Contracts provide a foundation for the success—or, if done wrong, the failure—of every construction project. Keeping them current is essential. You should evaluate and update your contracts based on the latest technology trends, legal developments and the insurance market.

How does ConsensusDocs—a coalition of more than 40 design and construction associations (including Associated Builders and Contractors) that develops best-practice standard construction contracts—handle this for its own documents? The organization’s Contract Content Drafting Council regularly solicits and reviews industry feedback as a way of identifying and establishing industry best practices. Recently, ConsensusDocs published comprehensive revisions to its most-used prime and subcontract agreements that address design-bid-build.

Highlights of these revisions demonstrate the types of updates you should regularly make to your own contracts:

OWNER AND CONSTRUCTOR AGREEMENT WITH GENERAL CONDITIONS

Consequential damages: Revised the limited waiver of consequential damages to clarify that insurance coverage is exempt from the consequential damages waiver only if the insurance coverage pays for the loss. Waiver of consequential damages is one of the most important and negotiated provisions in construction contracts. The previous standard language excluded insurance coverage from the waiver of consequential damages. This principle remains as insurance provides a fair way to allocate risk among the parties.

Existing structures: Eliminated the requirement to cover “existing structures” under property insurance. Obtaining property insurance through a builder’s risk policy that covers damage to existing structures may not always be feasible.

Delegated design: Expanded and added more detailed procedures to submit, review and respond when a portion of project design is delegated from the design professional to the contractor. The expanded provisions establish better overall design coordination responsibility and how the upstream party must respond to proposed delegated design solutions as they are being developed and shared. The new provisions make clear that overall coordination resides with the owner through its design professional for the overall project. This provides structure and organization in the delegated design responsibility process that historically has been missing in standard construction contract documents. The new language requires a constructor to “conform its delegated design to the performance and design criteria provided.”

Interim directives: Revised and provided additional clarity surrounding interim directives. ConsensusDocs uses this term to include directed change orders that are ordered because of a lack of agreement on cost and schedule impacts, as well as field instructions. AIA uses the term “construction change directives” for a similar concept. The revisions clarify that an owner’s issuing an interim directive does not necessarily increase price or time.

Cost of the work: Added itemized cost-of-the-work items incurred due to emergency and legal, mediation and arbitration fees and costs not associated with a dispute between the parties. These cost-of-the-work items potentially apply in this lump-sum contract for changed work.

Submittals: Clarified an owner’s options when responding to submittals. Rather than review and approve, an owner may take other appropriate action, such as returning a submittal to revise and resubmit. This was implied as a rejection in previous editions of ConsensusDocs. The updated language is explicit and clearer.

Submittal schedule: Added an explicit time requirement for a constructor to provide a submittal schedule within 30 days of commencing work. Clarified that an owner may take “other appropriate action” when reviewing submittals.

Attorneys’ fees: Clarified that all reimbursable attorneys’ fees must be reasonable.

Statute of repose: Added statute of repose in addition to statute of limitations as reasons for barring commencing arbitration. Some state courts have ruled that the statute of limitations and the statute of repose don’t apply to arbitration actions. Therefore, it is prudent to put this in standard contracts.

No waiver of performance: Clarified the “no waiver of performance” language, so that not necessarily enforcing or insisting upon a contractual right does not waive such contractual right by implication.

Uncovered work: Revised language clarified that the cost to uncover work is not compensable if the owner instructed that the work be left uncovered.

Contingent assignment: Added a required contingent assignment provision for suppliers as well as subcontractors in subcontractor and supplier agreements.

Duty to defend: Created a duty to defend as part of the constructor’s indemnity obligation to hold the owner harmless for hazardous materials brought to the site by the constructor or someone for whom the constructor is liable.

Design documents: Simplified the language requiring the owner to obtain the right for the constructor and subcontractors to use design documents. Revised language also is more appropriate when an owner has in-house licensed design professionals produce the design documents.

Warranty obligations: Clarified that the constructor’s warranty obligations to correct materials and equipment defects for owner-provided materials and equipment are limited to installation defects.

Remedying damage: Clarified that the constructor’s obligations to remedy damage or loss do not apply to damage that is covered by an owner’s property insurance or attributable to the owner or the owner’s separate contractors.

Reliability of estimates: Eliminated disclaimer language related to the reliability of estimates for cost and schedule items.
Overhead: Defined the term “overhead” throughout the agreement.

STANDARD SUBCONTRACT AGREEMENT

Prime contract: Added a definition for “prime contract” in the standard subcontract.

Conforming changes: Made additional conforming changes to the standard subcontract to flow these requirements consistently.