by John McGill
Contracts are often long drawn out affairs that seem to want to cover all possible eventualities that could occur, and they try to do it in excruciating detail with mind numbing language that defies the rules of English grammar. Reading some contracts is about as close to a Zen experience as most of us will ever have, assuming we can stay awake long enough to actually get through the document. Even then we usually need to stop and re-read certain parts because, while we saw the words and turned the page, nothing registered and we find our thoughts wandering off to other more interesting things, like grass growing or paint drying.
While it is true that not all parts of the contract are as important as others, and so it is probably alright to skim certain provisions, it is also true that some provisions carry significant consequences- good and bad- and should be read carefully. The indemnity provisions, the payment requirements, the notifications of changes that need to be provided, and of course the scope of work that you will be expected to perform are all required reading whenever you are presented with a contract or for that matter a proposal (bid). A careful reading of key provisions is important because just changing a single word in an otherwise standard provision can change the provision in a way that you did not intend.
There are some contracts though that you cannot really change. If you do public works projects then the scope of work that you bid on is the scope of work you will be required to perform. Public works contracting is essentially a take it or leave it proposition- if you can’t do the complete scope, don’t bid the job. If you are the lowest responsible bidder, you are going to do the project, and you will do it without changing anything in the agreement.
In private works contracting there is a little more flexibility, but often times, especially for general or prime contractors, the contract is a form contract sometimes from the AIA, sometimes from the AGC or the ABC. Each one tends to favor the organization that prepares it: AIA documents favor the designer, AGC the general, ABC merit shop contractors. The provisions are typically the same but the language in the various provisions will be slightly different and those differences make all the difference.
Some recent cases demonstrate how the language of the contract assisted the contractor. There are any number of other cases though that do not favor the contractor, and those too are ones to consider; even more so really.
In Brisbane Lodging LP v Webcor Builders Inc. the contract between owner and contractor contained the AIA 1997 A201 General Conditions. In that version of the A201 there is a provision that stated that the statute of limitations would commence and run and all causes of action would be deemed to accrue from the date of substantial completion. The project was completed in 2000 and the first time that any problems arose was in 2005. The owner sued in 2008.
Ordinarily, the statute for latent defects (those that are not readily apparent by reasonable inspection) would be 10 years. The contract though provided that the statute for all causes of action would commence at the date of substantial completion so the delayed discovery of any latent defect was reduced from 10 years to 4 years. The court ruled that parties to a contract have a right to make whatever agreement they want and it is only in very special circumstances that the court will step in and change those terms and conditions. This was not one of those cases and Brisbane could not sue Webcor for the construction defects.
One interesting but unanswered question is whether Brisbane could sue Webcor’s subcontractors. Often the Prime Contract includes a provision that the terms of the Prime Contract must be included in any subcontract. And the General’s subcontracts usually incorporate by reference the terms of the Prime Contract. Whether the subcontractors could be sued for the defective work is not answered yet, but the subcontractor should be able to use the same defense as the General in this situation.
In another case, Schaefer v Elder, a contractor was sued by a homeowner for defective work. The contractor tendered the claim to his insurance company and it accepted the tender with a reservation of rights. Recall that insurance policies are contracts too and the terms and conditions in the policy carry the same weight as any other contractual language. The policy required that the General obtain additional insured certificates from all subcontractors performing work on the project otherwise the policy would not cover defective work that was performed by a subcontractor.
The insurance company appointed defense counsel but the attorneys had a conflict. When they defended the General, they had to show that the work was performed by the contractor, not the subs. But when they were conducting discovery they might discover that the subs did the work but did not have additional insured certificates, which would mean the carrier could deny coverage. The approach taken by the attorneys could control whether the contractor had coverage or not. In this situation, the contractor was entitled to have his own attorney represent him (called Cumis counsel) and have that attorney compensated in part or in whole by the carrier. Again, read the policy and comply with its terms; it’s better not to have to fight your carrier at the same time you are fighting the other side.
Contracts are critical documents in the construction industry; obviously, that’s why you are called a contractor. You need to understand the terms and conditions of the agreements you sign and you need to understand what those terms and conditions mean. Take some time to look your contracts over, and be sure you understand what you are agreeing to when you sign someone else’s contract. And of course, consult with an attorney or your insurance agent (or both) if you have any questions; it will be time well spent.
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Bio- John McGill is an attorney and advises and represents contractors and suppliers throughout the Bay Area and Northern California in both private and public work disputes, employment, transactional, and administrative matters. He is the author of California Contractor’s DESKTOP GENERAL COUNSEL What You Need To Know About California Construction Law and he writes on construction issues at California Construction Law Toolbox www.californiaconstructionlaw.wordpress.com.
Contacts: johnpmcgill@sbcglobal.net or jmcgill@archernorris.com; direct office 925-952 5403 & cell-707 337 1932.