Introduction

I. INTRODUCTION¹

This chapter focuses on two of the three critical elements of the construction contract between the project's owner (referred to as the owner)² and the prime contractor, design-builder, or construction manager (referred to as the contractor): (1) what services are to be provided by each party; and (2) how will those services be paid for by the owner.³ This chapter addresses the various contracting methodologies commonly used in construction contracts. This chapter discusses design-bid-build, construction management (agency or at-risk), multiple prime contracts, and design-build contracts, and will close with a discussion of integrated project delivery.

It is important to put the entire discussion into the proper context. During contract drafting and negotiation regarding any project delivery system using any contracting methodology, the parties generally spend a significant amount of time attempting to employ language that accurately states their intentions and agreements. When there is a dispute as to the meaning of the contract, the one ultimately determining the meaning of the contract is a judge, jury, or arbitrator, and not the parties themselves. A construction contract is interpreted and enforced by the courts like any other contract. During contract drafting and negotiation the parties must understand the requirements for interpretation of contracts in our judicial system because if the trier of fact interprets the contract differently than the party or parties, then there has been a breakdown in the contracting process.

A. The Objective Law of Contracts

In construing construction contracts, Maryland follows the objective law of contracts—the court must ascertain the intent of the parties from the language of the agreement itself, judged by that which a reasonable person in the position of the parties would have meant at the time the contract was executed.⁴ Unless the language is ambiguous, the court may not apply secondary, court-made rules of construction, or resort to the use of extrinsic evidence, which is evidence of the parties' intent not found within the four corners of the contract.

The intent of the parties is found by review of the contract as a whole, reading it in the entirety rather than viewing any single clause, phrase, or section in isolation. The contract includes documents incorporated by reference, which simply means that the earlier document is made a part of the second document, as if the earlier document were fully set forth therein. A court must construe a contract to give meaning to the entire contract.⁵ Courts prefer a construction that will make the contract effective rather than one that will make it illusory or unenforceable, reasoning that the parties intended to create an enforceable document rather than an agreement to enter into a future agreement.

B. Definition of Terms Used in Construction Contracts

Parties to a contract can choose to ascribe any meaning to particular word, provided they expressly define the word in the contract. The contractual definitions may well stray far from Webster's. Indeed, parties could elect to define "night" as "day" if they so wished. Consequently, a definitions section is a fairly typical feature of construction contracts. All parties should carefully review this section to understand the meanings of the terms employed throughout the contract. In the absence of contractual definitions, Maryland courts turn to dictionary definitions to divine contractual meaning.⁶

C. General Rules of Contract Construction

Under Maryland law, where an ambiguity exists in a contract, extrinsic and parol evidence may be considered in interpreting the meaning of the ambiguous portion.⁷ If no such evidence is presented, or such admitted evidence fails to clear up the ambiguity, Maryland courts will apply the doctrine of contra proferentem: the contract will be construed against the drafter.⁸

Any portion of a public contract for which the language is mandated by legislation or regulation is not subject to the doctrine of contra proferentum as these provisions are to be construed as legislative rather than contractual text.⁹ However, where the contractual text at issue is not so mandated, it will be construed against the drafter/public entity.¹⁰ Indeed, the Maryland State Board of Contract Appeals

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