termination for convenience.”

    Residential Sprinkler Bill Resurrected in Washington House

    Two years ago we wrote a blog post about 2009 House Bill 2224, introduced in Olympia by Representative Simpson, and aimed to “eradicate barriers that prevent the voluntary installation of sprinkler systems in private residences by promoting education regarding the effectiveness of residential fire sprinklers.”

    While the bill had a lot of support in the House and Senate (see voting history here), it never got to the governor’s desk, and largely fizzled out.

    The concept is back from the dead, however, being introduced on January 18, 2011, by Representative Van De Wege as 2011 House Bill 1295. Compare this bill’s synopsis with the 2009 summary:

    …to eliminate barriers to the voluntary installation of sprinkler systems in private residences. The bill provides financial and regulatory incentives to homeowners, builders, and water purveyors for voluntarily installing the systems. It also exempts a public water system from liability for damages resulting from shutting off water to a residential home with an installed fire sprinkler system.

    It’s virtually identical.

    The 2011 Bill appears to be moving through the chambers a bit more quickly than its 2009 counterpart, and also has a companion bill in the Senate’s chambers (SB 5206).

    Nationwide, residential fire sprinklers are getting more popular, and it’s becoming more and more likely that government regulation over these installations will expand as time goes on. Take, for example, what the U.S. Fire Administration (through FEMA) states as follows on the topic:

    It is the official position of the U.S. Fire Administration that all American should be protected against death, injury and property loss resulting from fire in their residences. All homes should be equipped with smoke alarms and automatic fire sprinklers…

    We’ll keep you posted on any progress to this legislation.