An Owner, General Contractor, and Subcontractor Walk into a Contract Negotiation Room and Agree on One Thing: ConsensusDocs is Extremely Helpful

Cost-of-the-work agreements (aka “cost plus” contracts) are commonly used in commercial construction contracting to establish the terms and conditions for a project based on the cost of the work performed.[i] The major families of standard construction contracts include a cost-of-the-work plus overhead and profit in their product offerings. In light of price escalation, supply chain disruptions, and rampant inflation, cost-plus contracts have been identified as a contracting tactic to address price uncertainty that still runs rampant in today’s design and construction industry. ConsensusDocs is offering a webinar that will take a deep dive into cost-of-the-work agreements and factors in evaluating if, how, and when to set a guaranteed maximum price (GMP) on such agreements. You can register for the April 26th webinar here.

The most significant construction cases include claims related to scope gaps, design changes, delay damages, lost productivity, cumulative impacts, and bad administration, according to John Sebastian of the law firm Watt Tieder who was one of three presenters on ConsensusDocs’ recently held a webinar on 10 Risk Management Maxims that Will Change your Approach to Project Delivery. Owner maladministration includes not responding to requests for information (RFIs) in a timely manner, and not responding to time extension requests. “The big cases always have indecision at their root cause. The worst decision is indecision,” Mr. Sebastian said, adding that “indecision in itself is a decision and ultimately becomes a big piece of what litigation disputes fight about.” The ConsensusDocs risk management webinar shared many important lessons learned from the battlefield of construction projects gone wrong that wound up in litigation.

In AGC’s annual survey with FMI, the top risks identified included price increases in materials and equipment, lack of skilled/craft labor as well as lack of field supervisors. While most respondents reported moderately higher or significantly higher backlogs today compared to the end of 2021, 70 percent of them admitted having a low labor force relative to backlog demands. Furthermore, almost 40 percent of survey respondents reported an increase in subcontractor defaults compared to a year ago.

Engineering News-Record (ENR) Magazine recently wrote a thought-provoking article entitled “Will Claims by Contractors on Big Design-Build Projects Ever End?” Progressive design-build is mentioned as a means to address some of the critiques that design-build faces today. Progressive design-build has attracted increasing usage on larger projects, especially horizontal construction.[i] So is progressive design-build (PDB) as good as a PB&J sandwich with the crusts cut off? And if so, what does that mean for standard form contract language around this approach?

Do you need help managing risk and delivering successful projects in the construction industry? Join us for a ConsensusDocs March 22nd webinar that will explore the key factors contributing to a successful project delivery process and highlight the risk management maxims that can help maximize your project’s chance of success. Register for the March 22nd webinar that will take place at 2 pm EST here https://bit.ly/agc-cd-w23q1. Each registration includes a copy of the recording.

In light of price escalation, supply chain challenges, and inflation, more industry practitioners are considering and using cost-of-the-work agreements that may or may not include a guaranteed maximum price (GMP). ConsensusDocs publishes several cost-of-the-work agreements and recently released a new standard contract document to support a cost-of-the-work agreement with a GMP as well as a directed change order standard form.

Prefabrication continues to grow in usage and impact. It is a hybrid of construction and manufacturing. Also, prefabrication includes on-site and off-site performance requirements. As such, several interesting legal issues arise that must be addressed contractually. Consequently, ConsensusDocs has just published the ConsensusDocs 253 Standard Agreement Between an Owner and Prefabricator.

The most used ConsensusDocs standard contract document is the ConsensusDocs 751 Standard Short Form Subcontract. The Associated General Contractors of America (AGC), through its Contract Documents Forum, has just released comments to this popularly used standard subcontract document. These comments can be found at www.agc.org/contract as a member-only download on the bottom-right side of the webpage. General contractors will want to consider these comments in tailoring subcontract language for their own project-specific purposes – regardless of whether they are using a standard form or bespoke contract.

ConsensusDocs and JAMS share common dispute mitigation and resolution goals and bring together a talented group of neutrals to contribute to better and more efficient construction contracting. ConsensusDocs (a family of standard form construction contracts promulgated by 40+ participating construction industry associations) provides form contracts that foster open communication pathways among the parties, a balanced allocation of risks, and avoidance or early mitigation of disputes. JAMS (a leading provider of arbitration, mediation, and related dispute resolution services through a select panel of distinguished neutrals) shares common goals with ConsensusDocs in promoting efficient and cost-effective resolution of the disputes that arise on construction projects – when they are unable to be avoided. Recognizing these shared interests, ConsensusDocs forms specifically identify JAMS mediation and arbitration among the types of alternative dispute mitigation and resolution offered.