Ic Equitable Risk Allocation Legal Perspective

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Equitable Risk Allocation:

A Legal Perspective
Contracting to Appropriately Allocate Risk Research Team
Implementation Resource 210-3

February 2007
2007 Construction Industry Institute.

The University of Texas at Austin.
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Contents
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Contract Language Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3. Legal Research. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
iii
Executive Summary
When allocating construction risks, appropriate allocation is often not achieved due to the
inferior bargaining position held by lower-tier parties. Beyond this dilemma, the most appropriate
and equitable allocation of a particular risk can vary from project to project depending on factors
such as the type of risk, work, and contract. As a result, no single, appropriate allocation exists for
a given construction risk for all projects. Unfortunately, arriving at a conclusive agreement between
contracting parties as to the most appropriate allocation of a given construction risk for a specic
project can be a cumbersome, albeit crucial, task.
Due to the problems associated with determining appropriate risk allocation between contracting
parties, the Construction Industry Institute (CII) formed the Contracting to Appropriately Allocate
Risk Research Team in an effort to encourage risk assessment and allocation in a compromising and
educated manner, recognizing the unique circumstances of each specic project. By involving both
the owner and the contractor in the risk allocation process, which should begin early in the project
life cycle, both parties can avoid the increased costs associated with inappropriate risk allocation.
To aid in this process, the research team developed the Two-Party Risk Assessment and Allocation
Model, which encourages contracting parties to compromise during the risk allocation process.
This publication is meant to accompany the Two-Party Risk Assessment and Allocation Model by
providing useful legal perspective references regarding both contract language and legal research.
This book looks at the top 14 risks, identied as the hot-button risks, which are listed below in order
of the most to the least frequently allocated in an inappropriate manner:
1. No Damages for Delay
8. Cumulative Impact of Change Orders
2. Consequential Damages
9. Owner-Mandated Subcontractors
3. Indemnity
10. Insurance Allocation
4. Ambiguous Acceptance Criteria
11. Differing Site Conditions
5. New or Unfamiliar Technology
12. Design Responsibility
6. Force Majeure
13. Waiver of Claims
7. Schedule Acceleration
14. Standard of Care
A contract language table was generated for each of the 14 hot-button risks. Various examples
and/or concepts of contract language were analyzed and categorized according to perceived biases
and compromises to help contracting parties consider the most pertinent risk issues and potentially
identify appropriate compromising clauses.
The research team also developed legal perspective references that provide educational
assistance to contracting parties. Those references are contained in this book. The highlight of
the legal research for each risk is a legal issues and considerations ow chart. These charts help
minimize much of the confusion and ambiguities surrounding the allocation of each risk, as well as
denote which party may actually be carrying the associated risk in the eyes of the court.
Industry participants are encouraged to use this publication in conjunction with the Two-Party
Risk Assessment and Allocation Model (Implementation Resource 210-2) or as an independent
educational resource regarding risk allocation from a legal perspective.
Chapter 1: Introduction
The Purpose of this Implementation Resource
This publication is a result of CII research into risk allocation. It covers contract language and
legal research for the 14 risks that are most often cited as allocated inappropriately. Accordingly,
these risks can be thought of as possessing the most potential for spawning disputes during
contract negotiations. It is intended as a guide for contracting parties so that they can become more
aware of the associated risk issues from a legal perspective. It also will give contracting parties a
better understanding of which party is really carrying a given risk and how the parties may reach
a compromising position. Accordingly, the parties will be in a better position to draft appropriate
contract language and compromising terms and conditions. This is not a legal book, nor does it
purport to be a comprehensive digest of existing statutory or case law. What is ubiquitous is the
common nature of the problems and it is in identifying the nature and implications of the problems
that this study seeks to give the industry a basis for coming to common terms.
Hot-Button Risks
CII formed the Contracting to Appropriately Allocate Risk Research Team to develop a risk
assessment and allocation model that will aid contracting parties in cooperatively identifying,
assessing, and ultimately allocating risk on any specic project. The data collected by the research
team yielded a list of 14 hot-button risks that are frequently allocated in an inappropriate manner.
Table 1 displays the top 14 risks most frequently allocated in an inappropriate manner in ascending
order from the most frequently to the least frequently as determined by various research inputs.
Table 1. Top 14 Risks Most Frequently Allocated in an Inappropriate Manner
Top 14 Risks
8. Cumulative Impact of Change

