Christopher Rifer | Stoel Rives
So, you want to start a construction project? Long before you cut a ribbon, top out your building, or even put a shovel in the ground, you’re going to need to put together a mosaic of contracts to set your project up for success.
The contracting phase can be a long, arduous process — but if done well, the early investment and effort can protect your interests down the road, deliver significant savings, and save you from the hassle of major disputes.
Here are three important tips for a successful contracting phase.
1. Assemble your legal team early
Over the course of a project, an owner will enter several contracts — in many instances more than a dozen — as well as seek other permits and approvals. The owner may have to acquire land, arrange for financing, address environmental issues, bring a construction manager on board, engage an architect, hire a contractor, put together condominium organization documents, and potentially much more to get its project off the ground.
Many of these contracts and approvals, all of which can be critically important, call for the engagement of lawyers in different disciplines. A real estate lawyer is best suited to assist acquisition of property. An environmental lawyer is best positioned to help work through any environmental issues at the project site. A corporate lawyer can help with project financing and setting up the project corporate entities. A construction lawyer can help negotiate contracts with the architect, contractor and others.
But many of these contracts can also interrelate, and late-stage surprises for lawyers who may be experts within their niche but might not always know the broader context can throw a wrench into the works. As a result, bringing together the full team of lawyers at the earliest stages of a project for a kickoff session can help ensure that everybody on the team understands the broader picture and knows who is handling what — and that early coordination is critical to making sure contracts aren’t just a collection of tiles but rather form the mosaic that will best position the owner for success.
2. Give yourself the gift of time
Many of the contracts that an owner needs to activate a project are long and complicated. A contract with a general contractor can easily run over 100 pages — and that’s even before the exhibits. Although parties rarely draft these contracts from white paper, it’s critical for an owner to make sure there is plenty of time to negotiate and memorialize them — for two important reasons.
First, negotiating under time pressure can warp leverage dynamics. If one party to a contract knows that the other needs to sign on the dotted line immediately, that party knows that it likely can leverage more favorable terms than it otherwise would. Allowing plenty of time for the process, on the other hand, makes sure the owner has the power of “no” if its negotiating partner wants terms that are out of alignment with the market.
Second, many of the contracts that make up a project mosaic are long and complicated for good reason — they have a lot of terms that can be critically important in the countless contingencies that can arise over the course of a project. It takes time and careful negotiation to get them right. Some clients hesitate at the expense that can go into carefully negotiating these deals, but that investment frequently delivers big returns.
A good, carefully crafted contract can win litigation, to be sure. But any experienced construction litigator will tell you that a good contract can do something even more valuable — avoid litigation altogether. And in many circumstances a dispute avoided is even better than a dispute won.
There are countless moving parts in a construction project. Taking the time to make sure both parties to a contract clearly define their rights and obligations and have a full understanding of the allocation of risks can save considerable time, money and heartache when — and it is usually “when,” not “if” — something goes awry.
That, too, is the value of making a mosaic instead of just collecting tiles.
3. Sweat the small stuff
Many owners plan to put time and effort into their architecture and construction contracts. And this is for good reason — on the construction side of a deal, those will usually be your two biggest contracts.
But the small contracts are important, too. Don’t assume that a contract’s terms are unimportant just because the agreement has a small dollar figure on it. Small project scopes can still have big impacts.
As just one example, hiring a surveyor is usually far from the biggest line item on an owner’s pro forma. But if the architect and the general contractor are relying on the survey, a mistake by the surveyor can create a big headache. And that big headache can turn into a costly big headache if, for example, the surveyor’s contract has a low limitation of liability or a clause that prohibits parties other than the owner from relying on the survey.
So, make sure lawyers working on the architect and general contractor agreements can also review and, if necessary, revise the small contracts before they’re executed. Even small tiles can ruin a mosaic if they’re not the right size, shape or color.
The beauty of investing early in the mosaic of agreements in a construction project lies in the time, money and inconvenience saved. In the end, the goal is to finish the project and put it to good use. A well-crafted mosaic of project agreements and approvals maximizes one’s chances of enjoying a smooth road to that outcome.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 801.641.8304, or email experts@adviseandconsult.net.