Legal Talk: Modernizing your Construction Agreements
By: Andrew Prior, Shareholder, Pihl Law Corporation
Changes in technology, construction practices, and building codes are the primary focus of modernization within the construction industry.
However, companies should also take the time to periodically review their construction agreements to ensure the agreements: (a) are up to date on changes in the law; (b) reflect how the company expects a job to proceed; and (c) take into account lessons learned from past jobs or disputes.
Larger industry contracts typically have procedures in place to review and periodically incorporate changes in the law in a timely fashion. However, companies that draft their own contracts or modify templates often neglect this step.
The last ten years have seen important developments in areas that impact construction contracts. The obligation of good faith has been strengthened and may limit some clauses or conduct that used to be seen as standard within the industry. Due to a number of cases interpreting representations and warranties, the importance of precise contractual language has greatly increased.
As there have been many other changes in the past ten years, the failure to undertake a periodic review and revision process may mean a company is incurring significant unknown risk — risk that could have been avoided.
There is often a significant disconnect between how a company thinks an agreement is drafted and how a court is likely to interpret a given agreement. I have seen contracts that are entitled “Construction Management Agreement” yet have terms that are far more consistent with a head contract relationship. Companies often attempt to contract out of the Builders Lien Act, but this is not allowed at law. More importantly, I often see deposit and billing clauses that are not followed in practice and would be burdensome for a company given their banking relationship or when and how they pay sub-trades or material suppliers. Yet failure to follow these clauses could be seen as a significant enough breach as to entitle an owner (or subcontractor) to terminate a contract. Some companies are giving away, in essence, free arguments if a dispute arises. Periodically reviewing your agreements to ensure you understand the procedures that apply can help with this risk.
Finally, when jobs go well it is understandable that a company pays little attention to the written agreement. Written contracts are often ignored on a well-run job site. However, well-written contracts provide the majority of their value on difficult job sites by managing and limiting the dispute and possible fallout from the dispute. However, regardless how well-written an agreement, situations can arise that were not anticipated by the company or by the contract and a company may learn some hard lessons from that dispute. A final reason for periodically updating your construction agreements is to take into account those lessons. Modifying an agreement from time to time allows a company to prevent those problems by relying on real world experience.
Every company — not just within the construction industry — will also have general business agreements that should be periodically reviewed and updated. For example, written employment contracts can minimize severance obligations. If an owner is thinking of selling the business or introducing new partners, the absence of written employment agreements may negatively impact the value of the business.
As business owners undertake steps to modernize construction practices and technology, consideration should also be given to seeking legal and accounting advice with respect to existing agreements and to take into account current and future strategic plans.
Andrew Prior, Shareholder, Pihl Law Corporation
This article first appeared in the Spring 2017 issue of SICA's Construction Review Magazine. To read the entire magazine click here.
2019 Industry Awards of Excellence Winners
SICA announces 2019 Industry Awards of Excellence Finalists
Nominations sought for SICA’s Industry Awards of Excellence
50th Parallel Estate Winery Named Commercial Building Awards Winner
8th Annual Chair Dinner & Awards Celebrates Industry Leaders
Emil Anderson Construction Wins 2018 SICA Innovation Award
Record-tying number of Commercial Building Award Finalists
REPOST: Pattullo Procurement Strategy Takes BC Construction a Bridge Too Far
Response to the Province’s Community Benefits Agreement Announcement
2nd Annual Family Fishing Derby
Celebrating our Own - Terry Brown Receives CCA's Person of the Year Award
10th Anniversary of Heavy Metal Rocks in Kamloops
Celebrating Construction Month at Thompson Rivers University
Construction Industry Celebrates BC Construction Month at Okanagan College
Message Delivered, Message Received
TAX ALERT – Government Simplifies Measures to Rein in Income Sprinkling
Member Spotlight: Ok Excavating
Construction and Cyber Risk: An Overview
The Devil is in the Details: A Cautionary Tale about Filing Builders Liens
Could Tax Issues Throw Your Business Off Track?
Top Five Reasons for Having an Employee Benefits Plan
Kelowna Police Services Building wins Commercial Building Awards
Looking to Grow and Expand | Are you thinking far enough ahead?
A Businesslike Approach to Safety – A Safety Management System
Record number of Commercial Building Awards Finalists
All in the Family | Generations in business share their secrets
Insurance: Wrap Up versus Non Wrap Up. It’s important to know the difference. Do you?
5 ways your accountant can support you in strong real estate market
Maximizing Efficiency in Dispute Resolution: Help Tell Your Story
Building Information Modelling: A powerful tool for design efficiency
Heavy Lifting | A program for students interested in heavy equipment operation
Member Spotlight: Secure-Right Mobile Storage Inc.
The future is friendly: making the link between innovation and CSR
Legal Talk: Modernizing your Construction Agreements
As a Member you are a part of a collective voice, the SICA voice. Together, our voice is changing the construction community and helping your business grow through advocacy, networking events, affinity programs, direct business leads and more. Our voices promotes fairness, transparency and open communication in the construction industry. Join SICA to grow your business today and be a voice for our industry tomorrow.JOIN NOW