Orders
3. Indemnity
6. Force Majeure
Risk Allocation Tools

The research team noted the general lack of education surrounding the topic of risk allocation. As
a result, a primary focus of the research was to develop a model that could be used as a learning tool
to educate the industry on the legal issues surrounding risks commonly allocated in an inappropriate
manner. Accordingly, the research team developed the two legal perspective references contained
here along with a database of risk allocation principles. These three risk allocation tools are to be
used during and after the contracting parties have completed the risk assessment process developed
by the team (see CII Research Summary 210-1 and CII Implementation Resource 210-2).
Risk Allocation Principles: A Risk Allocation Tool

The research team developed a list of risk allocation principles that will help negotiating parties
decide which party is the appropriate party to assume each particular risk. These principles will get
both contracting parties to consider the most important risk allocation concepts and ideas that have
the most potential to be overlooked or disregarded. The principles are divided into two separate
categories: (1) general risk allocation principles and (2) legal risk allocation principles.
General Risk Allocation Principles

Many risks cannot be entirely eliminated, but can be controlled.
Example: Contracting parties will never be able to eliminate the possibility that a war
will break out and halt the progress of a project in a particular geographical area.
However, the possibility can be lessened by carefully selecting the geographical
location of the project, while the potential nancial impacts can be accounted for by
drafting force majeure language that addresses the risk of war.
Eliminating one risk may cause new risks to materialize.
Example: Suppose an owner wishes to completely avoid any and all liability for
differing site conditions. Accordingly, the owner provides no representations of said
site conditions, and contractually requires the prospective contractors to investigate
the conditions for themselves and bid accordingly. Although the owner will have
successfully shifted the risk of differing site conditions to the contractors, the owner
will now have to hope that the bidding contractors do not severely overestimate or
underestimate their increased contingencies. Both extremes could result in disaster to
the projects success.
Many risks are interdependent so it is important to evaluate risk dependencies to be
able to predict the cumulative impact or domino effect that may materialize with the
realization of one individual risk.
Example: If a project has a difcult time attracting skilled crafts to perform the work,
a multitude of risks could materialize: delays, rework, increased project management
costs, increased absenteeism rates and many other secondary risks will have an
increased likelihood of occurring if unskilled craftsmen make of the majority of a
projects work force.
Lessons learned from inappropriate risk allocation should be meticulously
documented.
Example: If a new, altered version of a contract clause is utilized for a project, litigation
ensues and the resultant proceedings end with a court rendering an unfavorable,
completely unforeseen verdict pertaining to the altered clause, the clause alterations
and project circumstances that led to the ruling should be exhaustively recorded.
The optimum allocation of many risks may involve shared responsibility.

