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Don’t just sign on the dotted line!!!

signing contract

by Joshua Mermis

After a long day at trial my clients, who are owners involved in construction-project disputes,

will ask me some form of the same question: “What could I have done differently to avoid being

here with you?” I never take it personally. I know the client is frustrated by the litigation

process—its lengthy and expensive. And there is no guarantee of victory. My answer is simple:

you should not have signed that contract.

Owners are not typically in the business of construction. Owners, as they are called in the

construction industry, are school districts, hospitals, homeowners, gas stations, etc. They need

structures renovated or built from the ground up to facilitate commerce, provide services or

provide shelter. An owner will assemble a team of construction professional to assist it with the

project. That team typically consists of an architect and a contractor. Because the owners are not

in the construction business, they defer to the architect and contractor when it comes to most

construction issues and, most consequentially, the contract. While the owner may have some

familiarity with contracts, construction contracts are a different animal because they cover a

construction project. Often, the contractor will present the owner with its construction contract.

Unsophisticated (and even sophisticated) owners will sign the contract without asking a

construction attorney to review it. Little do the owners know that the nominal amount of money

spent having the contract reviewed and modified is money well spent. Why is the contractor’s

contract so problematic for the owner? Because that contractor and his board-certified

construction attorney drafted a construction contract that protects the contractor’s interests and

insulates it from liability while shifting an inordinate amount of risk to the owner. Below are a

few troublesome contract provisions for the unsuspecting owner:

– Consequential Damages: The contractor’s contract is likely to have a consequential

damage waiver, which limits the type of damages the owner can seek from the contractor

if the contractor’s work causes damage.

 

– Limitation of Liability: The contractor’s contract is likely to have a limitation of

liability provision, which caps the amount of damages an owner can seek from a

contractor if the contractor’s work causes damage.

 

– Arbitration Provision: The contractor’s contract is likely to have an arbitration

provision, which means instead of the county judge and 12-person jury adjudicating a

dispute, one to three arbitrators (who have no familiarity with the community) will decide

whether the owner or the contractor prevails.

 

– Project Schedule: A contractor is not in breach of a contract by delivering the work late

unless the contract contains language that gives a specific deadline and includes the

magic words “Time is of the Essence.” The contractor’s contract is likely to have no

“Time is of the Essence” language. Contractors love having an open-ended schedule.

 

– Change Orders: The contractor can increase his contract price through change orders,

which negatively impact the owner’s budget. Thus, the contractor will always insert

language that enables it to stop work unless its request for a change order is approved.

This allows the contractor to hold the owner hostage.

 

– Termination: The contractor will include language that allows it to “terminate for

convenience,” which would leave the owner in a precarious position if the work were not

complete.

There are many more construction contract provisions that cut in the contractor’s favor. But an

owner can rebalance the contractual risk and make the contract more equitable by modifying a

handful of key construction contract provisions. I have found contractors are receptive to the

revisions because they desperately want to win the work. In many instances the owners have the

advantage in contract negotiations.

In closing, the owner that wants to avoid being in the courtroom with me after a construction

project has gone sour should invest the time and money in ensuring the construction contract is

fair and equitable. An ounce of prevention is worth a pound of cure.


 

Watch the YouTube conversation here: https://youtu.be/5dQkhE7D_E

 

Joshua W. Mermis is a board certified construction lawyer and founding partner of West Mermis, PLLC, which is a full-service construction law firm based in Houston. He has broad experience in litigation, contract negotiation, construction project close out, EPC projects, surety bonds, liens, and business matters. Joshua has extensive trial experience having conducted jury and bench trials, as well as arbitrations involving significant multi-million dollar commercial and public projects throughout Texas. He represents owners, general contractors, subcontractors, developers, suppliers, product manufacturers, businesses and individuals in a variety of matters.

Joshua has been selected as a Texas Super Lawyer by Thompson Reuters, which is an honor conferred upon only on 5% of the total lawyers in Texas. He has also been named a BestLawyer and selected by his peers for inclusion in H Texas Magazine Top Lawyer and Houstonian Top Lawyer. He is one of the few attorneys (less than 120 total) in Texas who is board certified in construction law.

Joshua is the past Chair of the Houston Bar Association Construction Law Section and currently serving a 3-year term as a council member of the State Bar of Texas Construction Law Section.

 

He graduated college from the University of Kansas, and earned his law degree at the University of Texas School of Law. He lives in Houston with his wife and three children.

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