First in a series of articles addressing key provisions in construction contracts
While construction contract forms, lengths and terms vary widely, there are several key provisions that you should almost always consider. The most important provision of any contract is the scope of the work (or services) to be provided.
Specifically Defining Scope of the Work in Construction Contracts Can Prevent Costly Overruns
We consider it to be the most important section because it defines what a contractor is obligated to provide, in exchange for the money an owner is obligated to pay. It details, and limits, the materials, labor, equipment and services that will be required—which means that matters beyond the scope will either not be provided, or will only be provided if the owner pays more. Scope of work provisions that do not accurately reflect the expectations and intent of both owner and contractor may lead to change orders that otherwise would not have been necessary, cost overruns, and disputes. Concerns by owners, lenders, and contractors over change orders are well known, and parties and their counsel typically pay attention to contract language concerning change orders and required procedures. In our experience, parties should be as attentive, or more so, to scope of work provisions.
Reasons Why Parties Overlook Scope of the Work
Why is it that a scope of the work provision may not receive the attention that is really needed at the contract drafting stage? One reason is that parties and their counsel may focus on other “big” contract terms—such as money, time, changes, insurance, and warranty, all of which are important in their own right. Perhaps it is because the contract language for the scope of the work may appear to be short and simple. Article Two of the AIA A102, part of the 2017 A201 series of design and construction documents, recently released by the American Institute of Architects, reads: “The Contractor shall fully execute the Work described in the Contract Documents, except as specifically indicated in the Contract Documents to be the responsibility of others.” While construction contracts are often drafted and negotiated between attorneys, “Contract Documents” – being plans, specifications, proposals, etc. – are typically not written by attorneys. However, just because they are written by others, and may be technical or construction specific, does not mean that you should include (or exclude) these as part of the construction contract without review and consideration of the legal impact these documents have in defining the scope of the work of the contract.
Pay Close Attention to “Contract Documents” and Consider Having Your Attorney Review
You and your attorney should give substantive attention to the identified documents that describe the work, to ensure that all parties to the contract understand that the scope of the work descriptions and documents may be determinative in a future dispute. Any party to a construction contract should:
Verify that the correct plans, and all of them, are adequately identified and incorporated into the contract;
Verify correct specifications that identify and describe the work and make sure these are adequately identified and incorporated;
Consider inclusion of (to the extent they exist) proposal letters, clarification letters, and other documents that set forth information on which price is based, exclusions, assumptions, allowances, etc.; and
Remove any reference to outdated or otherwise inappropriate documents.
Parties to a construction contract and their counsel need to recognize the importance of being attentive to the words and the documents that describe and define the scope of work to be performed so that it reflects the true meeting of the minds.