The Importance Of Careful Contract Drafting
Lawyers involved in construction law are sometimes instructed to draft construction contracts. Other clients seek to have them comment on contracts which others have prepared.
The purpose of such review is to identify concerns arising from the document, as to both clarity and consistency of drafting and allocation of construction risk, and to propose revisions to address those concerns.
From the point of view of the lawyer’s client, a contract may suffer from uncertainty as to meaning, particularly if it has been drafted by a person who has less, rather than more, experience in drafting such documents. Of greater concern is the contract which contains unfair or one-sided provisions which vary from what is generally considered to be more even-handed attribution of risk.
Standard form contracts have typically been prepared with input from groups representing the different construction industry stakeholders. They can generally be considered to strike a reasonable balance between the interests of the contracting parties. Supplementary conditions can be used with standard form contracts to address special circumstances of the project or relationship, but are also often used by a party seeking to impose the contract to reorder the rights and responsibilities for which the unamended contract would otherwise provide.
Standard form contracts may not be appropriate for use if the nature or aspects of a project are different or unique so as to require a customized document. They are often also considered to be too lengthy and to contain unnecessary or inapplicable provisions for smaller scope or cost projects; for example, residential construction in which no third-party professional consultant will perform inspection and payment certification functions.
Problems can arise in the preparation of a customized contract if it does not address, sufficiently or at all, at least the basic elements required to establish the construction relationship: that is, contract price and payment method and procedure, contract time or schedule, identification of all binding contract documents, extra work, delays, termination and dispute resolution.
To the extent that a contract is ambiguous or omits significant provisions, the parties’ rights and responsibilities become uncertain. Recourse will be had to the common law of contract, including the principles of contractual interpretation in such circumstances. However, the application of those principles is more unpredictable than the interpretation of contractual provisions which were drafted in the first place.
In practice, a party that receives proposed supplementary conditions to a standard form contract or a customized form of contract should consider carefully whether the other party is attempting to impose provisions which are unreasonably favorable to it. Of course, the ability to negotiate the terms of the contract may be foreclosed by its inclusion in tender documents as the form which the successful bidder will be required to execute, or limited by the relative financial positions of the parties.
Another factor may be the relative legal sophistication of the parties. For example, it is common for residential contractors to provide to unknowing owners proposed forms of contract which make no provision for the owner’s retention of holdback as required by the British Columbia Builders Lien Act, and not to alert them otherwise to their rights and responsibilities in that regard. This exposes such owners to potential liability to pay the last 10% of the contract price twice, if no holdback is retained and subtrade liens are filed to a value equal or exceeding that amount.
Construction disputes cannot always be avoided, but their likelihood and the prospect of an uncertain or negative outcome increases to the extent that proper care has not been taken with the governing contractual document at the beginning of the project. For matters of drafting, it is in the interests of both contracting parties to maximize contractual clarity and certainty. The issue is that of one party seeking to take contractual advantage of the other – failure to identify and attempt to ameliorate unfair contractual provisions is simply poor business practice. In either case, due diligence at the time of formation of the contract can avoid much time and expense if there are subsequent contract disputes.