Top Ten Construction Contract Provisions For Contractors And Subcontractors
Over the next few months, we will review our list of the "top ten" construction contract provisions in prime contracts and subcontracts for our readers. This first post addresses the "scope of work" clause.[i]
1. The Typical Scope of Work Provision.
The scope of work clause in construction contracts is probably the least written about and likely the most important provision in a well-crafted construction agreement. Most construction disputes arise out of some type of disagreement as to what is and what is not in the project's scope of work. A properly written scope of work provision will preclude disputes and ensure a clear understanding as to which party is responsible for what work and who bears which risks on the job. Without a clear definition regarding the scope of a party's undertaking there will be inevitable disputes. In every construction contract, there has to be a clear understanding as to the expectations for quality, completeness of the contract documents, and the nature (scope) of duties for each party to the bargain.
2. Scope Gaps.
Subjects which are not adequately evaluated during the negotiation of the contract result in what are termed "gaps" in the scope of the work. These gaps, in turn, lead to disputes over the adequacy and completeness of design documents, coordination responsibilities which arise during construction, and responsibility for correcting incomplete/deficient designs. Further, these gaps are amplified in complex, fast track, GC/CM, or design build projects, all of which often commence with incomplete design/performance specifications, as well as during performance when "design creep" occurs. "Design creep" is when the owner/designer attempts to shift the design responsibility to the contractor during construction.
3. Negotiation Strategies.
Negotiation strategies for scope of work provisions differ between prime contracts and subcontracts.
a. Prime Contract. A well written set of construction documents that contain clearly drafted specifications and plans are fundamental to defining a scope of work. It is also essential that the owner expressly warrants that the construction documents are complete, fully coordinated without defects, and ready for construction. In private contracts, the contractor should insist on obtaining an express warranty in the contract with the owner that the contract documents are adequate and sufficient to build the project. If the owner is unwilling to provide such an express warranty, this should be a red flag for the contractor to reassess whether or not to proceed forward with the contract at the price quoted.
b. Subcontracts. The scope of work issue for general contractors and subcontractors also differs.
- General Contractors. General contractors should attempt to tie the subcontractor's scope of work to explicit specification sections in the Main Contract. A well drafted subcontract should include a "flow-down" provision which ties the subcontractor to the terms and conditions of the prime contract for all work performed by the subcontractor, as well as the general conditions which bear upon the subcontractor's performance.
- The general contractor should refrain from incorporating a subcontractor's quotation in the subcontract. Subcontractor quotations often contain terms and conditions that are at odds with provisions in the prime contract. The general contractor should, if it intends to rely on a subcontractor's quote, recopy that quote to ensure that there are no unwanted provisions in the subcontract that may be otherwise imported by simply incorporating a subcontract quotation. Many times in the fast paced bidding environment, the quotation may come to the general contractor electronically, and the terms and conditions of the entire quote are never clearly communicated or agreed upon. By recopying the provisions of the subcontract quote in the general contractor's subcontract, there will be no misunderstanding as to what is expected of the subcontractor and what the subcontract price covers.
- Subcontractors. Subcontractors, on the other hand, should ensure that the scope of work for which it provides a quote is based on the same scope of work as is set forth in the subcontract tendered to the subcontractor by the general contractor. Exclusions and inclusions should be clearly stated and reviewed. Further, the subcontractor should obtain a copy of the prime contract from the general contractor before executing the subcontract to ensure that the flow down obligations that it assumes by signing the subcontract are consistent with and appropriately priced in its subcontract quotation/price.
In future posts, we will describe other key contract clauses and provide input on issues that arise and guidance as to how to avoid disputes concerning these "top ten" construction contract provisions.
[i] This blog was inspired by a recent article in the ABA Forum on the Construction Industry, Under Construction: “Construction Basics: Top Ten Construction Provisions To Be Negotiated With The Owner” Volume 15 No. 1 (Frank Hess and Richard S. Robinson, Peckar & Abramson P.C.).
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