This article was previously published in the January/February 2008 issue of Constructor.
Contractors need to make certain that the language in all of their contracts is consistent by coordinating them with each other
Everyone in construction knows that coordination is essential to a successful project, such as among architectural, MEP and structural drawings, different trades working in the same area and between materials delivery and installation on the job. Coordinating contracts, which should take place before the work even starts, is just as essential.
What exactly does coordinating contracts mean? Many clauses should parallel between contracts, making those clauses consistent in all of the contracts into which you enter.
A basic, obvious and critical term that must be flowed down consistently is the scope of the work. Contractors must make sure that the complete scope of work for a particular trade is passed down to the subcontractor for the trade involved. This becomes more difficult when a trade is split between two subcontractors or it is for interrelated work. Most contractors are fairly meticulous in matching the scope of the work between contracts. However, coordinating contracts does not end there. Insurance requirements, notice provisions for extra work, the timing of documentation for payments and dispute resolution clauses also must match.
For instance, a general contractor should require its subcontractors to procure the same types and limits of insurance as are required by the construction contract. If the construction contract contains a 7-day limit for written notification of claims for extra work, the subcontracts should not have a 15-day notification, or the claim could be lost at the start.
It is easy to understand how a mismatch between contracts can happen. The standard practice of most general contractors is to use one subcontract form for all projects. This assures repeat subcontractors that nothing has changed, makes it easier for project managers to know the subcontract and saves negotiating new language every time. However, the standard subcontract should be compared to the construction contract to align the two.
What happens when contracts are not coordinated? The answer is: it depends. A good illustration is differing dispute resolution clauses. In a recent New York case, an owner sued the architect and the general contractor for defective work. The architectural contract contained an arbitration clause while the construction contract did not. The architect sought to compel arbitration on the basis of the contract provision, prompting the general contractor to request a stay of the case pending the outcome of the owner/architect arbitration. Recognizing that all of the claims concerned the same thing—the quality of the work—the court concluded that the claims were "inextricably intertwined." Therefore, having the owner, architect and general contractor present their claims and defenses in one place was the only way to reach a complete and consistent decision. Since the general contractor could not be compelled to arbitrate, as its contract did not contain an arbitration clause, the court in effect voided the arbitration clause in the architect’s contract and left everyone in the litigation.
In that case, the court rescued the owner from the lack of coordination between the contracts. It made a practical decision, saving the owner from having to fight the same battle twice, on two different fields. However, not all courts would reach the same result. In fact, New York is in the minority in disregarding an arbitration clause where arbitrable and nonarbitrable claims are "inextricably intertwined." Just this year, the Supreme Court of Colorado overturned prior law and ruled that if a claim falls within the scope of an arbitration clause, it must go to arbitration, noting that "the court does not retain any authority to evaluate whether arbitration is efficient—or whether arbitration is a good idea …."
The same result was reached by an appellate court in Florida where a design-builder who was sued by the owner for defective work had entered into a standard contract with the architect. It contained an arbitration clause while its subcontracts did not. The court ruled that the design-builder had no choice but to arbitrate with the architect and litigate the same claims with the owner and the subcontractors.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.