Construction projects come with significant risk as business owners can never be 100 percent certain that the price they agree to pay at the front end of a project is what will have been paid when the project is completed.
“Construction is much more than just the cost of doing business,” says Peter Berg, an associate at Kegler Brown.
“Significant cost overruns or delays in construction can cause major disruption to a company’s business plan.”
With all of the risk involved, business owners need a way to protect themselves. A construction contract created with the help of form construction documents is a relatively easy way to put protections in place that are needed to prevent a disaster from occurring.
“Form construction documents offer the protection you need against significant risk at a small cost,” Berg says. “A construction attorney can guide you through the selection process and suggest modifications needed to better protect your interests.”
Smart Business spoke with Berg about form construction documents and how to use them.
What are form construction documents?
Form construction documents have been pulled together over the years by reputable organizations and are readily available, often online, for relatively small fees.
Form documents can be used for the construction agreement itself, which establishes important touchstones like the project cost and time of construction, but can also include more detailed provisions known as ‘general conditions,’ which lay out the rules everyone must follow on the project.
Form documents can be simple one-page documents with the bare essentials to something much more complex. They can be used on your kitchen remodeling, but they also can be used, and are used on multimillion-dollar projects.
The most well-known entity to produce form construction documents is the American Institute of Architects (AIA), which publishes almost 200 different form documents with various applications in the industry. Other documents are available, however, and should not be overlooked.
The AIA’s biggest competitor is ConsensusDocs, which publishes form construction documents that many regard as being fairer to all parties involved on a typical construction project. Larger contractors often have their own in-house form documents. If you’re asked to sign a construction agreement prepared by the contractor, it’s advisable to consult with an attorney before signing.
What are the advantages of using form construction documents?
These documents are relatively inexpensive and provide valuable flexibility to deal with project-specific risks. While larger projects often require lawyers to negotiate the finer points of the agreement, on many projects, owners can use form construction documents without much change. This allows the owner to be protected while at the same time, not committing a large amount of resources that can be better used elsewhere.
Form documents reflect best practices and are used routinely in the industry. They help ensure everyone is on the same page as far as what is expected of each project participant.
Using form documents also helps contractors and subcontractors price their work as they have a better idea of the risk being assumed. Greater certainty as to risk often leads to lower overall cost.
How important is due diligence when using these documents?
Often, form documents are used with too little thought as to what form document is best for a particular project. The same way we wouldn’t use a hammer to slice bread, the form we use needs to match the task at hand.
Do not use a form document on a project where the form envisions or requires relationships that do not exist or are not needed. For example, construction agreements should not include the architect if the parties never intend for the architect to work on the project after producing the design. This is counterproductive as it creates ambiguities which actually increase risk, rather than guard against it.
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