Kevlar® Language: Bulletproofing The Construction

by Alan C. (Peter) Brandt, Jr.
©Ferencik, Libanoff, Brandt, Bustamante & Williams, P.A.

The unprecedented number of large, private construction projects in planning throughout the State of Florida during the late 1990’s was the principal inducement prompting many of the established traditional players, Owners, Design Professionals, Contractors, Subs and Sureties, to reassess their respective risk tolerance if they intended to compete, in any meaningful fashion, in that hyperactive marketplace. Not surprisingly, this crush--and rush--of anticipated new work also prompted revisions, initiated by Owners, to the widely used pattern forms in order to insure that this refreshingly naive, almost dot.com risk-mentality, was quickly accommodated contractually. Although the preeminent model documents long published by The American Institute of Architects (“AIA”) were typically modified to some extent for decades, wholesale deletions and replacement of standard text were infrequent, and the holy separation between design and construction responsibilities had been left undisturbed.

Not so, however, in the current environment. Sophisticated estimating, accounting, scheduling and document software, as well as a continuing wave of graduates entering the industry with bachelor and master’s degrees in building construction, or near equivalents, have enhanced the professional status of Contractors. Moreover, many large Contractors even have licensed engineers on staff.

With those assets and credentials, and with their extensive experience Contractors, especially those, for example, trafficking routinely in Condominium apartment projects, regularly value engineer the typically over budget project, advise about revisions to conceptual design and engineering drawings, and even provide marketing guidance to Owners derived from prior projects, all in an effort to land the job. Their good deeds are not left unrewarded, provided that contractually they are willing to absorb a heightened degree of risk well above traditional standards, while remaining aggressively competitive.

When confronted with a Contractor’s understandable reluctance to accept these increased risks, Owners respond by pointing out that the Contractor is being retained and paid a generous fee for its prominence and expertise in this type of construction; that the Contractor has done literally hundreds of similar projects, whereas the Owner participates infrequently; that the Contractor’s past experience gives it “toolbox knowledge” about most design issues, and certainly matters relating to constructability; and, finally, the most persuasive argument of all, that the industry’s version of the golden rule trumps all objections. Contractors counter with—and reemphasize, this time passionately—those predictable arguments about their traditional design celibacy; the sacred separation of design from construction behaviors; the lack of accountability for the project design professionals (often as much as 30-40% of the project final design documents are contractually delegated to the Contractor-- essentially a design-build requirement within a lump sum or GMAX context); a fee that did not factor in any assumption of design exposure, even sometimes citing lack of correlative licensing credentials; and, in a macro sense, the fundamental inequity about absorbing, within an already threadbare contract amount, all known, unforeseen, contingent and latent risks without a balanced contract mechanism that fairly adjusts compensation if they are confronted during construction. Seldom, however, at that point at least, is a deal left in a “take it or leave it” posture; there is usually room for negotiation, if only modestly limiting some risks in discrete areas, or perhaps dollar-capping the Contractor’s exposure on certain issues, like liquidated damages. And since most construction attorneys have inevitably advocated both sides of the argument, hopefully not concurrently, they recognize some legitimacy about the respective positions of the posturing parties, as one does after a Carville-Matalin interview.

Currently, AIA publishes over eighty (80) documents related to design, construction and contract administration.¹ The new, improved AIA document software, available in late 2003, unlike its predecessor, is user-friendly, supported on a Word platform for easy editing, and is now e-mailable to internet destinations without restriction. Al Gore deserves a share of the credit here. Although the license is pricey, it is an essential resource for construction lawyers, especially those involved in transactional work.

Pattern forms are also available from other providers, such as the Associated General Contractors of America,² Engineers Joint Contract Documents Committee,³ and The Design/Build Institute of America.⁴ By far, however, the most recognized, adaptable, internally consistent baseline documents for private, non-engineering construction, are those published by AIA, which also endorses a stand-alone compilation of citations to reported cases involving either AIA document provisions or clones thereof, and analogous cases as well.⁵ Moreover, several renowned lawyers in the construction field have written, and routinely supplement, excellent books commenting about the AIA documents, and others, offering alternative clauses for tailoring a contract to job-specific criteria and objectives, as well as providing guidance and insight about the provisions themselves.⁶

AIA documents are frequently criticized because of a perceived Owner bias. That’s myth, not reality, as the periodically modified AIA forms are the work product of committees without Owner representation. For that and other reasons, in modern practice, an Owner’s interests invariably necessitate modifications to the standard forms. With the AIA software discussed earlier, from the perspective of both Owner and Contractor counsel, the task of revising the standard AIA forms is no longer the root canal experience of yesteryear.

