The design and construction process can be fragmented, adversarial and inefficient. Negotiating a construction contract is one of the first and most important steps in creating the right foundation to build a successful project. Unfortunately, contracts often repeat a pattern in which risk is pushed down the contractual chain to the weakest party instead of the party in the best position to manage and mitigate that risk.
In today’s market, an owner can draft almost any contract and find at least one contractor willing to sign it. However, unfair contracts significantly raise prices, some say more than 20 percent, and result in failed projects and litigation. To combat this problem, a coalition of leading construction industry associations, including Associated Builders and Contractors (
ABC), has been working to develop and publish fair construction contracts, called
ConsensusDOCS, geared toward project success for all parties.
Since its inception four years ago, the coalition has grown from 20 to 35 associations and ConsensusDOCS has grown its user base despite a depressed construction economy. Owner groups such as the
Construction Users Roundtable, the
Construction Owners Association of America and the
National Association of State Facilities Administrators are actively involved in the writing and endorsement of the contract forms. Associations representing all other segments of the construction industry also are involved, including general contractors, specialty contractors, subcontractors, suppliers, design professionals and sureties.
ConsensusDOCS published comprehensive revisions to its core agreements in 2011. The contract documents offer distinct advantages over the
American Institute of Architects contract forms and the custom contracts firms are regularly asked to sign. Fair contracts that appropriately allocate risks and incorporate best practices help improve contractors’ bottom lines.
Written by practitioners with hundreds of years of collective experience, the contracts use plain English rather than legalese so they can be more clearly understood. Additionally, the contracts encourage direct and positive communication between the parties to resolve, rather than escalate, disputes.
With a growing library of more than 90 standard contract documents, all project delivery methods are addressed, including design-build and construction management at-risk. ConsensusDOCS was the first to publish a tri-party integrated project delivery contract (
ConsensusDOCS 300). It also has been at the forefront of addressing emerging industry issues by publishing the first building information modeling document (CD 301); comprehensively addressing green construction (
CD 310); and addressing the unique aspects of federal subcontracting (
CD 752) and sub-subcontracting (CD 725).
Contract fairness starts with the owner, and the 2011 updates to ConsensusDOCS benefited from the active participation of owner organizations. The 2011 revisions refine the original agreements, as the coalition acknowledges the necessity of contracts to evolve with developments in the design, construction, insurance and surety industries.
For example, the revisions provide greater clarity in defining the contract documents that prescribe performance obligations. A prevailing party provision now gives the winning party the right to collect attorneys’ fees incurred in litigation or arbitration to discourage baseless claims and defenses. The subcontract agreements (CD 750 and CD 751) clarify how provisions between the prime agreements and the subcontracts are coordinated.
Equally significant, a waiver of consequential damages and a provision granting access to owner financial information have been improved to give subcontractors clearer rights. Acknowledging that not all contracts need to be 30 pages long, but should include some of the innovative provisions contained in the longer agreements, the short form agreements (CD 205, 245 and 751) now include language flowing through to the subcontractor the right to be paid half of the cost of disputed changed work by the owner (rather than requiring the general contractor or the subcontractor to finance all the work involved in a disputed change).
Contractors would be wise to consider using ConsensusDOCS rather than attempting to modify another contract form that doesn’t reflect today’s industry needs. By doing so, a better agreement can be reached with far less transaction cost and attorney involvement.
ConsensusDOCS publishes a free guidebook, found at
www.consensusdocs.org, that helps identify key contract provisions and information on possible project-specific modifications. Recent additions include changes in insurance cancellation notification requirements in the standard insurance industry ACORD forms. ConsensusDOCS will release new joint venture and teaming agreements and revised documents in early 2012, as well as launch a major upgrade of the software system that will take contract collaboration to the next level.