Your construction contract is an important topic. What’s even more important is YOUR process for reviewing and negotiating construction contracts.
Are you simply acting as a riverboat gambler willing to assume undue risk because you don’t value the investment in understanding what you are signing? If so, it becomes hard to complain about what you agreed to and signed when you chose NOT to invest in the process. Investing in the process means you are working with a construction attorney, you have an insurance broker that understands your industry, you have resources in place to ensure risk is negotiated and allocated, and you understand what risk you are assuming to make sure you are properly protecting and perfecting your rights, and transferring risk downstream.
When it comes to construction contracts, there are really three approaches:
1. Riverboat Gambler. This is the “I’ll sign whatever you give me because I don’t want to lose the contract / revenue.” Under this approach, you are not worried about undue risk because you don’t value the investment in the next two approaches. Your thought process is that you’ll care about the risk when an issue pops up, i.e., the riverboat gambler. This is not an approach I’d recommend because it is contrary to the adage, “an ounce of prevention is worth a pound of cure.” This is simply a reactive approach to issues and risks. The other two approaches are more proactive and better suited to understand and manage risk.
2. Budgeted Approach. Under this approach, you budget a certain amount of money to work with a construction attorney. The attorney works within this budget to provide you bullet points, red-line suggestions, or comments for consideration (e.g., adding PDF comments) within your budget and you factor this input into your business decision and negotiation. Based on this, you can consider whether to expand the budget or take the lead in the edits and negotiation. This approach is good for parties that have experience in understanding and allocating risk and negotiating deal points, and value the budget they are allocating.
3. Invested Approach. This is the most proactive because you are investing in resources to make sure you understand risk, allocate risk, negotiate risk, have the right resources and insurance for risk, educate your team on risk, and are willing to digest and consider deal points. This means working with a construction attorney on contracts as-needed based on your level of sophistication and experience and ensuring you have the right insurance broker that understands your industry and risks. This means an attorney would be engaged in red-lining contracts, negotiating contracts, and working with you and your insurance broker to make sure you understand assumed risk. An attorney prefers this approach because it is a value-added service.
Please reach out to me if you are interested in discussing the second or third approaches. Again, these are more proactive approaches for those that value and appreciate the risk and don’t want to be purely reactive. Since everything starts and ends with your contract, the riverboat gambler approach should be a non-starter to you. There is too much risk in construction to be a riverboat gambler.
Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.