Constructing the Construction Case - Tips, Traps and Tricks

The second example involved a home construction contract that purposely did not contain a closing date. It stated that the closing would be held 30 days after notice from the developer, which could be given any time in the developer's sole discretion. The developer's reason for the absence of a closing date was that "it was not possible to predict when the home would be completed" because the home had a waterfront location and a myriad of special features, raising governmental, construction and logistical issues.

When the project was not completed within four years, the buyer sent a termination notice to the developer. The developer rejected the notice, claiming that the project was nearly finished. It took another year to complete it. At that point, the developer demanded the buyer close. But by this time the buyer had bought another house, the real estate market had declined significantly, and the buyer wanted out.

What the arbitrators saw was an overreaching developer. The panel ruled, in a 40-page award, that under all the circumstances, five years was not a reasonable period in which to complete the home. In addition, it concluded that the developer acted in bad faith by not advising the buyer that this project could take four to five years to complete.

This case may have gone the other way had the developer told the buyer during contract negotiations that completion was years off. True, the developer might have lost the sale. We will never know. What we do know is hiding that fact from the buyer and intentionally omitting the closing date hoisted the developer on his own petard. So be fair and you will fare well.

TIP 3: READ THE CONTRACT DOCUMENTS

Eschew Rote Practices. Many people do not give form contracts an exhaustive read before they sign them, either because they are too busy, or they think it is a standard form document appended to every plumbing, electrical, CM, painting, drywall or other subcontract. Saying to yourself, "I'm too busy to read this whole thing, I know it's been used successfully in the past," is a formula for disaster. The agreement could have been changed by last minute riders and/ or handwritten provisions (both which control over the printed form). The lack of a final eagleeye review could cost developers, contractors and subcontractors greatly.

Carefully Review the Contract for Errors, Ambiguities and Inconsistencies. If another party drafted the contract documents, read them carefully before signing. It may seem like overkill, but it's necessary to read each draft in order to thoroughly understand the give-and-take involved in the negotiations and the final results.

Identify each provision, schedule,5 rider and handwritten change that is ambiguous (meaning it is capable of more than one interpretation) and/or internally inconsistent with another provision. Pay special attention to handwritten additions to the form and any riders because they can lead to ambiguity, or inconsistency or both. Here are two examples of ambiguous language added to the form.

Example 1: The following sentence was hastily added to a rider at the end of a protracted negotiation. "Subcontractor shall provide all field engineering and layout for their work." What does this sentence mean? Read one way it could mean the sub provides field engineering for the entire project and layout just for the sub's work. Alternatively, it could mean the sub provides both field engineering and layout only for their work. Reread the sentence. It's like an optical illusion that appears to be one thing until you focus your eyes differently and then see another. It cost the parties a great deal of time, money and aggravation in a long expensive arbitration.

Example 2. This example involved the collapse of a major thoroughfare overpass and claims of defective materials and workmanship. The surveyor, the architects, the engineer and a municipality were at odds over who was responsible for the design and planning deficiencies. This issue arose because the contracts were ambiguous on critical scope issues as a result of addenda to the printed forms. In this case, a form developed over many years was felled by a few last-minute changes.

I am not recommending this, but if I had a limited time to review a contract, I would first review the scope of work and payment provisions. I would also check the dates on the CPM, and the detailed construction schedule. Then, I'd review everything but the printed form. The reason is that problems often lie in the riders, addenda and handwritten changes to the form.