Are You Managing Your Contract Risks, or Are

Contract Risks Managing You?

By Carrie L. Ciliberto & Robert H. Pratt

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One of the most important things for contractors to consider before signing a contract is whether
the agreement properly allocates project risks.
While it cant be known in advance which contract provision will be most critical in the event of a
dispute, certain known risks should be addressed prior to signing. Several provisions that address
risk allocation are called contract killer clauses. ConsensusDocs, the only standard contracts
written by a coalition of more than 40 leading design and construction industry associations,
illustrates best practices regarding these contract provisions.

UNKNOWN SITE CONDITIONS

In general, contractors should make sure, whenever possible, that the risk of unknown site
conditions does not fall to them. If that risk shifts from the owner to the contractor, the contractor
needs to carefully evaluate the potential liability that could arise from such unknowns, and the
proposed schedule and pricing should reflect those unknown risks as much as possible. For
example, generally contractors should not take on the role of site and site document inspectors.
Good contracts hold a contractor liable for only what can be observed by a reasonable inspection
of a project sites surface conditions, but no independent subsurface exploration is expected of the

contractor. If a contract provision has the contractor obligated to study and compare contract
documents to uncover errors, or to verify site conditions or report on site conditions, the contractor
is undertaking a risk that is likely not desirable and possibly not insurable.

CONSENSUSDOCS COALITION ELECTS 2015 CONTRACT CONTENT

ADVISORY COUNCIL LEADERSHIP
ABC representative Melissa A. Beutler,vice president of risk management for Big-D Construction in
Las Vegas, was elected chair of the 2015 Contract Content Advisory Council. Robert H. Pratt, vice
president and principal of Demand Construction Services, Inc. in Denver, and American Society of
Professional Estimators (ASPE) representative was elected vice chair. Philip E. Beck, partner at
Smith, Currie & Hancock LLP in Atlanta, and The Associated General Contractors of America
(AGC) representative is the immediate past chair.
For example, if a provision states that the contractor has reviewed the site and applicable
documents and is satisfied that the contractors pricing is sufficient to cover all work, including all
foreseen or unforeseen risks, including any concealed or subsurface variances, the contractor is
likely taking on an unnecessary and burdensome risk, especially in regard to the italicized
language. In general, the owner is in the best position to know or have actual site conditions
documented, and to bear the risk of unknown variances. Most owners do not want contractors
including sizeable contingencies in their bids to cover unknown site conditions. The
ConsensusDocs 200 Owner and Constructor Agreement provides a good example of fair risk
allocation.
It is critical to have an established order in which contract documents will be given weight in the
event of a conflict. As a project progresses, there can be changes made along the way that
necessarily create conflicting contract documents. Such documents can include supplemental
instructions and responses to RFIs, and even verbal directives from architects, engineers or owner
representatives. He who has the gold, makes the rules is not a best practice. Contractors should
be watchful and insist that any change in scope be memorialized in a written change order.
ConsensusDocs contracts provide a clear order for interpreting conflicting documents, which helps
prevent unnecessary delay and expense. In general, the most recent contract documents govern
with change orders being paramount. The thought being that while the parties may have
understood the project needs at the time of contract signing, project developments, whether they
are based on site specifics, evolving owner needs, revised designs, financial considerations or
other issues, sometimes project needs must change. If that is the case, it is most common that the
change order will detail those project changes and the related effects on price or schedule. Change
orders should always be in writing and signed by the relevant parties. As such, in the event of a
dispute, the more recent change order should be given more weight than a conflicting provision in
a contract that was signed in the past.

OWNER FINANCIAL INFORMATION

Does the contract provide adequate opportunities for the contractor to request owner financial
information throughout the life of the project? Some standard contracts provide the opportunity for
owner financial information requests at the beginning of the project, but often that opportunity is
lost, at least in practical terms, once construction begins.

The ConsensusDocs 290 Guidelines for Obtaining Owner Financial Information and 290.1
Financial Questionnaire provide an easy and direct way for contractors to quickly determine the
financial viability of projects. Contractors value ConsensusDocs-based projects because they
clearly possess the contractual right to request and obtain financial viability information throughout
the life of the project.

DISPUTE MITIGATION AND RESOLUTION

The best time to determine the process for addressing and resolving issues and disputes is before
they arise. ConsensusDocs provides a multi-tiered process to address issues, and focuses on
open and direct communications. Rather than the traditional silo and funnel approach to project
communications, ConsensusDocs emphasizes direct communications at the first instance, with a
tiered acceleration process. This provides for quicker resolution of issues before they escalate into
intractable claims. All parties benefit from clear, direct and efficient issue resolution through the
minimization of misunderstandings, miscommunications, unnecessary meetings, delays and
disruptions.
When confronted with an agreement with provisions that shift risk inappropriately, contractors
should try to educate the owner on how these provisions can negatively affect project price,
schedule, project team and overall success. Often owners dont realize that by shifting risks
unnecessarily, they pay more than would otherwise be necessary if the party in the best position to
manage the risk did so.
In the end, by thoroughly vetting a contract before signing, contractors will better understand their
roles, responsibilities and potential liabilities. ConsensusDocs are the first and only consensus
standard contracts written by and for designers, owners, contractors, subcontractors and sureties.
A fair and balanced contract helps contractors procure the best team and the best pricing to
provide better project results, and better project results facilitate future business.