ConsensusDocs recently presented a webinar entitled “Contract Killer Clauses and How to Negotiate Out of the Them.” Rather than the party that is in the best position to manage and mitigate risk, construction contracts often shove risk down the throat of the weakest party in the contractual negotiation chain. This is not effective risk management. Studies indicate that contract amount may increase up to 20% to account for just the top five most abused construction contract provisions.
On the webinar, Brian Perlberg, ConsensusDocs Coalitions Executive Director & Senior Counsel, Kristin Protas, Vice President, Assistant General Counsel at Gilbane Building Company, and Mike Zisa, Co-Managing Partner of the D.C. office of Peckar & Abramson provided an overview of the top-ten killer clauses. The top ten killer clauses include:
- Scope of work & Site conditions
- Design liability
- No damages for delay
- Payment
- Change orders & claim notice
- Consequential/Liquidated damages
- Termination
- Indemnification
- Price Escalation
- Dispute resolution
Notably, design liability for builders and price escalation are recent additions to this list, as compared to a previous list the speakers created years ago. Ironically, the absence of a price escalation clause, in the face of today’s construction market of unprecedented price spikes and supply chain disruptions, is now considered to be a killer clause.
One strategy the speakers gave was looking towards industry-standard contract document provisions to neutralize unfair contract language that is often “original.” For instance, the ConsensusDocs dispute mitigation and resolution procedures, which empower parties to communicate directly early to defuse potential claims and litigation was cited as a provision that parties should consider prioritizing in their contract negotiations.
Another strategy for consequential and liquidated damages was to try to pair an incentives clause with punishment in a liquidated damages clause. An incentives clause should be roughly equal to the punishment in a liquidated damages clause. Otherwise, the proposed amounts in the liquidated damages provision may be more of a penalty than a fair punishment. ConsensusDocs publishes a model incentives clause in the ConsensusDocs Guidebook which you can find in reference to the ConsensusDocs 200 Owner/Constructor Agreement at section 6.7 of the AGC Comments pertaining to an award incentive.
Related Resources
2022 AGC/FMI Industry Survey and Report – Top Risks Today (presented January 2022, based on December 2021 data)