Example: Similar to the trend of many courts to provide common law indemnication
rights on a comparative fault basis, it is simply more efcient and equitable to share
risks rather than to load a weaker, single party with the majority of risks.
Ignoring a risk will not eliminate its potential costs. If a risk is not contractually allocated,
it will be assumed, knowingly or unknowingly, by one or both of the contracting parties.
Example: If a risk is not allocated in a contract, parties often end up in arbitration
or litigation to argue over the implied allocation. The U.S. legal system is based
on a common law system that will assign the implied allocation according to the
precedence established by previous case rulings. Depending on numerous projectspecic circumstances, common law rulings may yield a sharing of liability or a
complete shift.
The optimum allocation of any particular risk may change from project to project
depending on the unique circumstances of the project.
Example: A very clear example would pertain to limits of liability. Optimum limits of
liability will vary from project to project depending on the available insurance policies
and the nancial capacities of the client and contractors involved.
Any particular party ought to be able to assume a risk if that party: (1) understands the
risk, and (2) an adequate reward exists for the assumption.
Adequate reward may come in the form of a risk/reward contractual arrangement or as
a high probability for increased prot from the assumption of the risk.
Example: A severely schedule driven project, such as a semiconductor manufacturing
plant project, will most likely have very high liquidated damages associated with late
completion. Accordingly, a sophisticated contractor will recognize that its client has a
large amount of earnings at stake, thus justifying the risk of large sums of liquidated
damages being assessed. However, the client should also recognize that it has a
lot to gain by on time or early completion, thus a contractual provision establishing
a monetary reward for on time or early completion should be established to make it
reasonable for the contractor to accept the risk.
If the damages of a risk allocated to the contractor are foreseeable, the contractor has
the responsibility to account for the risk in the bid price.
Example: If a contract holds a contractor liable for an owners consequential damages,
the contractor should account for the possibility of the damages materializing within its
bid.
Consideration should be given to the fact that in some cases it may be scally efcient
for some owners to reallocate common risks between the parties upfront in exchange for
a higher bid price or a contractual reward scheme.
Example: A casino project will typically carry very high liquidated damages for late
completion. If a reward scheme is not implicitly established, an owner may still prefer
to pay extra through an extremely padded contractor contingency rather than lower
the liquidated damages sum and lessen the incentive for early or on time completion.
Both parties should always consider the ability of the risk-bearing party (including
insurance companies) to survive the materialization of the risk.
Example: Merely successfully shifting a risk to a party does not eliminate the risk that
the assuming party may not be able to remain solvent if the risk should occur. This is
precisely the reason why the private insurance sector refuses to insure ood damages
and instead yields this role to the government. The widespread damage associated
with a ood could easily force a private insurance company out of business.
Owners should realize that shifting risk will often increase the contractors price, and
should determine whether such risks could be more cost-effectively accounted for with
owner retention.
Example: Sophisticated contractors will typically recognize onerous contract terms
and if negotiations are unsuccessful or not attempted, bid prices may signicantly
increase. Examples of such contract terms include no damages for delay clauses,
non-waivers of consequential damages, and high liquidated damages provisions.
The maximum possible loss for each risk should not be overlooked or confused with the
maximum probable loss.
Example: The maximum possible loss for a risk is the worst case scenario. The
maximum probable loss can be interchangeably dened with the expected value
of a risk. Specically, none of the associated project personnel accounted for the
maximum possible loss associated with the collapse of the World Trade Center
towers. Instead, the towers were designed and constructed according to the maximum
probable loss.
Parties should determine the potential for prot that each risk may or may not possess.
Example: Risk/reward schemes encourage amiable contracting relationships while
providing clear incentives and disincentives pertaining to performance. Therefore,
whenever possible parties should identify and utilize opportunities where an
increase in risk assumption is directly correlated to an increase in potential monetary
compensation. When potential for prot is considered for every single risk, the
optimum allocation may not always be the most efcient (lowest bearing cost) or
equitable (most control over risk) allocation, but may instead create the highest
likelihood for project success (on time, on budget completion).
To facilitate a non-controversial contractual relationship, contracting parties should strive
for harmony among all contract clauses.
Example: An owner should not attempt to include a no damages for delay clause in
conjunction with a liquidated damages clause. Essentially, this demonstrates to the
contractor that it will be responsible for its delays to the project, while the owner will
not take responsibility for delays it causes. This breeds a controversial relationship
from the outset.
Legal Risk Allocation Principles

Courts will construe provisions exactly as they are written (unless they are against public
policy or statute). Stricticti Juris
Example: Unless illegal or ambiguous, courts will look at the plain and ordinary
meaning of contract language in order to ascertain the intentions of the parties.
Courts will only construe a contract provision in a manner that will do substantial justice
to the parties. Strictisimus Juris
Example: Courts will not interpret contract language to indicate an intention that
clearly differs from extrinsic evidence speaking to an alternated agreed upon
interpretation between the parties. In other words, a court will not construe ambiguous
terms in their most unfavorable light.
Specic contract language will be construed over general language.
Example: A broad clause that states that the contractor is responsible for providing all
materials and labor for a project will not overrule a specic clause that states that the
owner will provide certain enumerated materials for construction.
General disclaimers are not usually enforceable.
Example: General disclaimers of the accuracy or sufciency of site conditions
provided by the owner will typically not be enforced by a court.
By signing the contract, you have accepted what is in it. Caveat Emptor Let the
buyer beware.
Example: A recent legal case reviewed by the author dealt with a design/build
contractors complaint that unbeknownst to the design/build contractor, its contract
with the owner contained both performance and prescriptive specications. When the
design/build contractor attempted to install the prescriptive work as performancebased work, the owner disputed the work. The court ruled in favor of the owner citing
the fact that the contractor had not read the specications closely enough to realize
that they contained performance and prescriptive specications.
No contractual arrangement can reallocate intentional wrongdoings or illegal activities.
Example: No state will allow an indemnication clause to provide indemnication for
willful acts that will knowingly cause harm to other parties.
Contractual ambiguities will be construed against the drafting party. Contra
Proferentem
Example: If a clause in an owner-contractor contract ambiguously species the
acceptance criteria for a project, the contractor will be allowed to rely on its own
reasonable interpretation and the owner will assume all resultant increased expenses.
If the contract is silent regarding damages, the offending party will be held responsible
for the damages reasonably foreseeable as a result of their conduct.
Example: The most well-known example would pertain to consequential damages. If
a contract does not address consequential damages, all contracting parties will be
held responsible for damages that should have reasonably been foreseen as a result
of actions or inactions of the parties. For example, if a vendor delays in delivering a
piece of equipment to a manufacturing facility, the vendor will be held responsible for
the lost prots that would have been averted if the machine would have been xed on
time. The vendor should have reasonably anticipated that its delay would have resulted
in a loss in production and ultimately a loss in prots.
Legal Perspective References: Risk Allocation Tools

