AGC Contracts are Reborn

Nov 1, 2007 12:00 PM, By Tom Zind, Freelance Writer

Overcoming contract inertia

ConsensusDOCS, however, will probably gain traction over time, but definitely not overnight. Standard contracts, such as those developed and recently updated by AIA (see AIA Unveils Revised Contracts on page C29), dominate in the marketplace and aren't likely to be unseated any time soon. Furthermore, nothing can stop parties from drafting and trying to get others to sign proprietary documents, which critics say often contain the seeds of project-disrupting disputes that can end in costly, time-consuming litigation — byproducts that were in the crosshairs of ConsensusDOCS drafters.

Pressure from parties that helped draft ConsensusDOCs, though, could factor heavily into whether and how quickly the documents filter into the market. Parties that either see their interests better protected with ConsensusDOCS — or that value their “project-first” approach — are likely to lobby forcefully for their use.

Dan Walter, vice president and chief operating officer of NECA and president of ASC, advises electrical contractors (especially those serving as subcontractors on construction projects) to make their bids contingent on using either ConsensusDOCS 750 or AIA's subcontract (A401), both of which better protect their interests.

“That won't guarantee their use, of course, but it gives subcontractors the opportunity to keep the door open to withdraw a bid if they get offered a contract they don't like, as well as a strategy for negotiating better terms,” Walter says.

As one of several specialty contractor groups whose interests were represented by ASC during the ConensusDOCS drafting, NECA endorses the new contracts. Whether in the more common role of subcontractor, or even in cases where they're prime contractors, electrical contractors probably stand to benefit by participating in projects that use contracts that seek to head off rather than set the stage for conflict, Walter says.

“This will bring more uniformity to the contract-writing process, with the goal of having better understood terms that will allow the construction process to move ahead more efficiently,” Walter says. “Time is much more of the essence today, arguing for a more interactive sort of model.”

Walter notes, however, that ConsensusDOCS are still just one option. AIA documents, especially since they have been newly revised, also emphasize collaboration. In addition, they incorporate language and terms that protect subcontractors, he says.

Subs may see gains

Electrical contractors are likely to benefit most from the level playing field contracts. Provisions in ConsensusDOCS 750, a big majority of which were carried over from AGC's subcontract (AGC 650) gives subcontractors rights and protections that should help reduce risk exposure and give them greater assurance that they'll be paid for their work than when using proprietary documents.

While it doesn't right the ship entirely or reverse all inequities that subcontractors have traditionally borne, the ConsensusDOCS subcontract is a viable alternative for subcontractors, according to a contract attorney who reviewed a draft of the ConsensusDOCS 750 subcontract and wrote about it recently in ASA's journal, The Contractor's Compass.

“(Its) terms and conditions put the document firmly in the plus column for subcontractors,” wrote R. Russell O'Rourke, a principal in O'Rourke & Associates, Cleveland. “It largely stays true to the principles and best practices embraced by professional subcontractors.”

One ConsensusDOCS 750 term, drawn from AGC 650, entitles subcontractors to be paid by the general contractor within seven days of that contractor receiving payment. It also continues to limit withholding payment to subcontractors by stating clearly that a general contractor's obligation to subs is independent of the status of payments to them by owners.

“This former AGC 650 payment provision is a key one because it spells out that there's not a contingent payment agreement,” says Walter. “This contrasts with ‘pay-if-paid’ contracts. While many states have outlawed pay-if-paid contracts, it still represents a departure from many individually developed contract documents that are now in use.”

Also carried forward from AGC 650 are rights for subcontractors to stop work and recover costs of demobilization and remobilization if they aren't paid. The consensus contract gives the subcontractor a right to information regarding the owner's continuing ability to pay. The subcontract also addresses issues of indemnification, insurance, retainage, liens, and other terms relative to risk exposure that can determine whether the subcontractor makes a profit on a job or incurs crippling losses. In many instances, observers say, ConsensusDOCS 750 allows the subcontractor to breathe a little easier and ease the nagging fear of battles over taking responsibility for things he doesn't control.