When a client asks their attorney to draft or negotiate a construction contract for work at one of the client's buildings, the request might seem like a one-sided, attorney-driven assignment. However, the most successful contracts result from a true partnership between attorney and client.
While attorneys play a critical role throughout the process, some issues warrant the involvement of the client, especially when they are the project owner. Some contract provisions have a direct impact on the owner's goals, operations, or bottom line and are best addressed with their input. Others are more technical or legal in nature and can be more readily handled by the attorney.
This article offers a guide to distinguishing between the two, helping streamline negotiations and ultimately leading to contract terms that more effectively serve the owner's interests.
Key Areas for Client Input
Scope of Work
The client will almost certainly have the best sense of what they want or need their construction contractor to do. As such, the client should have direct input in preparing the scope of work description.
Contract Price
Because the client is footing the bill, they should determine the preferred payment structure for the contractor. While a fixed price is usually the safest approach, some contractors may insist on time and materials (i.e., cost-plus). Either way, the structure should reflect the client's risk tolerance and budget strategy.
Project Schedule
It is invariably the client, not the attorney, who knows their necessary timeframe for the project to be completed. As such, the client should drive discussions on deadlines and delivery expectations, and confirm whether the contractor's proposed schedule is realistic.
Warranty
The nature of the contractor's warranty is often where the client has much at stake. A project owner may, for instance, want an extended warranty – even if that means paying a higher price. This is where client priorities should guide negotiations.
Where Attorney Involvement is Critical
Managing Scope Changes
Things sometimes change in the scope of work, so the attorney should handle the provisions governing what happens if the planned work changes. A good chunk of construction disputes center on change orders, as we know all too well.
Cost Controls
If there are issues with the contractor's ability to deliver the project at or below the contract price, the attorney should push for a not-to-exceed amount to cap the total project costs. This will hopefully incentivize the contractor to stay on or close to budget.
Schedule Enforcement
While the client drives the project timeline, the attorney should handle how that timetable is enforced. This includes drafting a well-crafted liquidated damages clause that provides the right amount of "motivation" to the contractor without crossing over into an unenforceable penalty. And as many attorneys learned in 2020 amid the Covid shutdowns, this means the force majeure clause shouldn't be viewed as boilerplate but should address the real-world risks of schedule delays and work interruptions.
Warranty Protections
The attorney's focus should be on ensuring the contractor stands behind its workmanship, complies with the design documents, and adheres to all applicable laws. The contract should also outline how warranty claims should be made, detail any exclusions, and reserve the owner's right to perform repairs at the contractor's expense if obligations are not met. One often overlooked point: make sure the warranty is assignable in the event the client sells the building before the contractor's warranty expires. The new purchaser will most likely want the benefit of the remaining warranty, which could increase the price they'll pay to the client.
The Power of Partnership
While the client can certainly provide guidance and add value across a range of issues, the examples above highlight provisions where their involvement is particularly important. Generally speaking, the attorney is usually in the best position to handle the indemnification and insurance clauses, as well as the default and termination provisions. Still, it's important to check in with the client, especially if there's a realistic chance the project might be suspended or cancelled. In that case, care should be taken to include a suspension right and/or termination for convenience clause. Also, when drafting the dispute resolution clause, attorneys should find out whether the client has a strong preference for arbitration and/or mediation in lieu of the courts.
In sum, close collaboration between attorney and client on a contract's most consequential terms will result in stronger, more tailored agreements. Construction contracts shouldn't be drafted in a vacuum – the most effective results come from an ongoing, thoughtful partnership. When both parties contribute their expertise throughout the process, the final product is more aligned with the client's goals and objectives and often makes for a more productive (and even enjoyable) experience.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
