Construction Law: Construction contract formats Does the contract truly reflect the parties’ mutual understandings? Canadian Design and Construction Report staff writer Construction lawyer Debbie Bellinger says the most im- portant consideration in construction contracts isn’t the legal wording or contract form – it is whether the contract truly reflects the mutual understanding between the parties to the agreement. “If you feel you are about to get hung out to dry it is probably not a good contract,” the partner with Nelligan O’Brien Payne LLP told a Construction Specifications Canada (CSC) Ottawa chapter gathering, where she ex- plained the characteristics, advantages, and challenges with different contract formats. “If you have trust between the parties, the contract will be that much better.” “The form of the contract is not the foundation of a good project. A good project (happens when) the understanding of the parties is clear, including their scope and obligations, she said. Bellinger said there is “always a danger of disconnect” between the people negotiating the contract “and the peo- ple on the ground – the project manager and site people” and she said the ground level insights “are as important in assessing risks” as those in the lawyer’s office. She said “the paper contract is nothing more than the reflection of the intention and understanding of the parties with respect to a promise. “The contract is only as good as the whole of the con- tract documents and the mutual understanding of the par- ties.” She said well drafted contracts, regardless of form, goes beyond the key obligations and shifting of risks. The contract also: • Sets out processes and procedures; • Sets out benchmarks for expectations; • Sets out a means to record changes; • Sets out a means for resolving and preventing disputes, including the consultant, locale, choice of arbitrator, and the costs of arbitration and process; • Confirms the obligations of the parties; and • Allocates risks and rewards. 10 – July - August 2016 — The Canadian Design and Construction Report Bellinger said there are real challenges with enforcement terms when things go wrong. “There’s a real break point determining which disputes are worth fighting and which aren’t,” she said. There is always merit in “trying to work it out without lawyers.” Bellinger says one of the biggest mistakes made is when shortcuts are taken in drafting contracts by lifting conditions and content from other projects and applying them when they aren’t appropriate. The standard form con- tracts work well, but it is important to fill in the details cor- rectly and “when you start tweaking one part of the standard form” you have to consider “what impact it will have on others.” “Don’t skip over developments of common understand- ing when negotiating,” she advised. “Don’t hand off the drafting of the contract document to someone else.” The choice of delivery model will depend on a variety of circumstances including the owner’s experience level, fi- nancing/lending requirements, the budget and status of de- sign, the schedule and pressures on schedule, and quality versus price. “There is a danger if you push too much risk to the other party, if you end up in dispute, the other party is going to push back,” she said. Bellinger then outlined the different contracting models, excluding Public/Private Partnerships (P3s) because these complex undertakings have their own special challenges. Fixed price This standard contract format “allocates the majority of the risk on prices, schedule and performance to the con- tractor” – the owner’s only exposure and liability relates to the obligation to pay the fixed costs. Not surprisingly, the biggest challenges occur when there are “changes in the scope of work, delays or other factors that are beyond the contractor’s control” resulting in change orders. “Detailed specs and plans are essential for avoiding cost cutting on the part of the contractor and disputes as to scope of work in the fixed price.” There can also be chal- lenges if there are changes in the building code between the bid date and the issuance of the building permit.