The Hidden Benefit to Thoughtful Contract Negotiations

The very act of two project participants coming together to thoughtfully negotiate a design and construction contract has a benefit unto itself – one that is separate from the piece of paper produced at the end of the contract negotiation.

Why Are Good Contracts Important for Design and Construction Projects?

Speed and Efficiency

When I negotiate contracts, my goal is to complete the negotiation quickly and efficiently. 

My clients want to design and construct new buildings, not get bogged down in contract negotiations. 

I love to send the “happy” email to my client that says, “here is the signature copy of the contract – we are done.”

What is the Hidden Benefit?

But the signed piece of paper is not the sole virtue of thoughtful design and construction contract negotiations. The virtue is not just the final product.

Huge benefits are reaped by parties who engage – at the beginning of the project – in a thoughtful discussion about contract terms. 

It tends to open their eyes. To get them “on the same page” in a way that perhaps they were not before the negotiation.

This “meeting of the minds” tends to promote successful projects and dispute avoidance. 

After all, nobody wants disputes. Successful projects are often borne of good contracts.

Getting Beyond “Basic” Contract Terms

Often, a project owner or real estate developer will get proposals back from architects and contractors. Eyeball the “scope” and “fee” terms. And think, good, let’s proceed.

Sometimes, the owner or developer will send over a form contract, which is not customized for the project, and ask the architect or contractor to sign. Then, the work often begins.

This is not necessarily a bad practice, or a recipe for a project fraught with disputes. But like an iceberg, it leaves most of what matters unseen and beneath the surface.

Hard Questions… And Thoughtful Answers

Design and construction attorneys can add a layer of value by asking hard questions – and helping their clients to find the right answers.

For example, Owner-Architect Agreements often impose a vague obligation for the architect to “coordinate” the design. This might make me question:

  • When you say architect must “coordinate” the work of the design team, what does that mean specifically? What is your intention?
  • Will all design services be provided by the architect and its engineering subconsultants?
  • Or will the owner hire design consultants directly? If so, how will the architect’s “coordination” responsibilities differ as compared to engineers it hires directly?
  • Will the contractor use design-build subcontractors to provide mechanical, plumbing, electrical, and fire protection (MEP/FP) on a design-build basis?
  • Is the architect expected to produce a single set of Construction Documents (CDs)? Or will contractors build based on issue-for-construction documents from multiple designers, only one of which is the architect?
  • Is the architect expected to “peer review” the work of the owner’s design consultants and the design-build MEP/FP subcontractors? To spot problems in their work? Or is the architect only required to look for physical conflicts between the architectural design and the design work of other consultants?
  • Must the architect review contractor submittals for engineering work performed by the owner’s design consultants? For design-build MEP/FP subcontractors? Or will the architect only have submittal review responsibilities for the design disciplines of its engineering consultants?
  • Regarding site observations, must the architect observe the entire construction work in progress? Or can it focus on the design of the architect and its engineering consultants, overlooking disciplines where the design was supplied by the owner or contractors?

The phrase “coordinate” can mean many things to different people.

An architect would assume certain answers to the questions above. However, on the same project, the owner or developer would assume the opposite.

What are the Five Most Dangerous Words In Design and Construction Contracts?

Do Not Invite Disputes

If the contract merely states that the architect “will coordinate,” with no explanation of what that DOES and DOES NOT entail, the parties increase the odds of a dispute.

The architect might think “coordinate” means to convene conference calls, meetings, and to facilitate communication among the design team.

The project owner or real estate developer, on the other hand, might think “coordinate” means the architect is responsible for any design error made by any design team member.

And, if there is a dispute, since the contract is too vague for there to be a clear winner or loser, the dispute can get drawn out for years.

In that case, only the litigation attorneys are sure to win.

Benefiting from Thoughtful Negotiations

Good contracts promote successful projects, and dispute avoidance.

So how does that play out in the real world?

Take the example above.

If the parties have wildly different expectations about the meaning of “coordinate,” the first task is to expose this difference. The worst thing is for the confusion to go unidentified.

Next, my client and the other party can negotiate a commercially reasonable outcome.

The architect’s services can be expanded, along with its fee, to match the real estate developer or project owner’s expectations, for example.

Perhaps, the architect will be paid to observe ongoing construction work at the project site more frequently – including work designed by owner’s or contractor’s designers.

If the architect agrees to review all project submittals, perhaps the parties will agree on a submittal schedule, or other definite requirements, for submittals.

Alternately, if the owner or real estate developer feel these extra design services are unnecessary, the contract can be revised appropriately.

The contract can clarify that the architect’s obligation “to coordinate” is merely to facilitate communications among the project participants.

The coordination obligation can be narrowly drawn, placing more responsibility and liability on the architect for its work and that of its engineering subconsultants.

The point? It is unwise for the architect and the project owner to sign a contract which does not match and address their different project assumptions?

This is not a small problem.

Litigation attorneys are paid to argue over ambiguous contract language.

Invest in Good Contracts

When negotiating contracts, even the most sophisticated players in the design and construction industry can fail to ask the right questions.

Design and construction attorneys can help ask the right questions at the project outset.

And, they can help the parties sign a contract which gets beyond pure legal terms. They can help parties get on the same page.

That is a hidden benefit of thoughtful contract negotiations.

This publication is prepared for the general information of friends of Baker Law Group LLC in Illinois. It is not legal advice for you, or legal advice regarding any specific matter. Jeremy S. Baker is licensed to practice law only in Illinois. Under rules applicable to the professional conduct of attorneys in various jurisdictions, it may be considered attorney advertising material. Prior results do not guarantee a similar outcome.

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Jeremy S. Baker is an experienced Chicago-based attorney who provides transactional, dispute resolution, and general counsel services to the design and construction industry. He uses creative project structuring and intelligent contracts, plus dispute avoidance and early cost-efficient claim resolution techniques, to help his clients complete challenging projects.

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