A recent Indiana Court of Appeals decision illustrates the importance of having an overall risk allocation strategy in contracts where appropriate, and paying close attention to the language used to express that strategy, writes Christian Jones of Barnes & Thornburg.

In the post on the firm BT Policyholder Protection Blog, Jones writes that this is particularly when multiple contracts and parties are involved.

“This case illustrates the difficulty of coordinating risk allocation language across multiple contracts. [The insurer] might have attempted to pursue subrogation claims under any circumstances, but it seems possible that litigation might have been avoided if all of the contracts at issue had contained their own express waiver of subrogation clauses” Jones explains.

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Form documents published by the American Institute of Architects can sometimes be a one-size-fits-all approach often does not adequately protect the developer when issues arise on a construction project, according to a post on the website of King & Spalding.

Robert B. Garner and Peter A. Berg write that of the biggest problems a developer faces in using the AIA forms is selecting the proper form for its project.

“One of the biggest problems a developer faces in using the AIA forms is selecting the proper form for its project,” they explain.

“Without careful thought and modification to standard forms, developers can find themselves in a difficult position in a delayed and over-budget project, even if developers signed a contract with a ‘guaranteed maximum price.’ Project development requires detailed attention to all aspects of your latest construction agreement,” the authors write.

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Charles Sartain, a partner in Gray Reed, uses a recent 5th Circuit ruling on a liftboat construction contract to illustrate his advice on how to administer and perform a contract, especially one with a friend.

Writing in the firm’s Energy & the Law blog, he discusses Semco, LLC v. The Grand, LTD. The case involves a $15.9 million contract between long-time friends to construct a liftboat, a construction project that involved numerous change orders.

“At some point, the parties ‘got away from the change order program’ and informal requests were approved by email or orally,” Sartain explains. Then allegations of fraud were raised.

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Carl R. Pebworth, a partner in Faegre Baker Daniels, asks and answers the question: What tort obligations does a design professional on a construction project owe to non-parties — like, for example, the persons who will use what has been designed after it is built?

he discusses an Illinois case in which a court addressed whether an engineer who had contracted to design a “replacement” for a bridge deck had a professional obligation to “improve” the bridge deck after it failed and third-party motorists were killed.

“As long as the design professional sticks to what the designer has contracted to do and does that work professionally, the designer cannot be obligated to go beyond those duties,” Pebworth writes.

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Cozen O’Connor has published an update that reviews the new construction contract documents adopted by the American Institute of Architects (AIA).

” In 2017, AIA updated some of its core documents, including the A102 (Standard Form Agreement Between Owner and Contractor), A201 (General Conditions of the Contract for Construction), and B101 (Standard Form Agreement Between Owner and Architect), among others,” the client alert states.

“Because of the widespread use of these forms on construction projects, it is important for industry professionals to be aware of the 2017 revisions to allow for efficient review and finalization of contract documents without running the risk of overlooking a critical change.”

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A post by Joshua M. Pellant of Faegre Baker Daniels discusses the use of  a provision for a stipulated or “liquidated” damage amount in the event of specified contract breaches in construction contracts.

“These provisions can be an effective tool to recover losses that otherwise may go uncompensated because they cannot be proven or because the damages are not recoverable under an ordinary contract,” he explains. “However, courts generally will not enforce a liquidated damage provision that is seen as a ‘penalty’ unrelated to any anticipated or actual loss. The question, then, is whether a particular contract provision will be interpreted as an enforceable liquidated damages provision or an unenforceable contractual penalty.”

He discusses general enforceability standards and how much is too much (or not enough).

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A Baker Tilly on-demand webinar provides an overview of strategies to identify potential claims scenarios and potential resolutions available to mitigate claims.

“Conflict and disagreements are normal on construction projects; however, when everyday disagreements escalate into unresolvable issues, claims and disputes may result,” the firm says on its site. “These can lead to costly and time consuming distractions for your organization and your project.”

