Crazy S#!% in Construction Contracts

It’s springtime in the construction industry, my friends. Banks are lending again, optimism has returned and the private, non-residential sector is heating up. Good news all.

But before you mobilize the yellow steel to your next jobsite, the deal’s gotta get done. And so ’tis the season of contract negotiation — which, if you’re not careful, could lead to the season of your discontent. That’s because some crazy stuff might be lurking in the document the party above you in the contractual chain wants you to sign.

Just ask Birmingham, Alabama construction attorney Burns Logan, the inspiration behind this post and its cheeky title:

https://twitter.com/BurnsLogan/status/448940036642570242

There’s only one way to suss out the crazy in your construction contracts, and that’s by carefully reviewing them, as Sage Construction reminded us this week:

https://twitter.com/SageConstruct/status/449212751068405760

One of the three reasons cited in the linked blog post is “owners are pushing risk to GC’s.”

Tell me about it!

Here’s a good example from a contract that recently crossed my desk (click on the image to read a larger version):

Those familiar with AIA A201-2007™ General Conditions will recognize the above as a modification to Section 3.2, which requires the Contractor to (among other things) familiarize itself with the Contract Documents and report any errors or omissions it actually discovers as part of its review. But hold on a minute — there’s something different about this version of § 3.2.1. Unlike the model language drafted by AIA, the paragraph above, beginning in the parenthetical three lines from the bottom, purports to make the Contractor liable not only for defects in the Contract Documents it actually discovers but fails to report, but also for defects “which the Contractor should have had knowledge had the Contractor diligently and carefully reviewed the Contract Documents.”

To my mind, such a risk allocation is crazy. Per the nearly century-old Spearin doctrine, a contractor cannot be held liable when it builds the project in accordance with plans and specs, but for whatever reason, the finished product, or some part thereof, is inadequate for the owner’s purposes. The “should have” language appeared to me a clever attempt to slice and dice Spearin, to give the Owner the fall-back argument that even if it furnished defective Contract Documents in violation of its implied warranty of the sufficiency of the plans and specs, the Contractor didn’t do enough to discover the deficiencies, and should be held responsible for any resulting consequences. That would essentially make the Contractor the guarantor of the plans and specs.