The rst of the two legal perspective references developed is a set of contract language tables
that give samples and concepts of contract language for all 14 of the hot-button risks. The contract
language tables will assist contracting parties in drafting and negotiating compromising clauses by
making them aware of the major contract language concepts and issues as perceived by the widely
represented research team consisting of owners (public and private), contractors, subcontractors,
attorneys, insurance/risk management representatives, and A/Es. Parties will also be able to
reference the contract language tables for each of the 14 risks to receive guidance as to where an
existing clause may fall on the continuum of appropriate or optimum allocation.
The second legal perspective reference is legal research on the U.S. judicial systems attitudes
surrounding 10 of the 14 hot-button risks. The main purpose of the legal research is to identify the
major legal issues and considerations pertaining to each of the 10 risks researched. The secondary
purposes of the legal research are to determine (1) how the U.S. judicial system will allocate a
particular risk in the case that it is not allocated in the contract documents and (2) the exceptions to
enforceability established by the courts when the risk is included in the contract documents. Due to
the availability of massive amounts of data, the research team conducted legal research for only 10
of the top 14 hot-button risks, exclusively. The highlight of each risk discussion is the ow chart that
summarizes the legal concepts that contracting parties should be most aware of.
Common Law Denition

Essentially, common law is case law or rules and standards determined by previous decisions in
specic cases. Common law can be dened as the precedence established by court decisions over
many centuries based not on statutory law, but on the decisions of judges. In this sense, the research
team hopes to invoke Oliver Wendell Holmes as he asserted:
The life of the law has not been logic: it has been experience. The felt necessities of
the time, the prevalent moral and political theories, intuitions of public policy, avowed
or unconscious, even the prejudices which judges share with their fellow-men, have a
good deal more to do than the syllogism in determining the rules by which men should be
governed. (Holmes, 1881)
Legal Perspectives Disclaimer

CII and Research Team 210 make no representations, warranties, or covenants as to the legal
information contained in or the legal opinions expressed in this implementation resource including,
without limitation, the accuracy or completeness of such information or opinions. The recipient
acknowledges that CII shall have no liability to recipient resulting from the provision or use of these
contract language or legal research materials to or by recipient. The contract language and the legal
research information were compiled by CII from sources believed to be reliable. We trust that you will
customize these samples to reect your own operations and believe that these samples may serve
as a helpful platform for this endeavor. Any and all information contained herein is not intended to
constitute legal advice and accordingly, you should consult with your own attorneys when developing
programs and policies. We do not guarantee the accuracy of this information or any results and further
assume no liability in connection with these sample materials and sample policies and procedures,
including any information, methods or suggestions contained herein. Moreover, CII reminds you
that these materials cannot be assumed to contain every acceptable compliance procedure or that
additional procedures might not be appropriate under the circumstances.
As stated above, this study does not purport to constitute legal advice. Additionally, the
complexities of the facts underlying each particular construction dispute are such that even cases
interpreting longstanding contract clauses may seem like a matter of rst impression to the court. This
study is intended to only educate the reader as to the general concepts discussed. It is not intended
as a substitute for competent legal advice. Further, the suggested resolution of risk allocation set forth
herein cannot be said to be the last word on the subject, but rather should represent a signicant
rst step in approaching a reasonable allocation of risk that ultimately will set standards within the
construction industry rather than allow the law of the jungle to prevail.
Chapter 2: Contract Language Tables

Introduction
The contract language tables are a critical tool when analyzing or drafting a construction contract
clause involving any of the 14 hot-button risks. The research team investigated contract language
clauses associated with each of the top 14 hot-button risks to identify clauses that seemed to
contain a bias and clauses that seemed to provide compromising language. Accordingly, the contract
language tables give examples and/or concepts of contract language for each of the top 14 risks that
may 1) favor the buyer, 2) favor the seller, or 3) compromise. Typically, the buyer language favors the
owner in an owner-general contractor contract or the general contractor in a general contractorsubcontractor contract. Conversely, the seller language typically favors the general contractor in
an owner-general contractor contract or the subcontractor in a general contractor-subcontractor
contract.
Research and Findings

