Christopher G. Hill | Construction Law Musings | July 30, 2019
Construction contracts are a big part of my legal practice and the drumbeat here at Construction Law Musings. Why? Because not only does your construction contract set the expectations and “rules of the game” for a construction project, it will be read strictly and literally by the Virginia courts should there be a dispute. For these reasons, construction professionals need to be alert for the language in certain key clauses in a construction contract to assure that these clauses are as balanced as possible and also well understood. Here are my “Top Five”:
- “Pay if Paid”- These clauses are almost always in the subcontracts between a general contractor and a subcontractor and are enforceable in Virginia if drafted correctly and under the proper circumstances.
- Change Orders– Whether work is subject to a change order and the required payment for any changed work are often a key source of contention (read legal fees). A properly drafted and followed change order provision can help avoid much of this contention.
- Indemnity– Much has been made in recent years about indemnity provisions and their enforceability. All parties in the construction payment chain can and should be aware of how to best draft their indemnity provisions to make them enforceable. Failure to do so can be catastrophic.
- Dispute Resolution– This section or set of provisions of any construction contract sets the venue and type of dispute resolution required in the case of a claim or other dispute relating to the construction project. Do you want or need arbitration? Do you want to simply be in Court? Are you going to require mediation? Who, if anyone, can recover their attorney fees and expenses? All of these questions need to be clearly answered in the dispute resolution section of any good construction contract.
- “Flow Down“- These clauses are the ones in most “upstream” contracts that seek to incorporate the provisions of a contract further up the chain to the extent they apply to the “downstream” contractors work and are almost always in a commercial subcontract between a general contractor and a subcontractor. Essentially, if this provision is drafted correctly it will be limited to the work performed by a particular subcontractor’s work. However, notice provisions of the prime contract as well as other key items are likely to pass down. Subcontractors must be aware of these provisions and request a copy of the prime contract to gain an understanding of what may or may not apply.
This is not an exhaustive list. However, you should at minimum be aware that these clauses exist. As always, the advice and early counsel of an experienced construction lawyer can be key to catching and “tweaking” the contract to minimize your risk as much as possible in the inherently risky world of construction contracting.
Are there any other provisions that give you heartburn?