Posts Tagged ‘ConsensusDOCS’

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.”
Posted in:     Construction Contracts  /  Tags: , , , , ,   /   Leave a comment

ConsensusDOCS v. AIA – Form Contract Wars

While attending the Associated Owners & Developers 14th Annual Construction Industry Conference, entitled How Owners and Contractors Can Control Project Risk, here in New Orleans today, I sat in on a informative session regarding ConsensusDOCS. The session was moderated by John Orrison. David Hendrick, Daniel Lund, Jeff Paris and William Steinhardt were the featured panelists.

The panel was discussing the pros and the cons of the newest version of the ConsensusDOCS series recently released. AIA (American Institute of Architects) form documents have dominated the construction industry for many years. Due to the AIA dominance, others in the industry sought out an alternative and the ConsensusDOCS were born in 2007.

Many experts believe that the AIA standard form contracts are drafted to protect the Architect. Owners and Contractors feel like there is not much protection for their interests in AIA forms. AIA documents are formed on the premise that an owner will seek out a qualified architect to begin a project, thus placing more liability and responsibility on that architect. The contract documents should be drafted to protect this individual.

ConsensusDOCS came about from a different premise. ConsensusDOCS are more Contractor friendly and look after his interest along with the owner. According to ConsensusDOCS, they have formed a “Coalition of 28 Leading Industry Associations.” This coalition is made up of contractor, subcontractor, owners, estimators and surety bond producers among others.

From the expert panel there was much discussion of the advantages and disadvantages of each type of form document. Both sets of form documents are alike in the following ways: both have many overlapping provisions, both advise the purchaser of the documents to seek legal counsel and both have limited uses.

ConsensusDOCS claims to have an industry first with its form 310 “Green Building Addendum.” This is the first of its kind and something that is needed with the rise of green projects and interest. More on this form at Christopher Hill’s blog.

Overall it is smart to seek out legal counsel during the contract formation phase of any project. Whether it be AIA or ConsensusDOCS, the documents that these organizations provide are simply a starting place. Contracts need to be tailored to fit the type of project perfectly. Otherwise, avoiding a visit to an attorney early on could result in seeing him an awful lot when a dispute arises. An analogous saying form the medical world fits perfect here, “an ounce of prevention, is worth a pound of cure.”

There is no concrete answer as to which documents are better, but I’m sure Architects will stick with AIA and Contractors will favor ConsensusDOCS.

Posted in:     Construction Contracts, Construction News, Green Building  /  Tags: , , , , ,   /   2 Comments

Is Failure To Achieve LEED Certification Consequential Damages?

The LEED Certification process can be quite complex.   It takes months after a project’s completion to get the paperwork process, the paperwork itself can be a heafty stack, and that’s not even taking into account the complicated points framework, the certification gray-areas, the de-certification process and more…. (Want a good discussion of all these frustrating and unanswered questions?  -  See our friend Chris Cheatham’s great Green Building Law Update Blog).

Since I’m a lawyer, the LEED rating system begs this question:   What happen is a project shoots for certification, and fails?   What are the damages?   Whose on the hook?

These are some intensive questions and I can spend a few posts trying to answer.    See some of our previous posts for discussions, including review of the the LEED tag, and this post:  Uh-Oh:  I Made A LEED Mistake and Don’t Know What To Do.

What I want to focus on in this post is an interesting point that I recently read in legal article hosted at Consesusdocs.org:  Legal Commentary:  Green Building Risks.   The well-written article, by attorney Martha Perkins, discusses some issues a contractor should keep in mind when entering a green building contract.

It is the following point, however, that caught most of my attention:

Generally, a contractor should include a disclaimer guaranteeing a particular outcome such as a green-building certification or specific energy efficiency. Failure to achieve a desired certification or a specific green performance is often deemed a consequential damage. As a result, ensure that consequential damages are waived.

Two things strike me.