The contract language tables were developed by reviewing existing standardized and privatized
contracts and conducting phone interviews with four industry personnel thoroughly experienced
with drafting and negotiating contract language for their respective organizations. These industry
experts were all employees of CII member companies, with two interviews conducted with major
owner organizations and two conducted with major contractor organizations. When applicable, the
legal issues and considerations revealed through the extensive legal research were used to provide
guidance for clause construction. Lastly, the wide representation of the CII research team was utilized
to scrub the tables and ensure that all contracting parties interests were adequately expressed.
Application of Findings
The contract language tables can be used as a contract language negotiating point between
buyer and seller parties who have identied one of the top 14 risks as a high concern that needs
mutual attention to ensure appropriate allocation. The compromise language is suggested only and
obviously provides no guarantee of success absent such factors as the good faith and ability to
perform of the parties. Internally, an industry participant may nd it useful to compare its companys
existing standardized clauses pertaining to each of the 14 hot-button risks to the contract language
found in the contract language tables developed by the widely represented CII research team to
determine where there are commonalities or disagreements.
The Contract Language Tables

The following pages contain the contract language tables developed for each of the top 14
hot-button risks. The contract language tables are organized from the most to the least frequently
allocated in an inappropriate manner, beginning with the No Damages for Delay contract language
table. At the top of each table, a list of issues has been compiled. These issues should be
considered when negotiating clauses while referencing the 14 contract language tables.

ISSUES: Time only v. time and money, notice provisions, xed schedule of compensation, foreseeability,
owner cooperation, active owner interference (inexcusable incompetence), contractor contingencies,
subcontractor contingencies, length of delay before compensation (or) as an exception to the clause,
owner-nancing considerations (price-certainty), excusable v. non-excusable delays
Favors Buyer
Compromises
Language that provides time

relief only to a contractor from
owner-induced delays. All other
damages indirectly or directly
related to the delays are nonrecoverable.
Language that contains limits/

exceptions of recovery for
delay damages ($ and time).
Language may also include
a requirement governing the
level of proof necessary to
demonstrate delay (or) it may
dene how monetary recovery
is to be calculated to exclude
items such as prot, or certain
overhead cost elements. If
a time extension is part of
the agreed upon remedy for
owner-induced delays, the
contract should specify a
reasonable timeframe in which
the extension must be granted.
No interruption, interference,
inefciency, suspension or delay in
the commencement or progress of
the Work under this Contract, from
any clause whatsoever, including
those for which Owner may be
responsible in whole or in part,
shall relieve Contractor of its duty
to perform this Contract in
accordance with the terms of the
Contract Documents, or give rise to
any right to damages of any kind or
nature from Owner. Contractor
expressly acknowledges and
agrees that it shall receive no
damages for delay. Contractors
sole remedy against Owner for
delay shall be the right to seek an
extension in the Contract
Schedule. Granting of any such
time extension shall not be a
condition precedent to this no
damages-for-delay provision. This
no-damages-for-delay provision
shall apply to claims for early
completion, as well as claims
based on late completion. It is
expressly acknowledged and
agreed to by Contractor that a
material inducement to Owner to
enter into this Contract is this nodamage-for-delay provision.
Language that provides

equitable adjustment for
owner-induced delays.
Contractor shall be entitled to
equitable adjustments in Contract
Price and Contract Schedule in
the event Contractor is delayed or
impacted due to acts by Agent,
Owner, or third parties under
Agent or Owners control at the
work site or by changes in laws or
regulations that are made
following the execution of this
Contract.
10
Favors Seller
Language that establishes
a xed schedule of
compensation for ownerinduced delays.
For each day that the Contractor
is delayed by the Owner or
Owners agents, the Owner will
pay the Contractor a xed sum of
$XX,XXX per day of delay.
ISSUES: Owners have more to lose/owners have more to gain, reasonable foreseeability, reasonable
certainty, liquidated damages, home ofce overhead, limits of liability, specic events v. catch-all
phrases, insurance
Favors Buyer
Compromises
Favors Seller
If there is
no language
addressing
consequential
damages, the
contractor is
put at a high
disadvantage. In
some projects (i.e.,
casino, power,
semiconductor)
an owners
consequential
damages can
reach millions of
dollars a day.
Language that contains a mutual waiver

