There are four very specific contract provisions which can make a big difference in your construction contracts – a merger clause, limitation of liability, governing law and venue, and attorney’s fees and costs.
1. Merger Clause
A merger clause says that to the extent you and I discuss, either verbally or in writing, any contract provision, but that provision doesn’t exist in the contract we’re signing today, then it doesn’t exist. Let me give you an example – let’s say you and I are negotiating this contract and I exchange emails with you and it says that you’re going to pay me every 15 days. The contract says that you’re going to pay me only every 30 days. If the contract contains a merger clause, than the courts will find that the fact you were negotiating payment terms at 15 days is of no moment. What the court is going to look at are the actual terms in the contract that you signed. So what do you need to remember? If you have negotiations and discussions about provisions in your contract, and they are not written into the contract you are signing, then they don’t exist as far as the court is concerned if the contract contains a merger clause.
2. Limitation of Liability and Waiver of Consequential Damages
Construction is a very risky business and there are lots of things that could go wrong. And if they do go wrong, they could be very, very expensive. Consequential damages, while they flow from the contract, extend beyond the scope of the direct contract. Let me give you an example – a classic owner claim of consequential damages would be if the job were delivered late, then the owner may have lost rent or have additional costs associated with a construction loan that wasn’t converted to a permanent loan. It would be nice if your contract included some sort of limitation of liability such as a Waiver of Consequential Damages. Such a provision is relatively standard; it’s even included as a standard provision in the AIA contract.
3. Governing Law and Venue
Next is governing law and venue. Most written agreements include such a provision. It will dictate where and how a dispute will be resolved. If you’re doing business in Florida, you’ve been exposed to Florida law – it would be nice to have Florida law govern your contract. However parties are free to agree to use other laws from other jurisdictions. One example we recently encountered was a case in which a client based in Alabama, performed a project in the Bahamas, but the parties agreed to use New York law to govern their transaction. All of which was perfectly legal. When you review your contract, make sure that it includes a provision dictating what law will govern and where the dispute will be addressed. If you have any ability to negotiate those terms, it’s important that you try to have the law of the state that you’re in, as well as the venue where the project is located govern.
4. Attorney’s Fees
Finally, let’s talk about the attorney’s fees provision in your contract. In the construction setting there are two specific statues that are used most often. If you file a lien or assert a bond claim, both of those statues typically include the right to recover your attorney’s fees. The other way to recover your attorney’s fees in the state of Florida is if you sign a written agreement and have that written agreement provide for the recovery of attorney’s fees. Sometimes attorney’s fees dictate the outcome of a case, and the ability to recover those fees is crucial.
So when you’re reviewing your contract make sure that it includes a provision so that the prevailing party, hopefully you, will be able to recover your increased attorney’s fees.Having these four provisions in your contract will give you a leg up.