Construction Contract
Top Ten Construction Clauses - the “Work” Clause
Saul Ewing LLP
March 25, 2015
This clause defines the scope of work in a construction project and the definition varies by source. For instance, American Institute of Architects Document A201-2007 defines "Work" as "construction and services required by the Contract Documents, whether completed or partially completed, and includes all other labor, materials, equipment and services provided or to be provided by the Contractor to fulfill the Contractor’s obligations." The ConsensusDocs Standard Agreement similarly defines "Work" as "construction and services necessary or incidental to fulfill the Constructor’s obligations for the Project in conformance with this Agreement and the other Contract Documents. The Work may refer to the whole Project or only a part of the Project if work is also being performed by the Owner or Others."
Legal pitfalls
Legal disputes over work clauses are on the rise yet contractors and owners alike tend to overlook them because they believe other contract documents specify the scope of the work in sufficient detail. Consequently, litigation ensues.
Court interpretations add little clarification because typical scope clauses are so broad. In Turner Const. Co., Inc. v. U.S., for example, one court stated that "Work" is defined "by the contract itself and its express and implied terms and conditions, interpreted consistent with trade custom and practice, as circumscribed by public policy considerations and by legal excuses for nonperformance." In a dispute between Travelers Casualty and Surety Co. and the Dormitory Authority of the State of New York, the Southern District of New York went so far as to hold that anything that is "reasonably within the contemplation of the parties at the time of contracting" can define the work thereby limiting recovery of costs for work outside the scope. The court added, "where complicated, high-dollar value contracts are at issue, courts are skeptical of claims that certain risks were ‘uncontemplated’ at the time of contracting." Such interpretations render the scope clause virtually useless inasmuch as it can mean anything that a party "reasonably" believes it does.
Design/build contracts are particularly fraught with legal risk given that the scope can change significantly throughout the early stages of the project. The Eighth Circuit’s decision in O’Brien & Gere Technical Serv., Inc. v. Fru-Con/Fluor Daniel Joint Venture is a study in the pitfalls of design-build arrangements without a clearly defined scope. Because the scope was ill-defined in O’Brien, the Eighth Circuit held that disagreements over what "documents defined the base scope of the work and the design stage from which work changes should be measured" actually resulted in abandonment of the subcontract. All of this ambiguity spells unnecessary expense for parties to contracts containing broad clauses defining the scope of the work.
Minimizing litigation risks
Precise contract specifications that are well-defined in every material respect combined with detailed contract administration can help narrow overly broad scope clauses and, thereby, reduce the likelihood of costly litigation over the scope of the work performed. Some suggestions:
- Incorporate a separate and clearly defined Scope of Work with remaining contract documents such as plans, specifications, general and supplemental conditions and minutes from kick-off meetings.
- Define the deliverables in each phase and project objective; make them clearly measurable.
- Clearly identify exclusions, retained services, unforeseen conditions, and trades outside the contractor’s control or under the owner’s control.
- Predict the unpredictable: raise potential problems, even if highlighting them early in the project seems counterintuitive, to avoid bigger headaches later.
- In design/build arrangements, identify milestone points at which to revisit the scope of the work as plans develop.
- Rank contract administration as paramount, particularly when bids are based on preliminary or incomplete plans and specifications and in design/build arrangements.
- Identify administration milestones in the project planning schedule to document and verify changes in scope.
- Vote early/vote often: scope problems tend to follow a project from its early stages, magnifying along the way. Address them early in the project and document the issues, negotiations and resolutions in a careful, detailed manner.
The content of this article is intended to provide general information and as a guide to the subject matter only. Please contact an Advise & Consult, Inc. expert for advice on your specific circumstances.
SOURCE: www.saul.com