with the contractor responsible to
the owner for performance and delay
liquidated damages. These liquidated
damages may cover loss of prot and
loss of product and should capture
reasonably estimated damages.
Regarding the magnitude of liquidated
damages, consideration should
be given to ensuring incentive for
performance while making allowance
for the contractor to remain solvent if
the liquidated damages are assessed.
Also, insurance should be sought to
provide limited liability protection to
the contractor. The language below
also does not disallow the contractor to
collect extended home ofce overhead
costs.
Language that waives the owners

right to consequential damages,
but allows the contractor to collect
its consequential damages.
Language that
specically
states that the
owner will be
allowed to collect
consequential
damages
(regardless of if
the contractor
is also allowed
to collect its
consequential
damages).
AIA mutual waiver language

that allows the owner to collect
liquidated direct damages only.
However, by nature liquidated
damages are used to estimate
indirect or special damages
(consequential damages) not
known at the time the contract
is executed. Therefore, this
ambiguous language may be
construed to eliminate liquidation
of consequential damages for the
owner.
The Contractor and Owner waive

Claims against each other for
Except to the extent that liquidated
consequential damages arising out of
damages provided for in the Contract,
Owner and the Contractor waive all claims or relating to this Contract. This mutual
waiver includes: (1) damages incurred
against each other for consequential
by the Owner for rental expenses, for
damages. By way of illustration, but not
losses of use, income, prot,
limitation, consequential damages
nancing, business and reputation,
includes: (1) Owners loss of prot,
and for loss of management or
economic loss, loss of reputation, loss of
employee productivity or of the
goodwill, loss of revenue, business
interruption, arising out of or related to the services of such persons; and (2)
Contract Documents, and (2) Contractors damages incurred by the Contractor
for losses of nancing, business and
loss of prot, economic loss, loss of
reputation, and for loss of prot except
reputation, loss of goodwill, loss of
anticipated prot arising directly from
revenue, loss of nancing, increased
nancing costs, business interruption, and/ the Work. This mutual waiver is
applicable, without limitation, to all
or loss of management or employee
productivity or of the increased cost of the consequential damages due to either
services of such management or employee partys termination in accordance with
Article 14. Nothing contained in this
productivity arising out of or related to all
of the Contract Documents. Nothing herein Subparagraph 4.3.10 shall be deemed
to preclude an award of liquidated
shall be construed to limit Contractors
direct damages, when applicable, in
liability for damages for third party claims
accordance with the requirements of
that may be asserted against the
the Contract Documents.
Contractor or Owner, including bodily
injury or damage to tangible property
(AIA: A201-1997,4.3.10 With the
arising out of, results from, or related to the
phrase for principal ofce expenses
negligence, errors or omissions or services
including the compensation of
provided by Contractor.
personnel stationed there deleted)
11
3. Indemnity
ISSUES: Workers compensation, broad-form clauses, intermediate clauses, comparative clauses, active
and passive negligence, statutes (Illinois Scaffold Act), public policies, insurance, Owner-Controlled
Insurance Programs, Contractor-Controlled Insurance Programs
Favors Buyer
Compromises
Favors Seller
Broad-form language that requires indemnication

for the owner even if the owner is solely negligent and
the contractor has zero negligence. In other words,
the event could be caused in whole or in part by the
owners negligence, but the owner would still be
indemnied.
The best
compromising
language would
specify knockfor-knock for
the people piece,
possibly with
limitations, except
in the case of gross
negligence or willful
misconduct. Also,
the contractors
liability for damage
to the owners
existing property
should be capped
except in the case of
gross negligence or
willful misconduct.
Lastly, the
contractors thirdparty liability should
be capped, except
in the cases of gross
negligence or willful
misconduct.
This type of
clause would be
an intermediate or
broad-form clause
drafted in the favor
of the contractor.
The Contractor agrees to indemnify and hold harmless

