Construction Business Management

Article

Managing Contract Terms and Conditions

This article, along with the next few articles in this series, discusses selected contractual issues that in my experience demand special attention when it comes to signing a construction agreement. These are based on my experience as a general contractor and place more emphasis on certain practical aspects of a contract than you may find in more academic books on construction agreements. It does not, however, provide comprehensive treatment and you should consult with a construction attorney before entering into a binding construction agreement. Neither the contents of this article nor my book, Construction Business Management: What Every Construction Contractor, Builder & Subcontractor Needs to Know, is intended to provide legal advice.

Terms that are important to you may be absent from a contract proposed by the owner, or the owner’s proposed contract can be loaded with provisions that may have serious consequences for you—whether intended or not. Before executing any construction agreement, understand your rights, duties, and the risk it places on you. You should anticipate that an owner’s proposal may attempt to transfer much of the construction risk to you. It is up to you and your construction attorney to protect your interests.

Obviously, laws applicable to the construction process vary from state to state and from country to country. The laws of the U.S. and/or its political subdivisions shape the contract provisions referred to here. However, many of them are based on practicality and may be useful to contractors across state and national boundaries.


Types of Agreements

There is no universally standard owner/contractor agreement form used in the U.S. The most widely used family of construction agreements are those published by the American Institute of Architects. The Associated General Contractors of America also publishes forms that are commonly used. Contractors in the UK, Europe, Canada and other countries should inquire at their respective construction organizations about commonly used contract forms.

AIA and AGC documents offer the advantage of well-thought-out standard provisions that are periodically fine tuned on the basis of industry experience, changes in the law, and for other reasons.

There are important differences in the AIA and AGC documents. Here are a few of them:

  • The AGC documents place the architect in the background. This allows for more direct resolution of routine matters between the project owner and the contractor, which is generally favored by contractors.
  • AGC documents make the owner responsible for interpretation of the contract documents. The AIA documents give this authority to the architect but do not necessarily hold him responsible for decisions.
  • The AGC documents remove the architect from disputes between owner and contractor.
  • AGC docs integrate the general conditions into the construction document. AIA general conditions are a separate document.

Since no form document is likely to address all of the concerns of all parties to a contract, modification is usually required, and the terms and conditions specific to the project at hand must always be added. But the use of the AIA and AGC sets of documents as a starting place eliminates the need for new creation of every word and provision of a proposed document. The included provisions in a form may be accepted by the parties, or they may be changed or deleted as agreed.

Owners often require the use of proprietary contract forms prepared by their own attorneys. These almost always favor the owner who created them and it should concern you if the owner refuses to make reasonable changes.

Never assume a form that appears to be an AGC or an AIA document is genuine or unaltered unless you're certain of its source. Parties have been known to make document revisions in their favor without informing the other party and this can be done with visual perfection.


The author of this article, Nick Ganaway, was a successful general contractor for 25 years. He is a consultant in Atlanta, Georgia, for contractors and other small business owners. Nick has described how to set up and manage a construction business that is profitable, enjoyable, and enduring in his book, Construction Business Management: What Every Construction Contractor, Builder & Subcontractor Needs to Know.


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