September 18, 2015

Top 5 Tips to Avoid Ambiguity in Construction Contracts

Ambiguities arise in construction contracts for a variety of reasons. They often result from combining numerous documents – such as the principal agreement, general conditions, supplementary conditions, specifications, drawings and change orders – into a single contract. The rush to finalize contracts and change orders may result in conflicts being missed or other unintended consequences.

Avoiding ambiguity should be a primary goal when drafting and negotiating construction contracts. This helps ensure that you get what you want, including the bargained-for benefits of the contract, smooth contract administration and fulfillment, and avoidance of lengthy and expensive legal disputes. Follow these five tips to minimize ambiguities:

1.  Keep it simple.

Keep your writing simple, clear and concise. Construction contracts are read and interpreted by a wide variety of people, including judges with no knowledge of the construction industry. Using plain English and shorter sentences while avoiding legalese and redundancy will make your contracts easier to read and understand. 

2.  If it’s part of the agreement, include it in the contract.

If a contract appears complete and comprehensive on its face, courts will prohibit the use of other documents to give meaning to the parties’ intentions. Statements made during pre-bid meetings or negotiations will not be effective in contradicting express terms in the contract. Include all terms of the deal in the contract, or incorporate key documents by reference.

3.  Define key terms.

Courts give ordinary terms their ordinary meanings and technical terms their technical meanings. But the meanings of words cannot be divorced from the context in which they are interpreted, and parties often disagree on what terms mean in certain contexts. To avoid disputes, capitalize and define terms to attribute specific meaning. Then use the capitalized term as needed throughout the contract. 

4.  Include an order-of-precedence clause.

Because numerous documents make up construction contracts, conflicts may arise between requirements contained within the documents, such as the drawings and specifications. One way to address these conflicts is to include a clause providing that in the event of a conflict, the specifications take precedence over the drawings, or that contract documents take precedence according to a prescribed order of hierarchy. You may also wish to include a provision stating that what is required of any contract document shall be binding as if required by all.

5.  Make proper use of standard forms

Standard-form agreements such as AIA and ConsensusDocs are commonly used throughout the construction industry. However, as we noted in an August 2015 article, there are risks with using such forms because they are written broadly, they may contain terms that are inapplicable to the transaction at issue, and parties often use such forms without fully reviewing them. Even if both parties orally agree to terms that differ from what is written, oral understandings will yield to written agreements, so it is important to read all the terms before using standard-form agreements. Add terms you think should be included in the contract and delete terms that are inapplicable.

Keep the above principles in mind to help minimize ambiguities in your construction contracts.

[See Bruner & O'Connor on Construction Law §§ 3.6, 3.7, 3.11, 3.19, 3.31, 3.37, 3.40]

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