Twenty-Five Years in the Construction Industry—We’ve Come a Long Way Baby, or Have We?

My Summer went well and I accepted a full time position with that firm in 1991—25 years ago.  The legal profession and the construction industry have changed quite a bit over the past 25 years.  Has it all been for the better?  My silver anniversary as a construction lawyer gave me the opportunity to look back on how the industry has evolved over the past several years.

A Pop Culture Frame of Reference

First, I tend to use pop culture and sports to provide context, so I’ll digress a bit to give a frame of reference for how the world looked in 1991.  The first Persian Gulf War began and ended.  The best-selling book that year was The Firm, by John Grisham; appropriate, I suppose, for a first year lawyer.  Silence of the Lambs was the major hit movie, and the top 3 albums were three of my all-time favorites—Nevermind by Nirvana, Ten from Pearl Jam and Achtung Baby from U2.  Nolan Ryan had just thrown his seventh career no hitter, and Michael Jordan won his first NBA Championship.  Law & Order was in its first season.  OJ Simpson was an NFL sideline reporter for NBC.  It would be another three years before the nation was captivated by the infamous white Bronco chase.

In the construction industry, the Big Dig in Boston began construction, and the Chunnel construction was well under way, ironically connecting England to the rest of Europe.  It would be completed three years later.  I think the Big Dig is still under construction.

Practicing Law in 1991

On my first day of work, I was handed a Dictaphone, a box of pens and notepads.  I would not receive my first computer desktop until a year or two later.  It would be a few more years before I was connected to the internet, right around the same time that I picked up my first cell phone.  It was physically attached to the dashboard of my car and it would not fit in my back pocket.  If a pleading had to be filed in court or sent to the opposing party on the same day, a retired gentlemen named Sam hopped in his wagon to make the hand delivery, unless we were cutting it close, in which case those of us who tended to drive a little faster would take care of the delivery ourselves.  Document inspections were performed at job trailers, rather than on SharePoint sites.

The Construction Industry Turns to Partnering and Project Teaming

In the construction industry, the traditional design-bid-build method was still being used on most projects.  The architect created the design, the owner sent the design out to bid, and the construction team built the project based on what everyone hoped was a complete design for a fixed price.  Nonetheless, the industry was starting to turn toward more collaboration among the parties, and the concept of “partnering,” a method of improving communications by setting common goals and monitoring achievement of those goals, was adopted by the Associated General Contractors and the Army Corps of Engineers in 1991.  The idea of “partnering” would continue to evolve over the next 25 years, as the construction team became involved earlier in the process, especially in the analysis of constructability and estimating, leading to what we now recognize today as “Integrated Project Delivery.”

Industry Forms in 1991

The industry was just weaning itself off of the 1976 AIA forms, and adopting the 1987 version.  Making edits to the AIA forms in 1991 was a much more time consuming task, so construction professionals and their attorneys held on to their 1976 templates as long as possible.  Major changes were to come to the AIA documents and all industry forms, in response to an evolution of the case law and in dispute resolution, but those changes were still a few years away.  The 1987 AIA forms required mandatory arbitration (no check boxes for alternative dispute forums).  They did not contemplate any waivers or limitations in damages.  The parties did not contractually waive subrogation rights on behalf of their insurers, thus providing insurers an opportunity to recover proceeds paid from those whom the carrier believed to be responsible.  The AIA Architect Agreements contained no reference to insurance, leaving owners without any ability to confirm what coverages their architects had in place.

Court Decisions Impact the Industry

During the 1990s, a series of court decisions and industry developments led to an evolution in design and construction contracts, and the introduction of legislation throughout the country aimed at increasing protections for the construction industry.  As contractors and subcontractors complained that they were not getting paid in a timely manner, legislators started listening, and states enacted prompt pay laws. The penalties imposed on parties for failing to pay pursuant to these prompt pay laws varies a great deal from state to state, and thus the question remains as to how successful these prompt pay statutes have been in reducing the time that contractors and subcontractors must await payment.  Retainage on construction projects was also addressed.  In the early 1990s, it was typical for owners to hold 10% retainage as security until the very end of the project.  States began enacting laws that would reduce retainage to as little as 5% or less, even on private projects.

Design and construction contracts are complex commercial transactions.  In the early 1990s, most in the construction industry probably did not appreciate the effort required to negotiate the agreements fairly, until certain court decisions changed that perspective.  Throughout the course of the 1990s, courts enforced clauses that limited or completely eliminated recovery for delay related damages.  Lien waivers executed prospectively (in many cases before work even began) were upheld.  Courts assessed massive consequential damages and lost profits against delinquent contractors, in some cases leading to bankruptcy or dissolution of the contractor.

The Industry’s Response

In response to these decisions, the industry modified its contract forms to limit certain exposures, and construction and design professionals more aggressively negotiated contractual provisions that otherwise may have gone unnoticed.  For instance, the AIA added a sweeping waiver of consequential damages clause to its forms, limiting the construction team’s exposure to owner claims for lost revenues and delay related damages.  State legislatures also responded by enacting statutes voiding certain contractual clauses , such as prospective waivers of lien on work for which a contractor or design professional had not been paid.

More recently, the industry has become creative in its efforts to resolve disputes more efficiently.  It is rare to find a contract that does not require non-binding mediation as a precondition to arbitration or litigation.  Many contracts also require principals to meet in an effort to resolve disputes before calling in third parties.  On particularly large projects, pre-appointed “dispute review boards” may decide disputes as they arise on the project, rather than allowing claims to fester for the duration of the project or longer.

How Far Have We Come?

So, are we better off now than we were in 1991?  Musically, I would argue not.  My downloads rarely include songs written after 1991.  But as I look back on my 25 (or more) years in the construction industry, it’s hard to argue against the positive developments overall.  Contracts tend to be more thoughtful and fair.  Massive defaults, while still a part of what remains a risky business, are less prevalent.  Parties are more engaged in seeking to prevent disputes before they arise; and when they do, finding solutions to disputes, rather than engaging in costly and contentious court or arbitration proceedings that can harm long term relationships.  My practice, which was at one time almost exclusively based in litigation, is now more devoted to selection of project delivery, procurement, contractual negotiations and risk management, to avoid such disputes.

Are contractual negotiations sometimes more tortured than they need to be?  Probably.  Has the industry become a bit too risk sensitive?  Arguably, parties should be more willing to accept responsibility for their actions.  But overall, I think we are in a better place.

Let’s see what the next 25 years bring!  Unless I win the lottery, I anticipate being around for most of it!