flexiblefullpage -
billboard - default
interstitial1 - interstitial
Currently Reading

How bulletproof is your construction contract?


How bulletproof is your construction contract?

Three Dykema Gossett attorneys discuss how supply-chain problems are complicating these agreements.

By John Caulfield, Senior Editor | October 28, 2022
Supply chain snags complicate construction contracts
A knotty supply chain heightens the importance of well-crafted construction contracts. Image: Pixabay

Global supply-chain delays and shortages have had an impact on construction contracts in terms of enforceability and risk, and have increased the likelihood of litigation to settle differences between parties, as well as the need to negotiate contracts that anticipate and minimize potential disputes.

“The allocation of risk is paramount to [achieving] the best possible outcome,” stated David Vanderhider, a Partner in the San Antonio office of Dykema Gossett, a Detroit-based national law firm with a substantial construction litigation practice.

During an October 26 webinar that explored the legal considerations of supply-chain impacts on contracts, Vanderhider was joined by two Partners from Dykema Gossett’s Chicago office: Steven Mroczkowski, who is Co-leader of the firm’s Construction Group; and Melanie Chico, Asset Practice Group Leader.

Chico predicted that supply-chain problems, including those related to costs and labor, are likely to spill into 2023. To which Vanderhider followed that earlier attention to planning will be needed to prepare for delays and cost overruns. Mroczkowksi added that collaboration is the key to allocating risk fairly, and he’s been seeing fewer take-it-or-leave-it clauses on contracts. But he also noted that “there’s no one-size-fits-all” solution.

Contractual risk and reward

The bulk of the webinar was taken up with the partners discussing different contract clauses. For example, Mroczkowski has seen an uptick in litigation over the applicability of force majeure, which is intended to excuse nonperformance following a particular event. (This is commonly known as the “Act of God” provision.) Such clauses are enforceable when the event is beyond the reasonable control of the party. And what is often being litigated, he said, is whether the affected party took sufficient steps to reduce its risk.

Mroczkowski cautioned that force majeure can vary by jurisdiction and how a project’s financing is structured, which is why he advises clients to customize the language of their contracts to the realities of the given project. “Sometimes, risk allocation boils down to an amendment in a contract,” observed Chico.

Another growing area of dispute, the partners said, is a contract’s Notice requirement, which spells out when a party is entitled to additional compensation or time. Chico said that too many notice clauses are loosely drawn up, and lack specificity when it comes to who, what, when, and why.

Indeed, the partners agreed that the precision of a particular clause’s language usually determines each party’s level of protection in a contract, especially at a time when outside forces that affect contractual agreements are in flux.

Litigate or arbitrate

Contracts are still being written too loosely
Construction contracts are still being written too loosely, leaving doors open for interpretation.

During the webinar, the partners touched on suspension and termination provisions, limitation of liability clauses, waivers for consequential damages (which owners are generally interested in), safety requirements, and insurance requirements. (Vanderhider said that insurance policies covering errors and omissions/professional liability “are trending,” and revolve around notice provisions.)

He said he’s been seeing contracts with more provisions that allow owners to withhold payments, with a notorious change in emphasis from “pay when paid” to “pay if paid,” which shifts more risk onto subcontractors. Chico added there are options “to be creative here,” such as payment clauses that kick in or are capped at certain thresholds, are limited to certain building materials, are tied to index pricing, or offer early payment for supply and storage actions.

The partners also took some time to debate how best to resolve disputes in general.

Vanderhider typically favors litigation, claiming that arbitration doesn’t always save time or money, and can place limits on the presentation of evidence and witnesses. “Many of the more common contract forms don’t reflect the reality of today’s economic climate,” he asserted. But Vanderhider also conceded that arbitration makes it easier for parties to keep evidence private

Chico, on the other hand, prefers arbitration, “mostly because it’s faster” than letting a lawsuit play out. She and Vanderhider agreed that dispute clauses in contracts are most effective when they are consistent throughout the construction chain. Mroczkowski recommended, too, that contracts include a provision mandating some level of arbitration so as not to halt the project while the parties try to resolve differences.

