21 May Construction Contracts
Sponsored: Construction Contracts
ConsensusDocs creates fair and detailed agreements—especially in the time of COVID-19.
By Alexandra Pecci
In green building projects, every detail matters, and specifying those details in construction contracts provides a clear road map for reaching green building goals, whether it’s calling for certain sustainable materials, adhering to a project timeline or earning U.S. Green Building Council’s LEED certification.
But unforeseen events can disrupt even the most well-considered construction plans. That’s why flexible, easy-to-read, standard contracts that robustly protect all stakeholders are more important than ever.
For the past 12 years, ConsensusDocs have become an invaluable industry resource for such contracts. ConsensusDocs are standardized contract documents written by and for the design and construction industry and developed by the ConsensusDocs Coalition, a group of 40 design and construction industry associations.
The COVID-19 pandemic has illuminated the need for fair and detailed contracts in a way that few other events have ever done. The crisis has been fast-moving and confusing as it rips through the construction world, shutting down projects, sickening workers, requiring physical distancing and disrupting global supply chains. But ConsensusDocs is well positioned to help its stakeholders navigate those uncharted waters.
“Our standard document specifically mentions epidemics,” says Brian Perlberg, executive director and senior counsel for the design and construction contract organization ConsensusDocs.
A strong force majeure clause (which frees contracted parties from liability during an event beyond their control), along with language that specifically mentions epidemics, have helped excuse stakeholders from delays and supply chain disruptions, allowing for penalty-free project timeline extensions.
“If you don’t specifically mention [epidemics], you may not get extra time from your force majeure clause,” Perlberg says. “By providing a more comprehensive, detailed force majeure clause, we’ve gotten a lot of plaudits for how we’ve handled this unforeseen event.”
Clear language and attention to detail in the face of a pandemic isn’t the only reason ConsensusDocs is a go-to for construction contracts. As its name says, it aims to create consensus between all parties involved, fairly allocate risk, and protect the best interests of the project itself.
Improving on an industry standard
Although standard contracts for the construction industry have existed for a long time, they’ve traditionally been produced and offered by just one party, often leaving the other parties involved concerned that the contract is unfair. That’s not the case with ConsensusDocs, says Howie S. Ferguson, executive director of the Construction Owners Association of America (COAA).
“They’re fairer and more balanced when it comes to assignment of risk and responsibilities between the parties,” Ferguson says, noting that he doesn’t believe that the same is true for other standard contracts from organizations like the American Institute of Architects.
“Their documents, not surprisingly, tend to favor architects,” he says. “Same for other industry standard contracts.”
Historically, the remedy has been to amend those unbalanced contracts so much that “the modifications exceed the length of the standard document,” Perlberg says.
Instead of having a clear, concise, and fair contract from the beginning, stakeholders are left with what Perlberg calls a “Frankenstein project.”
“They’re sewn together with the dead body parts of every failed project that they’ve ever experienced,” he says.
ConsensusDocs aims to remove that cycle of repetitive renegotiation, creating contracts that are in the best interest of all parties, right from the beginning.
“The mission of ConsensusDocs is to identify best-practice standard construction contracts that help create better project results, primarily from lowering transactional costs from repetitively negotiating,” Perlberg says.
ConsensusDocs was founded in 2007 by 20 organizations in the architecture, engineering and construction industry. That founding principle of collaboration is key to success, creating a meritocracy in contracts, rather than a top-down approach that doesn’t adequately consider the expertise and input from other parties involved.
For instance, traditionally, “The architect of the project has been thought of as the decider and the one with authority and a certain level or prestige in that role,” Perlberg says. But, he adds, “many other project participants and stakeholders have roles to play and sometimes have superior knowledge.”
The key to fairness and success is creating “a structure to share that information earlier in the process,” he says. “Getting all that information; measuring twice and cutting once.”
Today, the ConsensusDocs Coalition consists of 40 organizations that collectively represent more than 300,000 individuals and companies. ConsensusDocs uses a tiered subscription model to offer more than a hundred different contract documents to its subscribers.
Ferguson says COAA’s decision to be part of ConsensusDocs was a wise one, because they’re “more inclusive of partner input and perspectives and [require] far less maintenance for our tiny staff.”
Flexibility is also key, Ferguson says.
“I believe most members who’ve purchased ConsensusDocs contracts aren’t necessarily using them as is,” he says. For instance, they might modify sections or articles that speak to how work is to be done on the owner’s premises, he says.
Since construction can be very litigious, creating an effective foundation is important right from the beginning of a project.
“Success depends on collaborating and working well together,” Perlberg says. “Contracts play a large part in creating a better foundation to communicate and collaborate.”
He says that over the past five years there have been more than 160,000 finalizations of contracts within the ConsensusDocs system. But one of the most impressive numbers for measuring the success of ConsensusDocs is “zero.”
“To date, there has not been one litigated case that has been a court-reported decision that is arguing over the interpretation of a ConsensusDocs contract,” Perlberg says. “Not being in court decisions … is a leading indicator that we’re not in as many claims, we’re not having as much litigation, and so that, to me, is a source of success. This is a situation where the absence of data is supportive of the premise that we provide a better foundation.”
Perlberg points to the Iowa Department of Administrative Services, which he says experienced formal claims—and sometimes multiple claims—on almost every project it did. But after making several changes and moving to ConsensusDocs in 2011, “They have experienced zero formal claims and have put over $400 million of construction in place,” Perlberg says.
Whether it’s encouraging a cooperative work environment or navigating an unprecedented global pandemic, the word “consensus” is the key to success for ConsensusDocs users.
“I think all of this leads in the same direction,” Perlberg says. “Getting people involved earlier, encouraging better communication and collaboration.”
3 Main Advantages to ConsensusDocs
According to Perlberg, ConsensusDocs offers three main advantages over alternatives:
1. They're easy to understand.
“You should be able to read and understand your contracts. Good legal writing is simply good writing,” Perlberg says. “That’s really important when you deal with the people who are actually using the contracts, not just the lawyers speaking legalese.”
2. They offer clear communication pathways.
While some contracts create contractual silos that actually restrict parties from communicating directly, ConsensusDocs creates a system to encourage helpful and direct communication throughout the construction process. They also encourage the contractor to be involved and add value throughout the process. “I think that’s one of the reasons you’ve seen less claims and litigation over our documents,” Perlberg says.
3. They’re flexible enough to embrace emerging trends.
It’s hard to believe that in the year 2020, many contracts don’t allow parties to rely on information conveyed in an email, but that’s the reality. “Construction is notoriously slow, legal is notoriously slow,” Perlberg says. In contrast, ConsensusDocs has always striven to be at the forefront of new technologies so it can properly address those technologies in contracts, whether it’s email or facilitating the use of innovative tools like building information modeling. “We have a track record of being first in addressing emerging trends as well as memorializing best practices, like using email,” Perlberg says. “We try to be flexible, innovative, and encourage emerging trends, so projects can be more innovative and be more efficient.”
The Green Building Connection
The ConsensusDocs green building addendum does two important things for stakeholders, says Perlberg.
First, it organizes a system to allow for “someone who charges ahead to help provide organization and direction for a project’s green building objectives.”
Second, it provides flexibility within the document for stakeholders to determine their own green building objectives. For instance, one project might specify a LEED certification goal, whereas another project might identify other objectives, such as using certain building materials or sourcing supplies locally.
Perlberg also notes that crises like COVID-19 should encourage green builders to consider building additional flexibility into their contracts regarding things like material specifications, since supply chain disruptions can make those materials impossible to access or too expensive to buy.
“There might be a need for flexibility in the substitutions process,” he says.