First, her statement that certification failures are “often deemed a consequential damage” seems a bit off the mark.    I’m not saying that these failures will not be considered consequential damages – they may – but, I’m not aware of any case law on the issue.   I would be particularly concerned about advising a construction client that a simple waiver of consequential damages could plug this liability hole.

Second, however, is her opinion that a LEED Certification failure might be considered a consequential damage…and therefore, sometime waived out of many construction contracts.

Could this be the case?

Wikipedia, the great collection of legal definitions, defines consequential damages pretty well, as follows:

When a contract is breached, the recognized remedy for an owner is recovery of damages that result directly from the breach, such as the cost to repair or complete the work in accordance with the contract documents, the loss of value of lost or damaged work. Consequential damages (also sometimes referred to as indirect or “special” damages), include loss of product and loss of profit or revenue and may be recovered if it is determined such damages were reasonably foreseeable or “within the contemplation of the parties” at the time of the contract.

Looking at this issue from a big-picture standpoint and not getting bogged down with case-law, I think there is some argument on both sides of the issue.

On the one hand, failure to certify can be considered a damage caused to the owner directly from the breach.   Now, just as the owner may have to repair an improperly constructed wall, so too does the owner have to repair his building to achieve the proper certification (or take it without the certification and assume a credit).

On the other hand, a failure to certify certainly is different than an improperly constructed item within the building.  You sometimes can’t put a dollar figure on a certification failure to calculate a credit, and the “loss” may be more closely aligned with a loss of profit or revenue as a result of the certification failure.

I found this to be an interesting point made by Ms. Perkins…but not one that is settled.    What does everyone think about this question – a consequential damage, or no?   Anyone know of any case law on the topic?

Posted in:     Damages, Green Building  /  Tags: , , , , ,   /   6 Comments

Construction Contracts 101: The Use of Standardized Contracts and Forms

In construction, it is not a question of whether or not to have a written contract: the real issue is how many contracts will be involved in the project. Construction is a complex process involving overlapping time, money, and labor concerns. How best to allocate the financial risks in the event that anything goes wrong — which it will — is wisely documented before work begins. Indeed, in most states and for most projects, written agreements are legally required.

For many years, there has been a continuing argument that construction contracts should be readily adaptable to standardization. Companies have promoted contract kits for both commercial and residential purposes; various associations, including notably the American Institute of Architects, have provided detailed contract examples and forms for the use of their memberships.

In fact, Fall 2007 saw the AIA revamping its sets of forms, as well as the introduction of www.consensusdocs.org — a web site containing the collaborative work of over 20 nationally-recognized construction associations in what they are deeming a revolution for the construction industry. Representing owners, architects, designers, engineers, general contractors, sureties, and a wide variety of subcontractors, www.consensusdocs.org provides standardized contracts and forms whose language has been negotiated and honed by representatives of all facets of the American construction industry.

Between the AIA and the ConsensusDocs project, have the issues and conflicts of the past regarding construction contracts and the allocation of risk been resolved? Have we entered into a peaceful, strife-free era for the construction industry? Probably not.

No matter the source of the written template, the individual project will require its own unique risk allocation. Environmental concerns will vary; the bargaining power between the parties will not be equal.

In each contract, in every situation, parties will want to insert provisions into the contract to favorably distribute their responsibilities and limit their liabilities. Additionally, the written language of each agreement must be weighed against the impositions of implied warranties, environmental requirements and restrictions, and the like — by local, state, and federal law — to the specific project.

The contractual language will also need to predict and preempt party disputes, in advance, for a broad range of possibilities, such as who bears the financial responsibility for:

  • Failing to properly fund the work;
  • Failing to secure (and pay for) easements;
  • Warranting the plans and specifications;
  • Interpreting the documents;
  • Assessing and allocating damages for delays in construction;
  • Terminating a party due to dissatisfaction with the work;
  • Violating applicable codes and regulations; and
  • Making errors in design or requiring excessive change orders.