Learning objectives:

• Understand red flags associated with high-risk projects
• Learn characteristics of a culture of claims avoidance
• Learn contractual methods/provisions that can help to proactively avoid disputes
• Understand remedies not requiring legal action

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Many construction lawyers who specialize in transactional work acknowledge that they do not spend much time considering or negotiating the arbitration clauses in construction contracts, points out
Patricia H. Thompson in a post on the website of JAMS.

She addresses the question: Should an arbitration clause be just a boilerplate provision, taken “off the shelf,” or should it be specifically negotiated and crafted for the particular construction project and to accommodate the parties’ requirements?

The post lists some of the major questions to consider, such as: Should arbitration be mandatory or permissive? Should there be one or three arbitrators, should they all be neutral, and should they have particular qualifications or professional expertise? Should the arbitrator’s power be broader or more limited than otherwise provided by relevant statutes or rules?

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All parties involved with a construction contract need to explore which dispute resolution option is right for them and the project, and also ensure their contract terms are as clear as possible to avoid potential problems down the road, writes Kim Slowey in Construction Dive.

In her article, Slowey covers mediation, arbitration vs. litigation, and the importance of planning.

She quotes Margaret Greene, partner and leader of the construction planning practice group at Honigman Miller Schwartz and Cohn in Detroit, who counsels that perhaps the most important aspect of dispute resolution is to minimize the chance of conflict before disagreements rise to the level of “disputes” or “claims.”

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When a party breaches a contract and the contract does not contain a valid liquidated damages clause, the non-breaching party may be entitled to compensatory damages. Charles B. Jimerson and Kayla A. Haines of Jimerson & Cobb, P.A. explain that the appropriate measure of damages arising from a breach of an enforceable contract is usually “the difference between the value expected from the contract and the value actually received by the non-breaching party.”

In their article, they write: “Many factors can impact the recoverability of consequential damages, such as common law implied warranties, or indemnity provisions. Therefore, when entering into a construction contract, parties should carefully evaluate the proposed contract language to fully comprehend the risks they are about to assume. In order to prevent any extensive consequential damages that might result from a construction project, parties should use whatever power they may have while creating their contract to predestine certain expenses that a party would incur in the event of pervasive defects or significant project delays.”

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The Court of Appeals in North Carolina recently confronted the question of what happens when a contractor and subcontractor, having gone back and forth on a few contract terms while the sub is performing work, reach the end of the project – or at least the end of the sub’s work – without an agreed contract form. Stan Martin discussed the issue in a recent article posted on Commonsense Construction Law’s blog.

“Parties who allow the schedule to control performance without resolving the paperwork could find themselves in a mess, particularly if the back-and-forth on contract terms never stops,” Martin writes. “The sub is unhappy about not being paid, and the GC is unhappy about what it perceives to be a less-than-friendly forum. (Or maybe the GC simply wants the sub to bear the inconvenience of the 100-mile or so trip between counties.) And the court will have to sort out the mess, at a greater cost than either party wants.”

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When conditions are encountered on a construction project that are contrary to the information provided to bidders, the parties’ contract should provide a roadmap for how the parties ought to proceed, writes Timothy W. Gordon, a partner in Holland & Hart, in an article published on Lexology.com. When the parties’ contract is silent on the issue, the price of contracting increases, uncertainty arises, and the likelihood of disputes increases.

His article includes sections titled:

• Why Have A Differing Site Conditions Clause?
• What If There Is No Differing Site Conditions Clause?
• What About Public Projects?
• What About Exculpatory Clauses?

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Waivers of consequential damages have become the industry standard in construction projects, and these clauses are found in most industry templates, writes Gregory Faulkner in Robinson+Cole’s blog, Construction Law Zone.

“No contractor wants to accept the risk that any one breach could lead to the financial ruin of its company,” he writes. “But does this clause, and others like it, go too far in the other direction?”

“Neither party should rely blindly on standard industry forms to define what losses are recoverable in the event of breach.  A project owner should analyze its potential exposures as part of its overall business plan for the project,” Faulkner writes.

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