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How Poorly Drafted Construction Contracts Lead to Litigation

Contracts are the main determinant of construction disputes and related legal actions. You know this. Our Memphis construction attorneys know this. And so do project owners. In order to ensure the best possible outcome for themselves, owners often pressure contractors into signing contracts that are one-sided, designed to shift blame away from the owner no matter what. Although designed to prevent owner liability, these contracts don’t prevent litigation. 

Below, we discuss how poorly drafted construction contracts inevitably lead to litigation. If you’ve been pressured into signing a contract you’re not comfortable with, or you are now facing potential litigation on a project, know that a Memphis construction attorney with Cotney Construction Law can always help. 

Blame-Shifting Contracts  

As mentioned, owners will push for contracts that contain language and specific clauses that place the blame on contractors in the event of unforeseen issues, such as cost overruns, project delays, or construction defects. This is nothing more than a short-sighted attempt to prevent litigation, when in reality a fair allocation of risk is far more effective. 

Related: Allocating Risk With Your Construction Contract

Think about the top causes of construction disputes: scope of work changes, poor contract drafting, skills gaps, language gaps, and overinflated claims. When owner-created issues cause a contractor to lose money, they will naturally take a legal route no matter what the contract says. 

The best way to prevent litigation is to allocate project risks to the parties most responsible. When neither the owner nor the contractor is in direct control of a risk, the party who can best protect against a loss should be held responsible. Everyone’s goal is to ensure project completion, and a well-drafted contract does just that. Consult a Memphis construction attorney if you would like your contracts reviewed for blame-shifting language. 

Bare-Bones Contracts 

As of the time of this writing, COVID-19 (coronavirus) is posing a serious risk to the Chinese economy, which could affect global markets. While obviously beyond your control, your contracts should nonetheless be comprehensive enough to account for contingencies like this, no matter how outlandish they appear to be. Inclement weather, scarcity of supplies, and unavoidable accidents are just a few of the more common issues that can be encountered on any jobsite. 

Related: How Contractors Can Remain Steady in a Tumultuous Industry

Too often, owners will stick to a bare-bones contract that doesn’t include language or clauses, such as a force majeure clause, that account for unforeseen issues. Worse still, owners will pressure contractors into signing contracts that prohibit recovery in the event of an unknown issue. 

Like a force majeure clause, a differing site conditions clause and an equitable adjustment clause can help to ensure project completion in the face of adverse conditions. For example, imagine if an owner on one of your projects failed to perform a subsurface investigation. Without a differing site conditions clause, you may be on the hook for hidden conditions that could threaten project completion. 

Related: Worst-Case Scenario: The Construction Contract

In the absence of these necessary clauses, responsible contractors can be underbid by desperate contractors who just want to win the bid. Litigation is inevitable when neither side is protected against unforeseen issues. 

The Wrong Type of Contracts 

Sometimes a contract is poorly drafted through no fault of the owner. Sometimes it’s just a bad fit for a project. Lump sum contracts, cost plus contracts, and time and materials contracts are some of the most common types of contracts that you’ve likely already worked with — the most popular being the lump sum contract. 

The lump sum contract is a popular choice because of how straightforward it is. The owner and contractor agree to a set price for work — it doesn’t get much simpler than that. This is beneficial for removing any uncertainty as to who is responsible for what on a project. However, due to its simplicity, this type of contract can be a detriment to contractors in the event that project costs rise beyond what is stipulated in a contract. 

Related: Exploring Different Types of Construction Contracts

Cost plus contracts and time and materials contracts are growing popular for the above reasons. Under these contracts, an owner takes on additional costs that would normally be paid for by a contractor. But these types of contracts can bring their own sets of issues by blurring the lines between which party is responsible for project management. And when there is room for misunderstanding, there is room for litigation.  

For Contract Negotiating, Drafting, and Reviewing 

If your company is serious about avoiding litigation, the best thing you can do is to consult a Memphis contractor lawyer from Cotney Construction Law. Our team of attorneys is well versed in contract negotiating, drafting, and reviewing. Not only can we review your contracts for errors and blame-shifting language, but we can also negotiate contracts on your behalf to ensure that it fairly allocates risk. 

The goal of all parties involved should be to safeguard project completion, not preemptively win a lawsuit. By partnering with an affordable, on-demand attorney, you can ensure that your contracts mitigate risk without unfairly placing responsibility on any one party. While our attorneys strive to prevent disputes when possible, they are equipped to represent you in the event that litigation is unavoidable. For all of your contract-related needs, partner with the team of attorneys from Cotney Construction Law. 

If you would like to speak with one of our Memphis contractor lawyers, please contact us today.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.