ConstructionPro Week, Volume: 4 - Issue: 4 - 01/30/2015

Are Onerous Terms Deliberately Hidden in Contracts?

By Bruce Jervis

Construction contract documents can be complex, which is another way of saying lengthy, redundant and laden with specialized terminology. Some would even say obtuse. But are the contract documents sometimes deliberately obtuse?

In one recent case, an indemnification clause was buried on page 86 of a 197-page subcontract, all single-spaced in black type. No effort was made to call the other party’s attention to the clause through the use of capital letters, a different type size or different color.

The indemnification clause, which was found in a section captioned Protection of Existing Structures, became pivotal in subsequent multi-million-dollar litigation. A federal appeals court ruled that the indemnification clause was not sufficiently conspicuous to be enforceable. It violated the Texas “Fair Notice Rule.”

Are onerous terms deliberately buried in voluminous contract documents, creating a trap for the unwary? Or, is every party signing a contract simply obligated to be thoroughly familiar with the content of that document? It is interesting to note that the court ruling in question benefited a large, sophisticated constructor – an entity with ample access to legal counsel. What do you think?

COMMENTS

I feel that the owner/engineer soliciting bids should have a section toward the front that address the following important issues:

1. Insurance Requirements

2. Indemnification

3. Time of Completion; Liquidated Damages

4. Who is paying for surveying, testing, etc.

5. Any special requirements like Guarantee period
Posted by: Paul Iwata - Friday, January 30, 2015 11:06 AM

I think it was deliberately obtuse. We run into this frequently and have learned to read more closely. Especially bid documents. It is time consuming but better than losing your shirt on a project.
Posted by: Deb - Friday, January 30, 2015 11:10 AM

I agree with the items above and wish to point out that AIA and other "Standard Documents" would have special sections for these types of issues. As an Architect we always advise using these types of documents and not "Owner" developed documents as those writing these are generally unfamiliar with the conditions and/or ignorant of these.
Posted by: G. Paul Matherne - Friday, January 30, 2015 11:13 AM

It might seem shady to deliberately hide something in a contract. However, it is incumbent upon the parties to the Contract to READ that Contract and understand it before they sign or otherwise execute the Contract. If you don't understand what you're signing, how much of a right do you honestly have to complain about the conditions of that Contract after the fact? The ultimate "Buyer Beware".
Posted by: ArchitectBabe - Friday, January 30, 2015 11:19 AM

I agree with both Paul's. The problem with indemnification terms is that owners or their lawyers tend to write them with overreaching liabilities bearing no logical attachment to the contractor's scope of work, employees, or subcontractors neglect or performance. This is a good reason to use AIA and other standard documents.

If the clause in question was fairly written and presented it would not have been an issue.
Posted by: Dan Murphy - Friday, January 30, 2015 12:10 PM

Does "not sufficiently conspicuous" mean it just wasn't in the right place? I always thought one would not want to capitalize, bold, underline, etc. Doesn't doing that imply you have to comply with this, but don't need to comply with other things not emphasized? I think you can't imply a party doesn't have to read everything but agree AIA and other industry-standard documents are correctly organized and have probably already been vetted for what is fair and enforceable.
Posted by: Michael Quinn - Friday, January 30, 2015 12:56 PM

ADD to the above

6-Identify and list any kind of permits and fees required.
Posted by: don - Friday, January 30, 2015 2:10 PM