Beware The Standardized Construction Contract

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A variety of standardized contracts exist for construction projects. The most widely used form agreements are published by the American Institute of Architects (AIA), the Association of General Contractors (AGC) and the Engineers Joint Contract Documents Committee (EJCDC).

In 2008, those groups, along with nineteen other construction associations collaboratively developed and released a compilation of agreements known as ConsensusDOCS. Among the advantages of using these standard industry contracts are that they are:

  • Readily accepted in the industry
  • Reflect years of experience
  • Have been tested in and interpreted by courts

Nonetheless, because not all construction projects present the same challenges, the use of standardized agreements can provide a false sense of security. Development of an agreement specific to the project is the best means of ensuring that the parties’ respective interests are addressed. Moreover, while the industry groups have made legitimate efforts to prepare standardized contracts that are fair, each document set inescapably reflects the particular biases of the authors. Consequently, it is recommended that design, construction and related agreements for any sizable construction project be tailored to the specific project and to meet the parties’ expectations.

The issues that should be addressed in any construction-related agreement include the following:

  • Risk allocation: The contract should be written so that the party best positioned to control the particular risk is responsible for it.
  • Limitation of liability: Any provision providing for the waiver of claims or limitation of any party’s liability should be specifically considered and negotiated.
  • Dispute resolution: Standardized contracts typically provide for the resolution of disputes through binding arbitration. Parties should consider whether it might be preferable for some types of disputes arising from the contract to be subject to traditional court litigation.
  • Statutes of limitation on claims: The agreement should be reviewed to determine whether time limitations on claims differ from those imposed by applicable statutes of limitation.