Managing Risk for Your Contracts Part 2
In part one of this two-part series, the Jacksonville construction attorneys at Cotney Attorneys & Consultants discussed the challenges of managing risks when under contract. We discussed two types of unexpected events that can greatly alter a contractor’s ability to meet the terms of their contract — tariffs and catastrophic weather.
Now, we will discuss why a cookie-cutter provision, like force majeure, may not be enough to save you from a breach of contract. In addition, we will recommend solutions for contractors dealing with owners who are resistant to contract price increases. Remember, for all of your construction-related legal needs, including contract negotiation, drafting, and review, consult a Jacksonville construction attorney.
The Limitations of Force Majeure
As we discussed in part one, unexpected events are oftentimes at the root of payment disputes in the construction industry. Naturally, when forces outside of your control affect your ability to complete a project, you don’t necessarily feel responsible for shouldering the additional burden and costs that come as a result. One solution is the implementation of a “force majeure” clause, which, in theory, covers unforeseeable circumstances that limit one party’s ability to fulfill the terms of a contract. Unfortunately, this isn’t a foolproof provision.
Contractors shouldn’t rely solely on a force majeure clause to cover themselves in the event of unexpected contractual complications. To avoid disputes, the contractor and owner should agree to pricing assumptions and clarifications in the event of increased material and labor costs. Our Jacksonville construction lawyers can help draft these provisions to clearly outline which party is responsible for what costs in the event of tariffs or catastrophic weather. These terms and provisions can be utilized to set a price ceiling that accounts for unexpected events, effectively giving the owner a guaranteed maximum price for the defined scope of work.
Being Upfront About Risk
Risk management is most effective when taking a proactive approach as opposed to a reactive approach. Upfront negotiation between the contractor and owner can help smooth out a broad range of potential risks, especially those involving cost allocations for unexpected events. Essentially, the contract should clearly identify the types of events that warrant an equitable adjustment of time and cost. If an unexpected event occurs and it meets the established criteria, both parties will know which actions are necessary to maintain compliance with the contract. You can also include guidelines and benchmarks to help clarify the types of time and cost adjustments that should be made in the event of tariffs, bad weather, or other external factors.
Another strategy involves an agreement between the contractor and owner in which the owner can suspend work for the duration of time when project-related costs are elevated. However, the owner should still compensate the contractor for costs related to the suspension. You should review all contract provisions with a Jacksonville construction attorney and verify that the owner is cognizant of how these terms will affect the contract. By being upfront with the owner, you can avoid disputes arising from material price increases, labor shortages, project schedule impacts, and more.
If you would like to speak with one of our Jacksonville construction attorneys, please contact us today.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.