5.4 Contract Formation

• Library: Virginia Construction Law Deskbook (Virginia CLE) (2019 Ed.)

5.4 CONTRACT FORMATION

5.401 Basic Requirements. To be enforceable under Virginia law, a contract must contain the following fundamental prerequisites: competent

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parties, legal subject matter, valuable consideration, and mutual assent. ¹¹⁹ The concept of mutual assent or "meeting of the minds" is paramount to all enforceable contracts. ¹²⁰ For there to be a contractual agreement the parties must agree on the terms and conditions, and the minds of the parties must agree on every essential detail of the contract. ¹²¹

5.402 Standard Form Agreements.

A. In General. Standard form agreements have long served an essential function in the construction industry. ¹²² They outline the fundamental terms and conditions of the construction or design agreement with the overall purpose of providing convenient, economical, and tested ways for parties to enter into a contract for design and construction services. Modifications to standard form agreements generally must be clearly indicated to alert the non-drafting party to variations from the standard provisions. Standard forms have gained wide acceptance in the construction industry, and they continue to be used extensively throughout the commonwealth. The acceptance and wide use of standard form agreements helps to foster greater certainty about the parties' rights and responsibilities during the design and construction of a project.

Standard form agreements generally consist of several documents that are combined to form one cohesive set of contract documents. Often gathered and included in a project manual, the core documents usually include: (i) a signed instrument laying out the basic terms of the agreement, including names of the parties, project description and location, price, and other details; (ii) general conditions that specify the remaining fundamental terms of the agreement; (iii) supplementary conditions that modify or augment the general conditions; (iv) project specifications and drawings; and (v) performance or payment bonds, if applicable.

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Since standard form agreements consist of multiple documents, changes to one contract document may require changes in the other documents to avoid inconsistencies or ambiguities. Therefore, careful review, drafting, and coordination of terms and conditions are required even when using standard form agreements. In addition, many standard form agreements include an "Order of Precedence" clause to deal with conflicts or ambiguities that may arise in the various contract documents. The order of precedence clause provides guidance for resolving conflicts and instructs the reader that certain documents or provisions will take priority over conflicting provisions found elsewhere in the contract documents.

B. American Institute of Architects Contracts. The American Institute of Architects (AIA) has been drafting standard form contracts for construction projects for over 100 years. ¹²³ The original AIA Contract Documents have expanded to include over 100 forms and documents defining terms and relationships involved in the design and construction of projects. The AIA Contract Documents are prepared on a consensus basis and this preparation involves owners, contractors, design professionals, attorneys, and others. The documents are periodically updated to conform with current industry practices, and in 1987 the AIA issued its core documents in successive versions, or "editions." The AIA updates its documents every ten years to keep up with industry trends and court decisions, ¹²⁴ most recently in 2017 and 2018. ¹²⁵ The AIA documents are the most widely used standard forms of agreement in the construction industry.

AIA Contract Documents are organized into "families" based on the type of project and delivery method, and they are grouped by "series" based on the use of the document. Documents in the same family are organized together on the basis of legal and working relationships raised by the chosen project type or delivery method. Documents in the same family are linked by common procedures and terminology and usually adopt one another by reference. For example, the recently updated AIA Document A201-2017— General Conditions of the Contract for Construction is adopted by reference in several 2017 agreements, including A101, A102, A103, A401, B101, and B103. Documents found in a series reflect the purpose of the document; for

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example, owner-contractor agreements are found in the "A" series and owner-architect agreements are located in the "B" series.

As with many standard form agreements, the AIA Contract Documents are intended for nationwide use and are not drafted to conform to the law of any particular state. Due to the long history of use of AIA documents in the construction industry, however, a substantial body of law has developed interpreting the AIA Contract Documents. ¹²⁶

C. Associated General Contractors of America Contracts. The Associated General Contractors of America (AGC) was founded in 1918 at the request of President Woodrow Wilson. ¹²⁷ AGC has promulgated standard form contracts for decades, and their standard contract forms have been widely used throughout the construction industry. In September 2007, however, the AGC essentially folded their standard contract document program into the ConsensusDocs ¹²⁸ process. ¹²⁹ In spite of this, entire AGC standard form agreements and many of the provisions found throughout AGC's documents have been fully adopted or integrated into the ConsensusDocs family.