Almost without exception, on any large, condominium project in Florida, the following modifications will be included in the initial draft of AIA model contract documents generated by the Owner, or in a Contract Addendum:

• Restrictions and limitations on the Architect’s administration of the contract, sometimes virtually disenfranchising the avowed neutral in the traditional tripartite relationship;
• A Contractor representation affirming the adequacy and sufficiency of the design drawings that well exceeds the “reasonably inferable” standard in the AIA pattern forms, and expressly or inferentially a disclaimer by the Owner of its Spearin warranty;⁷
• A warranty of constructability by the Contractor;
• Liquidated damages (seldom bonus/penalty), usually formulated on a sliding scale, initially without an aggregate cap that may later be negotiable;
• A limitation on compensable expenses for a Termination for Convenience, with perhaps an additional one time, lump sum kicker if the option is exercised;
• An assumption by the Contractor of all §718.203, F.S. warranties;
• A provision converting a wrongful Termination for Cause into a Termination for Convenience;
• No damages for delay;
• A waiver of overhead, profit, and general conditions within an established threshold amount for change orders;
• A limitation on qualifying events supporting claims for excusable delay;
• Elimination of arbitration;
• Waiver of Jury Trial;
• A schedule of retainage-exempt line items;
• Conformance of AIA A201-97, Article 3.18 with §725.06, F.S;⁸
• Waiver of entitlement to compensation for differing conditions.
• Express waiver of applicability of Chapter 558, if any, with respect to the Owner-General Contractor agreement;
• AIA A312 Performance Bond format.

Depending on the project and the Owner’s in-house construction management capabilities, these provisions are less common:

• Identification of the proprietary scheduling software to be utilized;
• On GMAX contracts, a specification of the proprietary accounting software that will be utilized;
• A secure, dedicated project server, assessable by Owner, Contractor, and design professionals of record;
• Depending on existing or anticipated material shortages, an escalation clause, usually cast as an allowance;
• A “no-excuses” project completion bonus, providing that the stipulated date for entitlement does not adjust except in instances of compensable delay;
• A disputes resolution panel, or limited arbitrality of disputes arising during performance under a given dollar threshold;
• A construction contingency fund;
• Cost reimbursement limitations;
• A lump sum within the GMAX for general conditions;
• Again, in GMAX contracts, a savings clause;
• Electronic media backup for submittals;
• Owner Controlled Insurance Program (“OCIP”) option.

Provisions addressing anti-drafting presumptions, course of dealing waivers, defaulting to better quality/higher quantity design conflicts, controlling law, venue, counterpart originals, prevailing party entitlement to attorneys’ fees and costs, are all de rigueur modifications to most AIA contract forms.

Despite the widespread trend of contractually transfering more risks to the Contractor, there is no shortage of takers. Although sometimes it may seem like legalized gambling, many Contractors are exceptionally sophisticated, well managed, and earn unusually attractive returns because they appreciate, and financially support, vigilant contract administration. This is beneficial to Owner and Contractor, as “surprises” are unwanted and often costly distractions for both parties.

There is no substitute for a well negotiated, carefully drafted, and integrated set of contract documents. The legal fees incurred in that time intensive process, while not insubstantial, are modest when amortized over the duration of the project, plus the 4 to 15 years of litigation exposure that follows.⁹

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¹The American Institute of Architects, 1735 New York Avenue, N.W., Washington, D.C. 20006-5292 (www.aia.org)
²The Associated General Contractors of America, 1957 E. Street, N.W., Washington, D.C., 20006 (www.agc.org)
³The Committee is a consortium of several professional organizations, including the National Society of Professional Engineers, American Consulting Engineers Council, and the American Society of Civil Engineers. EJCDC publications may be ordered from NSPE headquarters at 1420 King Street, Alexandria, VA 22314-2715(www.nspe.org)
⁴Design-Build Institute of America, 1010 Massachusetts Avenue, N.W., Third Floor, Washington, D.C., 20001-5402 (www.dbia.org)
⁵Steven G.M. Stein, The American Institute of Architects Legal Citator, (Lexis-Nexis, 2003 Ed.)
⁶Justin Sweet & Jonathan J. Sweet, Sweet on Construction Industry Contracts: Major AIA Documents (Aspen Law & Business, 4th Ed., 1999, as supplemented); Glower W. Jones, Esq., Alternative Clauses to Standard Construction Contracts (Aspen Law & Business, 2nd Ed. 1998, as supplemented)
⁷United States v. Spearin, 248 U.S. 132, 39 S.Ct. 59, 63 L. Ed. 166 (1918)
⁸AIA A201, Article 3.18.1 must me modified to comport with §725.06, F.S. (eff. July 1, 2001), since the AIA standard language impermissibly includes indemnification for an indemnitee’s own negligence, and extends to the project design professionals.
⁹§95.11 (3)(c), F.S.

Alan C. (Peter) Brandt, Jr. is a shareholder in Ferencik, Libanoff, Brandt, Bustamante & Williams, P.A., Fort Lauderdale, a firm whose members practice exclusively in the area of construction law and litigation.