In conclusion, Mroczkowski cited four takeaways for contractual risk mitigation:

•Focus on your priorities

•Be proactive anticipating supply-chain impacts

•Ensure consistency in certain key contract terms

•Ensure compliance with local laws.

Related Stories

University Buildings | Jan 27, 2023

Ozarks Technical Community College's advanced manufacturing center is first-of-a-kind in region

The new Robert W. Plaster Center for Advanced Manufacturing at Ozarks Technical Community College in Springfield, Mo., is a first-of-a-kind educational asset in the region. The 125,000-sf facility will educate and train a new generation in high tech, clean manufacturing and fabrication.

Mass Timber | Jan 27, 2023

How to set up your next mass timber construction project for success

XL Construction co-founder Dave Beck shares important preconstruction steps for designing and building mass timber buildings.

Sports and Recreational Facilities | Jan 26, 2023

Miami’s motorsport ‘country club’ to build sleek events center

Designed by renowned Italian design firm Pininfarina and with Revuelta as architect, The Event Campus at The Concours Club will be the first and only motorsport-based event campus located within minutes of a major metro area.

K-12 Schools | Jan 25, 2023

As gun incidents grow, schools have beefed up security significantly in recent years

Recently released federal data shows that U.S. schools have significantly raised security measures in recent years. About two-thirds of public schools now control access to school grounds—not just the building—up from about half in the 2017-18 school year. 

AEC Tech Innovation | Jan 24, 2023

ConTech investment weathered last year’s shaky economy

Investment in construction technology (ConTech) hit $5.38 billion last year (less than a 1% falloff compared to 2021) from 228 deals, according to CEMEX Ventures’ estimates. The firm announced its top 50 construction technology startups of 2023.

Sports and Recreational Facilities | Jan 24, 2023

Nashville boasts the largest soccer-specific stadium in the U.S. and Canada 

At 30,105 seats and 530,000 sf, GEODIS Park, which opened in 2022, is the largest soccer-specific stadium in the U.S. and Canada. Created by design firms Populous and HASTINGS in collaboration with the Metro Nashville Sports Authority, GEODIS Park serves as the home of the Nashville Soccer Club as well as a venue for performances and events.

Concrete | Jan 24, 2023

Researchers investigate ancient Roman concrete to make durable, lower carbon mortar

Researchers have turned to an ancient Roman concrete recipe to develop more durable concrete that lasts for centuries and can potentially reduce the carbon impact of the built environment.

Architects | Jan 23, 2023

PSMJ report: The fed’s wrecking ball is hitting the private construction sector

Inflation may be starting to show some signs of cooling, but the Fed isn’t backing down anytime soon and the impact is becoming more noticeable in the architecture, engineering, and construction (A/E/C) space. The overall A/E/C outlook continues a downward trend and this is driven largely by the freefall happening in key private-sector markets.

Multifamily Housing | Jan 23, 2023

Long Beach, Calif., office tower converted to market rate multifamily housing

A project to convert an underperforming mid-century office tower in Long Beach, Calif., created badly needed market rate housing with a significantly lowered carbon footprint. The adaptive reuse project, composed of 203,177 sf including parking, created 106 apartment units out of a Class B office building that had been vacant for about 10 years.

Hotel Facilities | Jan 23, 2023

U.S. hotel construction pipeline up 14% to close out 2022

At the end of 2022’s fourth quarter, the U.S. construction pipeline was up 14% by projects and 12% by rooms year-over-year, according to Lodging Econometrics.

boombox1 - default
boombox2 -
native1 -

More In Category

halfpage1 -

Most Popular Content

  1. 2021 Giants 400 Report
  2. Top 150 Architecture Firms for 2019
  3. 13 projects that represent the future of affordable housing
  4. Sagrada Familia completion date pushed back due to coronavirus
  5. Top 160 Architecture Firms 2021


Magazine Subscription

Get our Newsletters

Each day, our editors assemble the latest breaking industry news, hottest trends, and most relevant research, delivered to your inbox.


Follow BD+C: