Common Contract Clauses That Cause Building Disputes
Construction disputes can be costly. To minimise losses and ensure all parties understand their duties and responsibilities on projects, draft contract provisions that ensure all parties understand their responsibilities and duties clearly.
Make sure the scope of work (SOW) and supplies are clearly and comprehensively defined, and avoid “no damages for delay” clauses; negotiate for pay-when-paid terms with certification requirements as part of any deal.
1. Change Order Clauses
Change orders are a ubiquitous and costly part of every project, frequently leading to disputes among project stakeholders and leading to delays, cost overruns and strain in relationships among project stakeholders. To minimise such issues, contractors should ensure their contracts contain clear and precise change order provisions.
Effective change order provisions must outline clearly what constitutes a change and describe its associated procedures and compensation, while also considering any possible impacts to project timeline. For example, if removal and replacement of load-bearing walls occurs as part of this change order provision, this should be explicitly mentioned as it could alter schedule.
An effective change order form should also be included as part of the contract to help project teams track and document any necessary alterations, helping reduce conflicts over who is responsible for what and when, while creating a system for communicating among all parties involved.
2. Force Majeure Clauses
The COVID-19 pandemic has brought with it an upsurge of disputes and preventative consultations centered around one contract provision – force majeure clauses. Their scope and interpretation are currently being determined in courtrooms across the nation.
Force majeure clauses exist to allow parties involved in contracts an out in case extraordinary and unexpected events arise that prevent them from fulfilling their contractual obligations, such as acts of God, natural disasters, war, labor strikes, government embargoes or any other occurrences outside their control. These events include acts such as acts of God or nature as well as labor strikes or any other occurrence that is beyond control of either party involved in the contract.
Courts tend to interpret force majeure provisions narrowly, and are reluctant to use them as an excuse for nonperformance unless their language specifically addresses events or circumstances that cannot reasonably be predicted by either party. Therefore, districts and contractors should review their current force majeure clauses to ensure they include triggers for events that might qualify as force majeure.
3. Non-Disclosure/Non-Disclosure Agreements (NDD/NDA)
NDAs focus on protecting information considered proprietary or confidential, such as product specs, client rosters or business models. An NDA will typically identify parties covered, define obligations and scope, time frame for return or destruction of confidential data as well as exclusions and remedies in case of breach.
Many nondisclosure agreements (NDAs) stipulate that any unauthorised disclosure or use of confidential information could cause irreparable injury that cannot be compensated through money damages alone and warrants injunctive relief. Furthermore, many NDAs include arbitration clauses to facilitate any disputes that arise between parties involved.
NDAs involving foreign entities typically involve international arbitration, as this provides more robust remedies and increases the chance that its awards will be enforced worldwide than court judgements issued locally. NDAs often include provisions which state that upon termination of negotiations the disclosing party can demand that all confidential information is returned or destroyed by receiving party.
4. Indemnity Clauses
Indemnity provisions in construction contracts can be tricky. When written too broadly, indemnity clauses can shift liability and lead to disputes; on the other hand, more narrowly tailored indemnity clauses can protect contractors against claims by third-parties for bodily injury or property damage claims from occurring.
Avoid legal drama by reviewing contract indemnity language to make sure it aligns with your insurance coverage and only includes liabilities for things you are accountable for. Be wary that in some jurisdictions broad indemnity clauses may violate public policy and be considered null and void.
By carefully reviewing and altering contract language, you can greatly decrease the risk of costly and time-consuming building disputes. In future posts, we will examine various site conditions, pay-if-paid clauses, changes, suspension of work, warranty liability claims liability policies as well as weather- and force majeure events to help better explain what to look out for and how best to address problematic contract terms.