Contracting for Construction Projects

• Author: Carol J. Patterson - Ross J. Altman - Stephen A. Hess - Allen Overcash
• Pages: 107-141

CHAPTER

107

5

5.01 contract FormatIon

A. For Purpose of Design Agreements and Construction Contracts

Construction transactions are complex. They involve multiple parties and are

technically complicated. Such transactions require heavily documented nan-

cial arrangements, multistep payment procedures, and unique business terms

and conditions. Finally, construction transactions also are complex from a legal

standpoint. Therefore, it makes sense to prepare well-thought-out contracts

to memorialize the agreements among the appropriate parties in connection

with the design and construction of a project. The process of preparing and

negotiating such contracts often helps the parties arrive at a better meeting of

the minds, and thereby diminishes the opportunity for disputes to arise out of

frustrated expectations. Furthermore, a contract provides a written record of the

deal between the parties to help unravel any disagreement that might occur.

Contracting for

Construction Projects

BRUCE MERWIN

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CONSTruCTiON LAW

108

The design and construction process involves reciprocal promises among

the many project participants. Owners, architects, and contractors primarily

are interested in ve considerations affecting their respective contracts. First

is the description of the scope of services or work for the project. Second is

the time frame within which the project will be completed, often described

as the project schedule. Third are the parameters regarding completion of the

project within the owner’s budget, as amended by change orders. Fourth is

the quality of the services and work, and various administrative matters that

ensure such quality. Fifth is the interest each party to the contract has in its

respective rights and remedies in the event the other party breaches any of its

promises. The design agreement and construction contract, in essence, should

be a roadmap to successful completion of the project and the establishment

of procedures for resolving disputes if problems occur during the design and

construction process.

To summarize, design agreements and construction contracts should both

recognize that the primary purpose of the contract is to do the following:

(1) inform each party what it must do and to what it is entitled, (2) inform

each party of its rights when the other party does not perform as promised,

and (3) reect the reality of contract administration and not require one party

to agree to procedures that will not likely be followed or will increase signi-

cantly the cost of construction. Each party’s attempt to protect its own interests

should not cause the design services agreement or construction contract to get

out of balance to the point that the contract terms themselves become a more

signicant risk factor than the value and complexity of the services or work.

B. Contract Formation Generally

What constitutes a design agreement or a construction contract? As dened in

Black’s Law Dictionary, a “contract” is “An agreement between two or more

parties creating obligations that are enforceable or otherwise recognizable at

law.”1 For the contract to exist, there must be an offer, acceptance, and consid-

eration tendered by both parties.2 If either of the elements of mutual assent or

consideration is missing, then no contract exists.3 Because of the complexity

involved in a design agreement or construction contract, such contracts, for

the most part, are written agreements executed by both parties.

1.

Black’s law dictiOnary

(10th ed. 2014).

2. Harco Energy, Inc. v. Re-Entry People, Inc., 23 S.W.3d 389, 392 (Tex. App. Amarillo 2000,

no pet.).

3. Hubbard v. Shankle, 138 S.W.3d 474, 481 (Tex. App. Fort Worth 2004).

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Contracting for Construction Projects 109

An oral contract involving construction can be entered into; the parties

are not required to explicitly express their intent in writing. A meeting of the

minds can be implied from, and evidenced by, the parties’ conduct and course

of dealing.4 The contract, to be enforceable, must be reasonably denite in its

terms and must sufciently describe the essential elements of the agreement.

However, oral agreements or contracts may be difcult to establish based

solely on conversations between the parties.

C. Commencement of Services or Work Prior to Contract

Although not the preferred approach, owners often commence design and con-

struction activities prior to execution of contracts for design services or con-

struction work. Because of the number of issues that must be addressed in

design agreements and construction contracts, great time pressure often exists

on owners to commence design services while the balance of the contractual

matters are worked out or the economic viability of the project is evaluated.

Ownerssometimesissue an early start letter or limited authorization to proceed

to an architect or other design professionalwhen the advantages ofaccelerat-

ingcompletion of the designmayoutweigh the risk of proceeding without hav-

ing afull contractin place. Recognizing the risk in commencing design without

a complete contract, an owner mightbuildvarious controlsinto such an early

start arrangementby, for example, authorizing performance of only a limited

scope of design services with the hope that the deal can be nalized prior to

completion of the services for which early commencement has been authorized.

Construction contracts are usually more complex than agreements with

design professionals and, on large or particularly difcult transactions,can

take months to draft and negotiate. The potentially adverse effects arising out

of delays in commencement of construction, therefore,are amplied. For exam-

ple, many projects require long lead-time items, such as materials, equipment,

or systems that must be specially fabricated. A limited window of opportunity

may exist to get onto a manufacturer’s schedule in order for such items to be

delivered to the site and available for incorporation into the work as necessary

to conform to the owner’s contemplated schedule. Any delay could be costly,

and an owner might want to commence the ordering of such items while nal

terms of a construction contract are negotiated.

Given the volatility in labor and material costs, it may often be critical for

the owner to lock in materials prices, reserve the use of equipment or produc-

tion time of subcontractors, or otherwise start the project prior to nalizing the

4. Harrison v. Williams Dental Group, P.C., 140 S.W.3d 912, 916 (Tex. App. Dallas 2004).

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