By Creighton P. Dixon of Snell & Wilmer LLP
Originally published in the November 2023 edition of Snell & Wilmer Under Construction
We began the year discussing an insurance checkup for those working in the construction industry. Now, we are following up with a discussion of issues for a contract checkup, specifically for your ongoing long-term projects. As the year ends, this may be a good time to pull your contracts out and ensure they reflect what has happened on the job since work began. If they do not reflect reality, it is often better to try and fix things now – or document the changes now – than to wait until a problem arises.
One thing you should consider checking is the scope of the work the contract requires. For example, if you are the owner, does the contract require your builder to provide the building you expect? It can be issues as small as ensuring fixtures are properly included to as significant as including an additional wing for the hospital. While it is common for jobs to evolve with additions (or deductions) over time, it can be critical that the contract documents reflect what the parties are building. You may have had many meetings where the changes were discussed. Though meeting minutes will be helpful to determine the scope of work, if there is a dispute down the line, the better practice is to document scope changes consistent with your contract’s requirements.
Another related issue is price. If you are a contractor building a project on a lump sum or fixed price, you want to ensure that all scope additions are included. Likewise, if you are an owner and have cut a room or wing from the final project, you want to ensure you are paying less. Timely change orders are a common way to change lump sum or fixed project pricing to reflect scope changes. But this contract review is not limited to lump sum pricing. If you are a contractor billing a job on a cost of the work basis, the end of the year can be a good time to ensure the prices you are charging reflect your actual costs.
Another important issue is schedule, and it is the same question for owners and contractors: are you on schedule? If not, why not? If you are the contractor and behind schedule, are your delays excused, compensable, and properly documented? It is often better for everyone involved in the project to catch any schedule slippage early on so that the parties can implement a recovery plan (or not) and begin to determine who will bear the cost of the slippage.
Finally, there are a number of administrative issues you should consider examining. Who does the contract list as your company’s point of contact or person to receive any notices? Is he or she still with the company? If not, now may be the time to ensure you’ve complied with the contractual requirements to update that role. Other issues for contractors can include ensuring you have submitted any claims you may have for the owner’s review. Many contracts require the contractor (and its subcontractors) submit claims within a certain number of days of discovering the claim. Since strict compliance with such a requirement may become an issue raised during litigation, claimants are generally better served getting their claims in earlier rather than later, in order to avoid arguing about whether the claims and notice procedures were followed.
To close, owners and contractors often only think about their project’s contract at the beginning of a job, or at its end, or when there is a high-pressure dispute. As this year closes, you should consider bucking that trend and review your contracts to ensure they reflect what you are doing on the job.
Creighton P. Dixon is an Associate with Snell & Wilmer LLP. He primarily advises clients in three areas: construction law, water law, and commercial litigation. Dixon’s construction practice includes advising owners and contractors as it relates to contract negotiations, licensing concerns with Arizona’s Registrar of Contractors (ROC), the Prompt Pay Act, and disputes between the parties, including mechanics’ and materialmen’s liens. He can be reached at cdixon@swlaw.com or 602.382.6408.