ILLINOIS MECHANICS LIENS / COVID-19

What Is the Best Length for Design and Construction Contracts?

There is no virtue in overly and unnecessarily long design and construction contracts. But unduly short construction contracts have no virtue either. Contracts with “gray” areas leave too much open for debate, and this can lead to unnecessary wasteful litigation.

No one specific length is best for design and construction contracts.

Project participants do, however, want to avoid overly short contracts with “gray” areas. The ones which do not address the major issues which may arise in the project.

This is because design and construction contracts exist, largely, to resolve prevent and disputes.

Contracts Are a Dispute Resolution Tool

We must draft contracts with an eye toward creating a mechanism that will either avoid, or help to quickly resolve, disputes.

I once heard that “agreements” should be called “disagreements,” because they come into play mostly when the contracting parties have a dispute.

If there is a dispute, those unaddressed “gray” area issues can tend to make the dispute live on for years and years – rather than get resolved much more quickly and cost efficiently. 

The contract “gray” areas make it harder to handicap who will eventually win or lose the design and construction dispute. That makes people more inclined to fight. And less willing to think about whether a settlement is in their strategic best interests. This is human nature. 

Aggrieved people, in design and construction disputes, tend to have a “selection attention to facts” problem. They only focus on the facts which support their view of the world, forsaking a more objective viewpoint. This is even worse when litigants believe the other party will have to pay their attorneys’ fees once they prevail. Lawyers fall prey to this as well.

Yet, it is odd because in most litigation, at least half of the litigants are disappointed by the outcome. Often everyone is disappointed.

Often, people in design and construction first earnestly consider the relative strength of their case and their opponents’ defenses when it is too late. When too much money has been wasted on litigation, with no return on investment. The clients might be hundreds of thousands of dollars poorer, with nothing but minor procedural victories and losses to show for their attorneys’ fee spend. They first consider settlement when tempers are hot and wallets are light after contested litigation; but with months or years to go before a trial date, and no end in sight.

Now, it is hard to think about contracts as dispute resolution tools in the early stages of the project. During the honeymoon. When everyone on the team loves each other. When everyone is excited about the project. When you are firing on all cylinders. When disputes seem improbable or, at least, a distant possibility to address later down the road.

But at the risk of pointing out the obvious: nearly all projects start that way. Nearly all projects have the happy-go-lucky honeymoon. Even the ones which lead to years of protracted litigation. Unfortunately, contracts are prepared during the early salad days of the project.

Dislike Long and Boring Contracts? Get Over It!

Let me just say, I am in on the lawyer jokes. I get it.

People in the design and construction industry say, “oh-the-lawyers-make-these-contracts-so-long-and-boring!”

And they say it with some justification.

Admittedly, on most projects, there is a good outcome. The contract winds up gathering dust in a drawer somewhere. It is never fully read, understood, or implemented.

But on troubled projects, a good contract which sufficiently addresses the things the parties might dispute is key. Because again, good contracts tend to shorten disputes. They lead to early, cost-efficient dispute resolution. You do not want those gray areas.

Contracts are a dispute resolution tool.

My Focus On Early, Cost-Efficient Dispute Resolution

Let me explain, because I enjoy certain luxuries that many “pure litigation” attorneys do not.

Yes, I am a lawyer who handles design and construction disputes. I litigate them in court. I arbitrate them before panels of arbitrators. And I frequently get my clients good outcomes through non-binding mediation, an important arrow in my quiver.

However, I am fortunate to handle matters other than disputes. I help project owners and real estate developers select project delivery methods. I help parties negotiate a wide range of design and construction contracts. I help to eliminate potential disputes before they arise.

I would much rather end your dispute in three months – and help you deliver your next successful project – than represent you in a dispute that will drag on for three years.

Not every lawyer is lucky enough to have such a multi-faceted practice.

The “Scorched Earth” Lawyers Love Contract Gray Areas

Many good and well-intentioned lawyers only do litigation. They do not get paid to settle cases quickly and cost-effectively. They bill hourly. Unless they can find those “gray” areas, and dig in their feet, refusing to settle until after many depositions.

Many of these “pure litigators” get all of their work from insurance companies. They may not expect to ever again represent the insured architect, engineer, contractor, owner or developer. Any inconvenience or loss of time, opportunity, or business relationships the insured may suffer might be a secondary consideration to the attorney.

And those lawyers love a gray area in a contract. They love a problem. They like to look at the contract and say, “liability-is-kind-of-a-jump-ball, so-we-will-have-to-scorch-the-earth, and-turn-over-every-stone, and-take-every-deposition, before-the-case-can-end.”

I Dislike Gray Areas – For My Clients’ Sake

My approach is different, for reasons including the transactional practice I have developed.

I work for the architect, engineer, contractor, owner or developer directly. I do everything in my power to prevent disputes from draining their time and resources, and damaging their hard fought business relationships. Among my main concerns are saving their deductible, if possible, and ending the dispute in the most strategic way.

Yes, that can mean court litigation, even the kind that stretches for years. But only when that is necessary and in my clients’ strategic best interests. Not as a habit, or a practice, or something which occurs because I have no better ideas.

I do not simply “ride the wave” of seemingly endless arcane court procedures, with no strategic off ramp in sight, and let disputes resolve as they will when they will. I am always looking for the most strategic and best way to end disputes quickly.

When I am negotiating construction contracts, I’m trying to size up the project, who is involved, and the risks attendant. My goal is NOT drafting an exceedingly long contract, because I think that exceedingly long contracts are virtuous. Rather, my goal is to develop a contract form with appropriate length and content so it addresses most contingencies which could arise and lead to disputes on the project.

Because contracts are a dispute resolution tool.

Look Both Ways Before Crossing the Street

Now I can just hear people doubting me. Contracts are a dispute resolution tool?

I can hear them saying, “I-use-short-standard-form-contracts, developed-years-ago-and-since-unrevised… and-I-flip-them-to-the-parties-I-work-with, and-we-sign-them, and-nobody-ever-reads-them-too-closely. They-gather-dust-in-a-drawer, and-it-is-no-big-deal.”

I hear you. But the law of large numbers implies that that is not a good contracting strategy.

Yes, you could cross the street, without looking both ways, a hundred times and not get hit by a car.

You could ride a motorcycle past the speed limit, without a helmet, a hundred times without getting into a crash.

But you will never convince me those things are safe.

Just because design and construction participants can point to a history of “not caring much” about design and construction contracts does not suggest, to me, that they have a winning strategy for promoting good outcomes on their projects.

Let me be clear. If your design or construction project experiences disputes, you may well win or lose based on the quality of your contract. 

So what is the right length for a design and construction contract? It depends. Design and construction attorneys can help you answer that question, ideally on a client-specific and project-specific basis, so disputes can be avoided. So expectations can be met.

Because contracts are a dispute resolution tool.

Early, cost-effective dispute resolution requires planning, strategy, and the right tools!

Early, cost-effective dispute resolution requires planning, strategy, and the right tools!


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.

 
The following two tabs change content below.

Baker Law, Design & Construction Counsel

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.

Latest posts by Baker Law, Design & Construction Counsel (see all)

%d bloggers like this: