THE CONSTRUCTION PROJECT Part III Who's Responsible When Something Goes Wrong?
by
Albert A. Sanchez on Sep. 23, 2015
Business Contract Real Estate Construction Real Estate Real Estate Other
Summary: All parties involved in a construction project must have clearly defined roles and responsibilities to avoid disputes and litigation and ensure success
THE CONSTRUCTION PROJECT Part III
Who’s
Responsible When Something Goes Wrong?
Given the obvious
roles of the owner, contractor and design professionals, how are risks in a
construction project legally allocated?
It seems so simple: the owner tells the design professional what they
want to build and the design professionals prepare drawings and specifications
indicating and illustrating the owner’s desires. The owner then gives the drawings to the
contractor who provides a price and a time frame for commencement and
completion. What can go wrong? A lot, unfortunately.
To illustrate, consider who bears the risk
in the event…
1.
…the contractor builds the building in
accordance with the plans and specifications but defects are discovered.
2.
…the shop drawings and product data given
to the contractor by the sub-contractors are inconsistent with the plans and
specifications prepared by the architect and engineer and materials are
installed that neither the owner nor architect approved.
3.
…the sub-contractor provides the
contractor a bid which is too low and is based on a misunderstanding, and it is
not discovered until construction is underway.
4.
…the contractor commences construction and
discovers certain site conditions which will require additional work and a
modification of the drawings and will significantly increase the job costs.
5.
…a subcontractor delays work significantly
and claims a material or labor shortage.
6.
…the contractor tells the owner that the
plans and specifications were ambiguous or did not even address a certain
question in the field and the contractor plans to tender to the owner a
change-order increasing the job costs.
In the event the parties
have not entered into construction agreements which specify who bears the risk
of any of the above examples (and the examples can go on and on), then the
parties will be in a dispute in the middle of construction. That may delay completion, and possibly
result in litigation. Owner-contractor
agreements and owner-design professional agreements are instruments for the
allocation of risks between the parties involved in a construction project.
The parties should ensure
that they understand the risks and allocate them in a rational manner to the
party in the most logical or best position to control, manage or avoid the risk
completely; or insure the risk or otherwise bear the loss.
Equally, agreements
negotiated to allocate risks in an unreasonable or irrational manner, are
likely to result in litigation.