Decisions will also need to be made regarding which overall contractual arrangement is best for the situation. For example, larger projects may be better suited to a series of overall agreements, dividing the project into phases. One set of documents will apply to the first phase; another set to the second phase; etc. This is a common preference in the construction of school buildings and college campuses, as well as other multi-structured projects.

Furthermore, decisions will be needed on the contractual arrangements that will exist between the various parties: should the same type of contract be used for everyone? Often, the parties find it best to have one type of contract between the owner and the general contractor and another between the general contractor and all the sub-contractors.

Common types of construction contracts include:

  1. Lump Sum. In lump-sum contracts, one party agrees to provide certain, named services for a set price; the other party agrees to pay that price either upon completion of the work or pursuant to a schedule. If chosen between an owner and a general contractor, the owner will pay a set amount. The general contractor takes the risk of loss if there are unexpected expenses and the possibility of gain if the project comes in under-budget.
  2. Unit Price. Unit price contracts breakdown the work to be performed into parts with a set price for each portion. These agreements are common among subcontractors who take the risk of loss and the possibility of gain, while the general contractor (or the owner) pays the set, agreed-upon price.
  3. Cost Plus. Cost-plus agreements have the general contractor’s profit defined in the contract itself, as well as the estimated construction expense. If the actual expenses come in lower than the estimate, then the owner reaps a savings. Cost overage, and the owner has to pay more for the project. These contracts place the risks of cost overruns upon the owner, not the general contractor, who enjoys the security of knowing his exact profit. The general contractor may have little incentive to be efficient on-site, but the owner has the satisfaction that the ultimate project will be to his exact standards even if the expenses run high.

Standardized forms cannot address the needs and wants pertaining to an individual project: the templates will call for some revision in order to meet the requirements of the particular parties involved in each construction project. Moreover, the templates themselves cannot predict which set of forms best meets the needs of the individual parties. In addition to overall risk allocation, things like unique project delivery methods and systems must be considered; provisions included for specific insurance and indemnity issues; and dispute resolution methods outside of a formal courtroom negotiated and properly implemented.

Standardized forms do help. They assist in the creation of solid construction contracts which successfully do their job: defining who bears the brunt of the unexpected events or the unforeseen mistakes that naturally occur during the course of construction. The forms introduced by www.consensusdocs.org have the added benefit of authorship derived from all those involved in the process – from owner to subcontractor to surety – as opposed to those offered by one organization or group, which have lent themselves in the past to criticism that their language is slanted to favor their membership.

However, reliance upon any standardized form without molding its language to fit the needs and wants of the individuals involved in a specific project is foolhardy; failing to obtain expert legal assistance in the process is unwise. These forms should never be considered as replacing the assistance of legal counsel; instead, they should be seen as tools to better effect a harmonious and efficient construction process.

For example, of particular concern in each individual instance is the choice of law for the particular project. What state law controls the interpretation of the agreement can be key in determining which party bears the financial burden of a realized risk: for example, is there an indemnity clause, and will the state law respect that language?

Contractual provisions cannot trump the law: parties cannot contract around state legislation established in the public interest and attempts to do so are invitations to a time-consuming and expensive litigation process. However, contracts can realign risks in a manner that the law will allow in instances where the parties’ rights to determine their own course is respected.

Different state laws can define this boundary between the parties’ free will to contract and the need to protect the public interest in different ways. One state may allow a provision that another state will not (such as indemnification). Standardized forms cannot address issues to this level of detail.

For all those involved in construction but particularly small businesses, as well as residential contractors and home owners, the standardized form is an especially tempting danger as well a terrific tool, depending upon its usage. Without the input of a knowledgeable construction lawyer, these templates can open a Pandora’s box of problems for the parties involved in the construction process, and a high risk of litigation expense — if only to have a court’s assistance in determining the parties’ contractual intent. With the assistance of expert legal counsel, these forms offer a means to circumvent many pitfalls as well as decreasing an otherwise lengthy contract expense.

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