Construction Contract Agreement: I Agreed to Do What?

By Timothy R. Hughes

Subcontractors often sign a construction contract agreement without having a full idea of what they are signing.  Incorporated documents, standards and codes can present increased risk. Seeing only a portion of the overall design documents and then bidding on a subcontract scope is risky and can open you up to liability. Incorporated prime agreement terms can drastically change the subcontract risk. You should understand what you may be signing up for when you sign on the dotted line.

Incorporated Requirements

Incorporated requirements can take several forms. The most basic examples (and potentially the most dangerous) are incorporated standards of performance or construction codes. If the standards are consistent with the construction documents, a subcontractor may anticipate those requirements. Things get dangerous when the construction documents are either silent or when the incorporated standard imposes unexpectedly difficult or expensive requirements on the subcontractor.

In situations with conflicting documents, the subcontractor may have an argument for extra compensation or time to meet the higher conflicting standard. However, this result is far from certain. The uncertainty is greater where order of precedence clauses impose the highest or most restrictive standard in the case of conflicting contract documents. The protection here is to carefully review the specifications  of the construction contract agreement and get comfortable with both the express requirements in the plans and specifications and the incorporated standards. Where there are conflicts, speak up early and often and indicate where the higher standards may impact price and time. You may want to consider including targeted use of bid exclusions or conditions to protect against these conflicts.

Bidding on Partial Sets of Documents

The general contractor receives a full set of construction documents to bid on. Typically he breaks the documents and specifications into discrete piles and gives only specific sections to the various trades. Given that the contractor is generally charged with coordination of the various trades and installing what is shown and reasonably inferred from all the documents, this piecemeal review can be dangerous.

Examples abound – systems shown on mechanical, electrical and plumbing drawings may be omitted on the architectural plans and vice versa. Structural impediments may be only fleetingly referenced elsewhere or even completely missing on other drawings. The best practice is to attempt to get a complete set of the drawings and specifications and at least perform a cursory review to ensure that there are no major impediments to your scope of work.

The Danger of Flow-Down Provisions

Subcontracts typically incorporate all of the terms of upstream parent agreements. So-called “flow-down” provisions contained in subcontracts incorporate all of the parent agreement terms.

In my experience, most subcontractors do not even ask for the prime construction contract agreement or parent subcontracts. This is incredibly dangerous. For example, you may be signing a subcontract with specific notice provisions only to find out that you are bound by shorter notice provisions contained in the prime agreement. On this one type of term alone, you can lose an entire significant claim simply because you provided late notice.

Other types of incorporated terms can pose similar risks. You may have limited remedies for extensions of time, recovery of specific types of costs, or waivers or lien or bond claim rights. You may have agreed to alternative dispute resolution. You may have flowed down indemnification responsibilities. You will never know if you have not seen the agreement – but courts do not tend to look at ignorance of the terms as a defense to incorporated contract terms.

Conclusion

At the most basic level, you should always know what risk you are signing up for. You cannot know and evaluate that risk unless you can effectively review and analyze your contract terms. That requires a clear eyed understanding of the construction contract agreement including incorporated requirements, incorporated contract terms and the full set of the contract plans and specifications.

Timothy R. Hughes

Timothy R. Hughes, Esq., LEED AP, is the managing shareholder of the law firm Bean Kinney & Korman, P.C. in Arlington, Va. A construction, real estate and business attorney, he was recognized as a “Leader in the Law” in 2010 by Virginia Lawyer’s Weekly, a member of the “Legal Elite” for Construction Law by Virginia Business Magazine, and one of the “Best Lawyers in America” for Virginia Construction Law.  A former chair of the Construction Law and Public Contracts Section of the Virginia State Bar, he may be reached at 703-525-4000 or by email at thughes@beankinney.com.