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D4COST Software

Building Better with Better Construction Contracts
By: Brian M. Perlberg, ConsensusDocs Executive Director & Counsel

You can’t say “General Contractor” without saying “Contractor,” but General Contractors generally don’t get in the business of building out of a love for contracts. Contracts should first and foremost memorialize a business relationship. Negotiating a construction contract is one of the first and most important steps in creating the right foundation to build a successful project. Ideally, contracts should aligns all project stakeholders interests toward project success. Construction contracts often repeat a pattern in which risk is transferred inappropriately and pushed down the contractual chain to the weakest party. Fortunately, there is a better contractual option to facilitate project success.

How do one-sided contracts hurt a project? One study estimates just eight of the most commonly used contract provisions that transfer risk increase contract prices by 20 percent or more, and invite failed projects and litigation at a later date. Albert Einstein once said that “insanity is doing the same thing over and over again and expecting different results.” Many describe construction as fragmented, adversarial, inefficient, and simply “broken!” The US Bureau of Labor Statics cites construction as the one and only industry to have become less efficient since 1964, while all other industries have made major improvements. Outdated terms and conditions that are a hundred years or more are part of the problem. Eventually an unbalanced contract topples a project’s success.

At the heart of almost all construction disputes is a failure to communicate. Possibly the two most important provisions of a contract are the blanks where you insert the parties’ names. It is anathema to me that a commonly used standard construction contract actually prohibits the parties of the contract from communicating directly, except through their architect. While protective of an architect, it hurts project management. The most efficient and effective way to avoid or resolve disputes is to have the parties communicate directly, hopefully in a positive and constructive manner.

Some contractors stick their contracts in a drawer, and hope to never pull it out. Hoping to ignore a contract that obfuscates terms and possesses internal conflicts isn’t a best practice. Rather I suggest “RTFC” – “Read the freaking contract!” It is hard to comply with, for instance, notice requirements, without knowing contract requirements. Moreover, operating on a handshake is also dangerous and leads to disputes.

Fortunately, there is now a better choice for selecting standard construction contracts called ConsensusDocs, which is a coalition of 38 leading construction organizations who write and endorse the documents. Significantly, owner groups such as the Construction Users Roundtable (CURT), the Construction Owners Association of America (COAA), and the National Association of State Facilities Administrators (NASFA) are at the drafting table. The group’s mission is to identify and utilize best practices to achieve better project results. There are more than 100 different standard design and construction contracts that address design-bid-build, construction management at-risk, design-build, and integrated project delivery. Originally published in September 2007, and featured on the cover of ENR, the documents are written by practitioners with hundreds of years of collective experience.

ConsensusDocs has taken the lead on emerging issues in the industry including the first publishing documents addressing integrated project delivery (IPD), building information modeling (BIM), comprehensively addressing green construction, sub-subcontracting, and contractor joint ventures.

The ConsensusDocs 300 Standard IPD Agreement call for the owner, constructor, and design professional to all sign the same agreement and share risks and incentive. LEAN principals are incorporated and drive efficiency throughout the process. Pull-based design and pull schedules help deliver the right amount of materials to the worksite, close in time to their need, avoiding clutter and wasting materials. Early design-phase collaboration allow the design and construction teams to analyze cost and constructability, which provides synergistic impacts. Initial positive results and likely to drive further adoption on other appropriate projects.

Project management is a key area that benefits from better drafted contracts. The practitioners drafting ConsensusDocs see project stakeholders’ understanding of the contract as helpful if not essential. Consequently, the contracts are written clearly in plain English and not legalese, highlighting that good legal writing is simply good writing. Instead of a separate document for general conditions and another for the agreement which might conflict, ConsensusDocs integrates both into one coherent contract.

Moreover, direct and positive communications between the parties are not just encouraged, they are required so that potential disputes can be solved rather than escalated to claims. The party in the best position to control and mitigate risk is assigned that risk, thereby minimizing risk contingencies which unnecessarily inflate prices.

Getting better results through fairer contracts starts with the Owner and the concept has gained traction. ConsensusDocs reports an increase of almost 15% growth in 2012 and more than 4,500 users at a time when fewer construction contracts are getting signed. One significant example is the Department of Administrative Services (DAS) for the State of Iowa, which revamped its construction program and among other things converted to use ConsensusDocs. Starting in late 2011, DAS has entered into 123 ConsensusDocs agreements valued at $433 million. Ryan Lamb, DAS’ General Counsel, reported at Construction Superconference how DAS has experienced no formal construction disputes. Prior to the move, DAS used modified AIA contracts, and it was common for projects to have at least one formal dispute. DAS now utilizes the ConsensusDocs 800 CM agency documents, professional construction managers, and use of CPM schedules and BIM. Mr. Lamb remarked that “DAS has increased the number of bidders on state projects, which has increased competition and thereby lowered bids.”

Recent developments in technology has led to a new way to draft, negotiate, and administer contract documents. A new technology platform offered for users of ConsensusDocs the following:

  • 24/7 Access – Access contracts anytime through a secure cloud based system with flexibility to work offline
  • Easy to Edit – Use MS Word® to customize contracts
  • Version Control – Track all changes from the standard or each negotiate step
  • Collaboration with Control – Collaborate with others for free but control their editing rights
  • Create Favorites – create a standard template unique to your preferences
  • Automatic Renumbering - automatically updates section references and identify deletion of a referenced section
  • Comparisons – Reliably see differences between documents, including PDF to PDF
  • Free Guidance – Embedded instructions and free ConsensusDocs Guidebook commentary
  • Project Storage – upload project files

The platform is intuitive to use, but details on how to use the new platform can be found at https:// www.consensusdocs.org/Support.

Positive project results like DAS in Iowa and others help demonstrate that better contracts help teams achieve better results with fewer claims. Fairer contracts are not a panacea for success, but they remove an important obstacle to build a better way. For more information visit ConsensusDocs at www.consensusdocs.org.

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