By Steve Rizer
If work on a construction project already has begun and a finalized contract is not in place, there are some important steps a contractor can take to protect itself in the event of a dispute, according to a paper submitted to the American Bar Association’s Forum on the Construction Industry Annual Meeting, which took place last month in New Orleans. “Notably, the contractor should keep precise documentation of all costs incurred and all scheduling, including delays.”
Such documentation should assist a contractor, “who is forced to sue under equitable principles, where no finalized contract exists,” according to paper co-authors Charles Sink of Farella Braun + Martel LLP, Cheri Turnage Gatlin of Burr & Forman LLP, and H. Bruce Shreves of Simon, Peragine, Smith & Redfearn LLP. The trio offered their suggestions both in the paper, entitled “Righting the Ship: Getting the Troubled Project Back on Course,” and during a presentation they delivered at the meeting.
“To combat any conflicts between the future finalized contract and any subcontracts, each subcontract should contain a provision making it subject to the future finalized contract,” the paper suggests. “This should insulate the contractor from conflicting responsibilities that could lead to potentially devastating budgeting shortfalls.”
As a final recommended step, a contractor in such a situation should submit its as-planned schedule to the owner for approval for incorporation into the finalized contract.
Paper authors strongly emphasized that proceeding in a project without a finalized contract in place is “an unwise decision.” Among other things, “a contractor performing work prior to the finalization of the contract faces the problem that it cannot possibly understand all of the terms and obligations that will be contained in the final contract. This lack of knowledge puts the contractor at a distinct disadvantage when responding to early issues on the construction site.”
The paper and session also focused on 11 other problems that can occur in the early stages of a project, such as those involving performance of work before insurance is provided and late issuance of a notice to proceed. For each problem examined, the authors offered potential remedies.
The ConstructionPro Network member version of this article includes additional coverage of the "Righting the Ship" session.