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Construction Tip #7: Developers Should Not Rely Entirely on Standard Forms of Construction Contracts

New Miami Blog

Blog
January 2, 2014

Anyone with experience in the construction industry knows that form construction contracts are routinely used to memorialize agreements for the construction of new projects. Standardized contract forms promulgated by various institutions are indeed an extremely valuable resource for architects, developers, contractors, and their attorneys seeking the most effective way to generate a written document that reflects all aspects of the parties’ agreement. Whether in the construction industry in Miami or beyond, it is important to keep in mind that these standardized forms may not always be the best form of agreement to achieve the parties’ actual intent on a project.

Form Contracts Must Be Carefully Revised and Tailored To Meet Project Needs
Although most people with experience in the construction industry are aware of the availability of standardized contract forms, many may not know that these documents often require more than a simple process of “filling in the blanks.” In our experience, it may be critical in some instances, to heavily revise the contract forms to properly reflect all necessary terms and protect each of the parties involved. This process, which may in certain cases require significant back-and-forth negotiation of terms between the parties, often require a significant investment of time and volume of communication.

Issues To Consider When Using Standardized Contract Forms
Oftentimes, contracting parties will find that there are important terms contained in the standardized forms that are not set forth in sufficient detail, such as provisions addressing the change order process, defining substantial completion and final completion of the project, memorializing the parties’ waiver of jury trial, or providing for payment of prevailing-party attorneys’ fees. These terms may require substantial negotiation and revision in order to curtail litigation and to protect the integrity of the project.

Drafting parties should pay close attention to provisions providing for liquidated damages–or the amounts that the parties are willing to be liable for at various stages of construction if work on the project is not timely completed. These amounts can be difficult to establish in court if a default in performance ultimately occurs. Moreover, the parties should agree that there will be consequences if the project falls behind schedule, which will provide both a strong incentive for timely performance and critical protection against untimely delivery.

Insurance is yet another critical term that is often not addressed in sufficient detail by the terms of form contracts. If the amount and/or types of insurance required under the terms of an agreement are insufficient for a particular project, the consequences could be catastrophic for one or several of the parties. In our experience, terms relating to insurance and indemnity in form construction contracts are almost always in need of substantial revision and negotiation between the parties.

It is important to note that it would be impossible to list all of the issues that need to be considered when using standardized forms of construction contracts. The processes of reducing an agreement for construction to a formal writing and negotiating revisions to standardized forms can be lengthy, but are critical to the success of the project and avoidance of unforeseen costs, disputes and delays.

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