Construction contracts are often daunting stacks of paper. It is not uncommon for even basic standard form agreements to include fifty plus pages of general conditions, plus appendices, schedules and other attachments.
In reviewing such contracts, where does one start and what does one focus on?
Keep in mind that virtually every construction contract will include some form of “whole agreement” clause. This clause will state that the contract contains the whole agreement between the parties and that there are no other representations, warranties, collateral agreements, or conditions other than as expressed within the construction contract itself. The point of a whole agreement clause is to ensure “that the obligations of the parties will be determined in accordance with the written terms of the contract, not extraneous negotiations and discussions that have not been reduced to writing” (Houle v. Knelsen Sand and Gravel Ltd., 2016 ABCA 247). In other words, unless it appears in the agreement itself, an extraneous representation or commitment will not form part of the agreement between the parties once the contract has been signed.
Frequently, a construction contract is produced almost as an after thought to the weeks of discussions that went into determining the content of the agreement. The parties have often discussed in great detail the inclusions and exclusions, scope, drawings, schedule, and price. Often various representations are made in relation to the construction work and often these representations were the primary reason why a decision was made to proceed with a contractor at a certain price.
It is good practice, therefore, to start your contract review by stepping back from the contract itself and giving some thought to those aspects of the agreement that you have negotiated that are important to you and that need to be clearly reflected in the agreement. Make yourself a list of those important aspects, and then review the contract documents and check off whether the contract covers those items to your satisfaction before you start wading through the rest of the fine print.
Examples for owners dealing with contractors might include:
- Did the contractor commit to finishing the work by a certain date or within a specific cost?
- Did the contractor commit to a certain quality of work?
- Did the contractor reference specific inclusions in the scope of work that were important to you?
- Did the contractor make assurances with respect to the numbers, nature or quality of the manpower?
Examples for contractors dealing with owners might include:
- Did the owner commit to specific payment terms?
- Did the owner commit to future work?
- Is the pricing based on drawings of a specific date or a limited drawing set?
- Did the owner agree to accept any specific risks?
By stepping back from the stack of paper that is a construction contract and itemizing those commitments that are most important to you, hopefully you can avoid missing the forest for the trees when reviewing construction contracts.
Co-authored by Norm Streu the President & Chief Operating Officer of the LMS Reinforcing Steel Group.