the Owner, its ofcers and agents, against any claim for
injury or damage to persons, corporations or property
arising out of the performance of the work on the Project,
regardless of whether the injury or damage is caused in
whole or in part by the act or negligence of the Owner, its
ofcers or agents.
Intermediate language that requires the contractor
to indemnify the owner unless the injuring event is
caused by the sole negligence of owner. Therefore,
if the owner is 99% at fault, the contractor must still
indemnify the owner completely.
To the fullest extent permitted by law, Contractor shall
protect, defend, indemnify, and hold harmless Owner, its
agents, employees, subsidiaries, consultants (including
the AE), representatives, shareholders, directors, ofcers
and each of them (collectively Owner Indemnitees),
from and against any and all claims, damages, losses,
costs, and expenses (including reasonable legal,
accounting, consulting, engineering, and investigatory
costs and other expenses) that arise out of or relate to
any act or omission by Contractor or any Subcontractor
or any employee, ofcer, agent, representative, or
consultant of any of them, that results in personal injury
(including bodily injury), death, or property damage
irrespective of proportional fault, except to the extent that
such claims, damages, losses, costs, and expenses are
caused by the sole negligence of Owner.
Intermediate language that provides indemnication
for the owner and contractor from the subcontractor.
Subcontractor must fully indemnify even if the event
is caused in part by the owner and/or contractor. No
indemnication is provided if the event is caused by
the willful misconduct or sole negligence of the owner
or contractor. The same contract provides NO mutual
indemnication for the subcontractor.
12
An Owner-Controlled
Insurance Program
or ContractorControlled Insurance
Program would
both constitute
as a compromise
accounting for
indemnication
concerns.
3. Indemnity (continued)
Favors Buyer
Compromises
SUBCONTRACTOR hereby releases and shall indemnify,

defend and hold harmless CONTRACTOR, OWNER and
their subsidiaries and afliates and the ofcers, agents,
employees, successors and assigns and authorized
representatives of all the foregoing from and against any
and all suits, actions, legal or administrative proceedings,
claims, demands, damages, liabilities, interest, attorneys
fees, costs, expenses, and losses of whatsoever kind or
nature in connection with or incidental to the
performance of this subcontract, whether arising before
or after completion of the Work hereunder and in any
manner directly or indirectly caused, occasioned, or
contributed to in whole or in part, or claimed to be
caused, occasioned or contributed to in whole or in part,
by reason of any act, omission, fault or negligence
whether active or passive of SUBCONTRACTOR, its
lower-tier suppliers, subcontractors or of anyone acting
under its direction or control or on its behalf.
The foregoing shall include, but is not limited to,
indemnity for:
1. Property damage and injury to or death
of any person, including employees
of CONTRACTOR, OWNER, or
SUBCONTRACTOR.
2. The breach by SUBCONTRACTOR of any
representation, warranty, covenant, or
performance obligation of this subcontract.
SUBCONTRACTORS aforesaid release, indemnity and
hold harmless obligations, or portions or applications
thereof, shall apply even in the event of the fault or
negligence, whether active or passive, or strict liability of
the parties released, indemnied or held harmless to the
fullest extent permitted by law, but in no event shall they
apply to liability caused by the willful misconduct or sole
negligence of the party released, indemnied or held
harmless.
SUBCONTRACTOR specically waives any immunity
provided against this indemnity by an industrial insurance
or workers compensation statute.
13
Favors Seller

ISSUES: Guaranteed maximum price (GMP) v. cost-reimbursable, performance v. prescriptive
specications, adequate denitions of mechanical completion, substantial completion, and contract or
nal completion, patent ambiguities, reasonable interpretations, Contra Proferentem, reliance
Favors Buyer
Language may
specify that the
contractor should
perform until the
work is deemed
acceptable by
owner.
Language may
specify that
acceptance
will occur when
the work is to
the owners
satisfaction or
t for purpose.
These types
of acceptance
phrases are
especially
troublesome in
lump sum or GMP
contracts because
the owner may
continue to delay
acceptance by
using the punchlist
to its advantage
thus eating away
at the contractors
prot. However, in a
cost-reimbursable
contract, if the
owner is going to
require additional
efforts to be made
before acceptance
is rewarded; the
contractor will
most likely be paid
unless there is
some other issue
present that causes
the owner to assert
that the contractor
performed the work
negligently the rst
time.
Compromises
Favors Seller
Language that states that the contractor shall construct

and deliver the work in accordance with the contract
specications. This makes the contract documents
the approving party.
Language that
is looser than
in accordance
with the contract
specications. For
example, when
the contractor
deems the work
acceptable or
complete.
Generally speaking, when acceptance criteria language

