ConsensusDocs

September/October 2007

Accentuate the Positive, Eliminate the Negative

A new generation of contract documents was born from a chorus of industry representatives working in a truly collaborative atmosphere

By Mary Buckner Powers

Members of the construction industry have joined twice in the past decade to attack two critical issues: safety and quality. Now they’re stepping up to tackle another one, contract documents that don’t meet the realities of today’s construction.

Over the past three years, 23 industry groups have been working together to develop new standard-form contracts and related documents that members say will transform the way commercial construction is done.

The Associated General Contractors of America invited people from across the industry—owners, surety bond producers, insurers, general contractors, subcontractors and others—to team up in drafting contract documents that focus on the best interest of the project, says Brian Perlberg, AGC’s senior counsel, construction law and contract document programs.

The idea was to replace traditional contracts that tended to be slanted toward one party or another. The new documents encourage collaboration, Perlberg says. “We’re in a fragmented industry. This was an effort to put all the parts together,” he says.

An Equal Collaboration

AGC approved the comprehensive catalog of more than 70 construction documents at its convention in March, with publication set for Sept. 28.

“This is a great step forward for the industry and a change in the way to do business,” says James Frye, senior vice president for Alberici Group, St. Louis. The new documents “are relational, not transactional. They are fair and they should yield good results.”

The effort started with AGC’s existing contract documents. “We went through every document, and people had the opportunity to say what information bothered them,” says Bob Bourg, a member of the claims and disputes department for the state of Washington, who represented the National Association of State Facilities Administrators in developing the new documents in the ConsensusDOCS effort.

Best Practices Consensus

In the beginning of the process, members expressed extreme points of view. But all parties had an equal voice at the document drafting table, making the effort truly collaborative, says Bourg.

Bourg says that in today’s more complex and sophisticated contracting world, there are more things that can go wrong than there were 20 or 30 years ago. A collaborative effort to develop model contracts that reduce the number of disputes is an advantage to everyone, he says. “If we’re not fighting, we’re focusing on what’s important,” Bourg adds. “These documents do a lot to solve the problem faced by the industry today.”

Everything was decided by consensus, says Tom Barfield, a consultant who represented the Associated Specialty Contractors, an umbrella organization of nine national associations of specialty contractors, whose combined membership totals more than 25,000 firms. “There were no votes,” he says. “We kept working until everyone could say, ‘Yes, I can agree to that.’” Barfield notes that while AGC was the host organization, “it didn’t have extra influence.” Key issues addressed in contract development include risk allocation, indemnity, consequential damages, liquidated damages, dispute resolution and payments. “It took a lot of back and forth and effort to understand the points of view and the legitimate concerns of others in order to find the middle ground,” Barfield says.

Negotiating team members were willing to listen to others, set their personal views aside and concentrate on what was best for the process, even though “it’s natural to become an advocate for your own members,” Barfield adds.

Documents were developed to ensure high ethical standards and include language specifying that work would be done in good faith, Barfield says. “The air of the consensus documents is to reflect best practices in the industry,” he says. “It was the basic governing principle.”

Including a waiver of consequential damages in contracts was the best reason to collaborate on development of new documents, says Jack Mumma, construction contract manager at Michigan State University in East Lansing, Mich., and president of the Construction Owners Association of America. “We see this as a really big deal,” he says. “It will help owners’ projects succeed.”

The key to the documents is their neutral starting point, Mumma says. Traditional contracts were written from an owner’s perspective and negotiated from there, he says.

“The developers did a good job of listening to owners,” Mumma adds. COAA does not agree with everything in the documents, but they can be used as a starting point, he says. “A lot of owners walk away from projects very unhappy,” he adds. “If we can do something about that, it will be good.”

The document development process also encouraged conversations among other owner associations and enabled all to view issues collectively, Mumma says. “We hadn’t talked much in the past,” he says.

Alberici Group used a precursor to the new documents to build SSM Cardinal Glennon Children's Hospital in St. Louis. The content yielded good results, and James Frye, Alberici senior voce president, expects the same from ConsensusDOCS forms, which are relational not transactional.

The documents were developed by a group of people who believe that contracts should be fair and equitable to all parties,  says Doug McNames, vice president of contract administration for Baker Con­crete, Cincinnati. “It’s amazing. It worked,” he says.

To McNames, a member of the board of the American Subcontractors Asso­ciation, developing consensus documents was a natural extension of efforts to move the industry forward. It’s the right time to get contract agreements caught up to where construction is going, he says.

The industry is one built on good relationships but bad contract documents, McNames says. The new set of documents aims to alleviate that.

“We have a huge amount of trust, but we have to sign these bad contracts,” he says. “Now we can work together in a legal environment, not just on the job.”

The new documents eliminate the stringent punitive language found in some traditional contracts, McNames says. “That just doesn’t fit with the new industry that has been developing,” he adds. “For those of us trying to make construction better, this is huge. It’s a very big step forward.”

For subcontractors, the most important issue is the indemnity clause in contracts, which they consider a risk-transfer device that passes responsibility and liability for mistakes down the construction chain to them, McNames says.

Many industry groups worked together over the past three years to develop new contracts and related documents that could transform the way commercial construction is done.

The new documents change that. Their underlying principle is that everyone is responsible for what they do and not for what others do, says Stephen Rohrbach, president of F.A. Rohrbach, a concrete subcontractor in Allentown, Pa., and immediate past president of the American Subcontractors Association. “Everyone is satisfied that in these new contracts no one is paying for someone else’s negligence,” he says.

The new contracts make it easier for general contractors and subs to be more discriminating in the jobs they pick to bid because they more fairly allocate risk, says Rohrbach. “I’ll look at jobs that are using the consensus documents before I’ll look at jobs using proprietary documents that contain risk-shifting mechanisms,” he adds.

Sureties agree that risk sharing is more equitable in the new documents. “We wanted surety bond forms to be fair and reasonable and at the same time not unreasonable to people making claims because we want them to buy the bonds,” says Edward Gallagher, general counsel for the Surety Association of America. “We endorse these contracts.”

The surety industry agreed to participate in the contract development to make sure documents were equitable and offered a good starting point for negotiations among owners, contractors and subcontractors, says Mark McCallum, general counsel and director of government relations for the National Association of Surety Bond Producers. “We found out this effort was not business as usual,” he says. “There was a genuine interest in having all opinions weighed.”

During the development process, participants talked about the larger risk issues facing construction, McCallum says. “They were looking at issues at the forefront of the future,” he adds. “This is just the first step, but it accomplished a lot. Nothing has been achieved like this before. This is a new generation of documents that puts balance in standardized forms.”

Not all of the 23 associations have yet endorsed the ConsensusDOCS forms, but most, if not all, are expected to. Notably absent from the talks was the American Institute of Architects, which will continue to publish and update its popular standard-form contracts. The Engineers Joint Contract Doc­uments Committee entered the ConsensusDOS development process later than most other groups and is still studying the documents.