Standard-form construction contracts are ubiquitous in the industry and for good reason.
They are inexpensive, their terms have been vetted over years of drafting and redrafting – and through court challenges – and most property owners, design professionals and contractors understand the agreement terms, or at least how the terms operate in the day-to-day realities of a construction project.
Although a number of different organizations offer such form contracts, they all serve the same basic function: providing an off-the-shelf form with many useful clauses that can be modified for use on specific projects. The American Institute of Architects, ConsensusDocs, Design Build Institute of America and Engineers Joint Contract Documents Committee publish the most common forms used in the United States, and the International Federation of Consulting Engineers and the International Chamber of Commerce offer forms that often are used for international projects.
Beyond that, many government agencies either draft their own standardized contract forms or change published forms, such as the AIA forms, for their own use. Although government contract forms often become creatures of the laws applicable to public projects, agencies and the designers and contractors that use them nonetheless get some of the benefits of standardization, since the forms make still agreements and risk allocation easier to understand and work under.
These advantages, though, can’t be had unless the forms are used correctly. They usually have specified functions that defined by the parties to the agreement and the delivery method and the payment method being used. Examples include: owner/architect, owner/engineer or owner/general contractor agreements; design-bid-build, CM/GC or design/build delivery; and lump-sum price or guaranteed-maximum-price payment.
The forms can also vary in complexity; many publishers provide forms for small projects, projects of limited scope (such as tenant improvements or remodeling work) and even forms with specific environmental goals. Publishers often also draft forms in a series that are meant to work together. Mixing and matching incompatible forms, failing to review the automatically incorporated additional documents, and simply using the wrong form for the parties or project involved can sow chaos should anything go wrong.
Some common mistakes I have seen include:
- General contractors failing to use subcontractor agreements that are compatible with the language of the standard forms and that pass through various required obligations, such as insurance limits, adding additional insureds and requiring consolidated arbitration (or using no written subcontractor agreements at all). This puts the general contractor in breach of the owner agreement before construction even starts.
- Making big modifications to a standard form, such as the AIA A101 (standard form agreement between owner and contractor), without making any needed revisions to the incorporated documents, such as the General Conditions of the A201.
- Simply using the wrong form. A contractor might, for instance, use an architect’s contract form to hire a structural engineer without changing the standard scope of work. This makes the engineer, at least technically, responsible for the architect’s management of construction.
The most important thing to keep is that the right form has to be found for whatever job you are working on. And if the document is modified, that has to happen in a way that complies with the law in whatever state your project is in. The more complex the project, or the more expensive, the more important it is to review and customize the forms to fit the needs of the job. It is also important to keep the forms up to date. Most standard forms go through significant rewrites every 10 years, but even in the interim laws change and clauses may become unenforceable or worse and can subject a party to unforeseen liability.
And, even though standard language forms are often very thorough, that does not mean they cannot be improved upon to better suit a particular project. Given the complexity and specialization of many new buildings, designers and contractors must often rely on specialty trades or products, sometimes in novel and untested ways. Building owners and developers may be willing to take the risk on “new” building designs or materials in order to be on the cutting edge. In those situations, the standard allocations of risk in form contracts may not reflect who should be bearing the liability should something go wrong. The best remedy here could be to add protective clauses and carve-outs to the standard form.
That said, any modification to a form’s standard language should be closely scrutinized. The standard language found in many form contracts is beneficial chiefly because it is well understood, not only by the parties to the contracts but also subcontractors, materials suppliers, manufacturers and even insurance companies. On this last point, it is very important to review changes to forms’ standard language to see how they might affect insurability. Changes to the standard of care, especially regarding the performance of design professionals, could render certain contract clauses uninsurable, which rarely if ever benefits any party.
Standard-form contracts can save time and money, but should be reviewed periodically by a legal professional and read carefully in the context of each project to make sure that the right form is being used, that needed modifications have been made, and that every agreement pertaining to a given project is consistent with all the others.
William Ohle is a shareholder in the Portland office of Schwabe, Williamson & Wyatt. He represents business and design professionals in the construction industry. Contact him at 503-796-2414 or email@example.com.