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 – September 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.