The ConsensusDocs coalition—a consortium of 40 associations representing owners, contractors, subcontractors, designers, and sureties ¹³⁰ is the newest construction industry group to begin publishing standard form agreements for the construction industry. The ConsensusDocs family consists of over 100 contracts and other related forms. ¹³¹ During the consensus process, The ConsensusDocs group identified the following key issues

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addressed by parties during contract development: risk allocation, indemnity, consequential damages, liquidated damages, dispute resolution, and payments.

The ConsensusDocs catalog includes complete "families" of documents for each project delivery method that provide a coordinated set of agreements and administrative forms. ¹³² The ConsensusDocs agreements, therefore, address each of the traditional concepts of: (i) general contracting, which includes contracts that reflect the owner-designer relationship; (ii) design-build; (iii) construction management, including both at-risk and as-agent documents; (iv) subcontracting; and (v) program management. There also are short-form agreements that address the Owner-Contractor (CD 205), the Owner-Design Professional (CD 245), and the Contractor-Subcontractor (CD 751) contractual relationships in a more abbreviated manner than do the standard agreements (CD 200, 240, and 750 respectively). ¹³³

D. Engineers Joint Contract Documents Committee. The Engineers Joint Contract Documents Committee (EJCDC) was formed in 1975 to create and promote the use of quality administrative documents for construction projects involving professional engineering services. ¹³⁴ The EJCDC is comprised of the National Society of Professional Engineers (NSPE), the American Council of Engineering Companies (ACEC), and the American Society of Civil Engineers (ASCE). ¹³⁵ The EJCDC, therefore, represents a major portion of the professional groups in the United States providing engineering services for construction projects.

The EJCDC publishes an extensive collection of standard forms of agreement for professional engineering services, guidelines and commentaries, and reference documents related to the roles and responsibilities of the owner, engineer, contractor, and other parties involved in design and construction. ¹³⁶ Similar to the AIA Contract Documents, EJCDC documents are separated into families and are organized on the basis of project type or

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delivery methodology. For example, standard forms found in the "C" family of documents are construction-related documents, with C-700 being the Standard General Conditions of the Construction Contract. ¹³⁷ Standard forms found in the "E" family of documents address the Owner/Engineer relationship. The EJCDC suite of documents also contains a family of documents for design-build projects, and procurement contracting. ¹³⁸ The EJCDC has also issued the 2014 edition of P3-508, Public-Private Partnership Agreement. ¹³⁹

E. Design-Build Institute of America. The Design-Build Institute of America (DBIA) is an association of individuals involved in the design and construction industry who use design-build and integrated project delivery methods on construction projects. Founded in 1993 and headquartered in Washington, DC, the DBIA began publishing model contracts in 1998. ¹⁴⁰ The goal of DBIA's model contracts is to address the unique risks and responsibilities that parties face on design-build construction projects. ¹⁴¹ In general, the DBIA agreements are set up to allow either the general contractor or the design professional to lead the design-build team.

The DBIA also publishes the comprehensive Design-Build Manual of Practice. ¹⁴² The Manual includes basic definitions, selection procedures, tenets of professional ethics, contract forms with instructions, procedural guidelines, sample formats, best practices recommendations, and regulatory and legal information on design-build projects. DBIA also publishes guidebooks on public request for proposal (RFP) processes, both for the public owner and the design-builder.

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F. Others. Several states, federal agencies, administrations, and organizations, including international groups, publish standard forms or guidance for construction projects. In Virginia, for example, the Virginia Department of Transportation (VDOT) publishes consultant manuals and standard construction and consultant forms for use on its projects. ¹⁴³ Probably...