Jargon and mumbo jumbo: Preparing your project team to navigate the contract
Tips for negotiating the allocation of risk.
Vanessa Werden is a partner at construction law firm Jenkins Marzban Logan LLP. Named one of the Top 40 Under 40 in Canadian Construction in 2020, she is licensed to practice in B.C., Alberta, the Northwest Territories, and Ontario. Earlier this year she was ranked by Lexpert as one of two “Leadings Lawyers to Watch” in Construction Law in BC, and one of five “Lawyers to Watch” in Infrastructure Law in Canada.
Whether a small residential development or a complex infrastructure upgrade, many factors contribute to the overall success of a construction project: relationships, weather, site conditions, labour productivity, availability of materials, and cost escalation – to name a few. One of the most challenging phases of embarking on a new project is negotiating risk allocation in the contract. Consider the following strategies to put your project team in a better position to anticipate and manage risk allocation at the outset and throughout project delivery.
Proactively negotiate the contract
Disputes arise, and are often protracted, as a result of inconsistencies and gaps between the intentions of one or more project participants. While it may be tempting to accept a contract as presented, there is often an opportunity to negotiate and make changes. A project team can be well positioned for the successful management and execution of a project when the contract documents have been carefully reviewed and negotiated prior to entering into the contract. A large part of dispute prevention is setting expectations at the outset of the relationship.
Review each contract and its supplementary conditions with a view to your risk tolerance. Consider the willingness of the other party to consider amendments and approach contract negotiations with a list of priorities, much like you would a Christmas wish-list. Even if only a few of the most burdensome provisions are struck or modified, you will be in a better position to protect your bottom line.
Drafting and re-use of old forms of supplementary conditions are often problematic. Terms that modify standard form contracts are often rife with inconsistent language, provisions that conflict with the delivery model set up by the standard form, and wholesale reallocations of risk. Review proposed supplementary conditions with an eye for provisions that:
- Limit or preemptively waive claims, and in particular claims for delays, changes, site conditions, and toxic or hazardous substances;
- Unreasonably shorten notice periods;
- Impose obligations that are inconsistent with standard form contract terms; or
- Reallocate risk for design errors to a party that had no role in the preparation of the design.
Training and legal education
Many industry associations offer courses, and conferences often have a legal education component. Take advantage of these continuing education opportunities. Having an understanding of fundamentals such as key terms, how to read supplementary conditions, the importance of contractual notice requirements, change order processes, and dispute resolution procedures can make your team more confident, prepared, and effective when issues inevitably arise under the pressures of schedule and budget constraints.
Read the contract – and keep it handy
Do not let the contract collect dust. On projects of lengthy duration, the project management team should review the contract at regular intervals. The contract should serve as the primary resource to determine rights, obligations, and process concerning payment, changes, extras, schedule, and claims.
While the contract often holds the answers in terms of legal liability and primary obligations, consider creating internal policies or protocols for specific situations so that the project team understands the precise steps to follow to preserve contractual entitlements and comply with obligations. These may include:
- Creation of notice letter templates;
- Assigning responsibilities to specific team members for considering potential claims;
- Diarizing time limits and notice periods that reflect the contract terms;
- Creating and updating your project accounting system to include event or condition-related cost codes; and
- Keeping a real-time journal of events.
Implement document management policies – and follow them
Construction disputes are inherently document-intensive. The rights and interests protected by the contract terms are often only as effective as the contemporaneous documents available to support them. Project records are necessary to establish time and cost-related claims. Baseline and updated schedules, weekly look-ahead and other planning documents are critical to delay claims. Timesheets, labour and equipment invoices, and other cost records are critical to cost overruns, extras and change order disputes. At the outset of each project – and as the project evolves – ask the following questions:
- What documents do we need to generate on this project?
- Who is responsible for generating, tracking, organizing, and preserving the documents?
- What systems or software will the responsible personnel use for document management?
Comprehensive and consistent document management practices can sometimes expedite dispute resolution processes, and most importantly, place a party in the best positon possible to advance or defend a claim. If it becomes necessary to engage a lawyer, these practices will also help limit legal fees to locate and reorganize tens of thousands to millions of project records. It is far more cost effective to create and maintain a system to organize contemporaneous documentation.
Be ready to adapt as the project and potential claims evolve. Do you need to establish a different coding system to track an ongoing impact? Do you need daily photographs to document the discovery of a geotechnical site condition? Do the superintendents need to create a separate daily report specific to a disputed change? Should you update a particular item at weekly site meetings?
Be mindful of the notice and dispute resolution provisions in the contract
Construction contracts often require strict compliance with dispute resolution steps on short timelines, including notice in writing within a fixed period of time, in a specific form, delivered to a specific person or place. Construction contracts often contain strict mandatory steps – in other words, non-compliance may be a bar to recovery. While you may be able to put together an argument that the other party had substantive notice, the best approach is strict adherence to contractual notice provisions so that you can avoid adding the unnecessary layer of non-compliance to a dispute. Consider diarizing deadlines and creating checklists to make the procedures more intuitive for the project team.
When in doubt, send a letter
A well-drafted and thoughtfully considered contract can go a long way to early resolution of disputes, or prevent disputes altogether. Regardless of the project records generated and the relationship between the parties, never assume that the parties have agreed to waive a contractual requirement for formal notice. Protect your interests and preserve claims by committing the details to contemporaneous correspondence that complies with the contractual requirements.