Let the Contract Lead

Construction is an industry of managed risk. Whether the prices of raw materials are fluctuating, the unpredictability of the weather or the site conditions, uncertainty is the only constant.  

Amidst the fog of uncertainty, use the contract to navigate.  

Recently, I heard it said that a good contract should first be created and then promptly put away in a drawer, never to be seen again. I suppose that could be true in a perfect project with perfect people, but that is a project I have never seen before. Contracts are not merely legal formalities. They are roadmaps for the project(ed) journey. Like roadmaps, they should be studied, reviewed and used throughout the journey.

The entire contract documents (the plans, specifications, terms and conditions, itemized scope of work and exclusions, CPM schedule, etc.) are important. Each part should complement and coordinate with each other, just as the parties should. Consider each clause as a destination, either as temporary or final milestones, along the journey.

Use the payment provisions to navigate the payment process. In the simplest of contracts, payment too is simple: do the work and get paid with little or no paperwork. In many contracts, payment is a process of turn-by-turn directions. Do the work, record daily work logs and timesheets, prepare certified payrolls, pay laborers and lower tiers, submit pencil copies of pay apps, gather lien/claim waivers and payment certifications, update the schedule, revise and formally submit the pay application with all accompanying documentation, and that’s just the payment request. The owner then reviews, approves, and internally processes the payment, less retention. Public owners tend to have even more internal steps for approval and processing.  

Hopefully, payment is made within 90-days after formal payment request, otherwise the statutory clauses incorporated by law into the roadmap/contract guide the contractor to give notice of nonpayment to preserve bond claims on public projects or mechanics liens on private projects. (As always, notice periods may vary from state to state.)

Use the roadmap to navigate scope and changes thereto. Of course, the plans depict and the specifications describe what must ultimately be done. Remember the clauses for directed and constructive changes that can lead the parties to agreement or to the dispute resolution clause. A contract without a changes clause would require a new contract for each task or item beyond the original scope.  

Yes, a change order is a form of agreement but imagine the paperwork and likely confusion if the change order stood on its own, without any relationship to the original agreement. The changes clause was born out of a need for efficiency without the hassle of having to create a new agreement for each work item outside the original scope.  

Use the disputes provision as an off ramp to a temporary parking lot for disagreements. While the project continues and without stopping all other progress, the parties can preserve and later return to resolve disagreements.  

Pausing and preserving disputes can help to manage the parties’ relationships (AI will never be able to handle human relationships). By contract, the parties have already agreed to chart a course to navigate disputes. Such contingency plans are tow trucks for roadside breakdowns.  

When used effectively, disputes clauses can get the project back on track right away with a temporary fix (e.g., construction change directive) or a longer-term solution (e.g., bilateral change order). When those options don’t work, the plan provides for options and rules to arrive at permanent fix.  

Such options may be mediation, arbitration, or litigation, each with its own set of well-established rules/directions. By pre-negotiating disputes procedures, parties shift from a defensive posture to a collaborative one.  

Instead of fighting over liability during a breakdown, teams use the contract to follow the agreed-upon plan, allowing work to resume faster.

The plans and specs are the destination. Use the contract terms and conditions to navigate the journey.

Jon Straw is a partner with Kraftson Caudle, PLC, a law firm in McLean, Va., specializing in heavy-highway and transportation construction. Straw can be contacted via e-mail at [email protected].