is well-dened, every party benets. The contractor
benets because it feels that it has something at stake,
and the owner benets because it has assurance that it
will get what it pays for.
Acceptance criteria that cannot be measured should
be avoided. Relative and qualitative terms such as
good or acceptable should not be used.
The terms mechanical completion, substantial
completion, contract or nal completion, and
nal acceptance should always be dened in an
unambiguous, measurable manner.
Language should be inserted that states that an
unqualied acceptance of work under the construction
contract will prevent an owner from recovering the cost
of remedying defective work, but acceptance with the
understanding that certain defects or deciencies will
be corrected will not bar recovery.
In process-oriented work, language should specify the
performance that needs to be achieved (performance
specications) by the completed product. For example,
no more than X parts per million of carbon dioxide
should be produced as a by-product of some sort of
process. If the specic output requirements are not
met, the contractor should be contractually required
to pay liquidated damages based on the gap in
efciency of the process; however, the contract
should specify an extended testing period before
performance liquidated damages are assessed. This
gives the contractor a chance to correct defects at its
own cost. When a performance specication is not
met in a design-build contract, the contractor should
be required to redesign at its own cost until it meets
the performance criteria. Note: if the work involves
owner-specied new or unfamiliar technology, refer to
the new or unfamiliar technology contract language
table. The risk of performance of owner-specied
new or unfamiliar technology should remain with the
owner as long as the technology was constructed with
appropriate, quality means and methods.
14
Language that
states that after
the contractor
installs its work
its contractual
responsibilities
are complete.
This rarely occurs,
because it is bad
business, and
no owner will
accept this type of
language.
For processoriented work,
language that
omits performance
testing
requirements.
For example, if
a mechanical
contractor puts in
pipes, but is not
required to leak
test them.

ISSUES: Means and methods, intellectual property, acceptance provisions
Favors Buyer
Compromises
Favors Seller
Language that shifts the

responsibility of performance
of an owner-owned/specied
piece of equipment onto the
contractor. For example: (i)
the owner species a black
box on a project and only
the owner understands its
function, (ii) the contractor is
responsible for connecting
pipes to the black box, and (iii)
the contract language shifts the
risk of output of the black box
onto the contractor (who only
constructed the input) this is
inappropriate allocation.
Language that keeps the risk

of the piece of equipment
functioning correctly (output)
on the owner, while the
contractor is responsible
for the installation of the
equipment (input) according to
the design documents.
Language that holds the owner

responsible for the success of
new or unfamiliar technology
that the contractor chooses to
use in its means and methods.
However, if the new technology

pertains to the contractors
means and methods, the
contractor should retain the
risk.
15
6. Force Majeure
ISSUES: Time only v. time and money, foreseeability, reasonable efforts/due diligence, burden of proof,
denition of triggering events, impacts of events, relief (suspension, termination), insurance, catch-all
phrases v. specic events, time limits before cost recovery, notice provisions, time-is-of-the-essence
clauses
Favors Buyer
Compromises
Favors Seller
If the contract is silent regarding Force

Majeure, but contains a time-is-of-theessence clause. See No Damages for
Delay language under Favors Owner
column. Language provides time relief
as the sole remedy to the contractor for
any delays.
First and foremost, Force Majeure

triggering events should be clearly,
unambiguously dened.
Language
that gives the
contractor time,
money, and
termination rights
without limitations.
AIA language that favors the owner

by giving the architect control of time
extensions, and making weather related
(Force Majeure) claims very hard for the
contractor to prove (i.e. documentation
required to show that weather events
are abnormal, not foreseeable, and
have an impact on construction).
If the Contractor is delayed at any time in
the commencement or progress of the
Work by an act or neglect of the Owner or
Architect, or of an employee of either, or of
a separate contractor employed by the
Owner, or by changes ordered in the Work,
or by labor disputes, re, unusual delay in
deliveries, unavoidable casualties or other
causes beyond the Contractors control, or
by delay authorized by the Owner pending
mediation and arbitration, or by other
causes which the Architect determines
may justify delay, then the Contract Time
shall be extended by Change Order for
such reasonable time as the Architect may
determine.
(AIA: A201-1997,8.3.1)
If adverse weather conditions are the
basis for a Claim for additional time, such
Claim shall be documented by data
substantiating that weather conditions
were abnormal for the period of time,
could not have been reasonably
anticipated and had an adverse effect on
the schedule construction.
(AIA: A201-1997,4.3.7.2)
Compromising language will

provide equitable adjustment
for unavoidable costs incurred
by the contractor during delays
caused by Force Majeure events.
These unavoidable contractor
costs include rental equipment and
management salaries. Recoverable
damages should not be limited to
the damage of physical property.
Indirect damages should also be
recoverable and clearly dened,
possibly with limitations. Rebuild
should be covered by Builders
Risk Insurance.
Compromising language will
attempt to include both time
and money compensation, with
possible limitations. Often the cost
recovery is limited to the direct cost
of the delay and certain overhead
items but will not include prot. In
the alternative, limiting language
could incorporate a cost recovery
only after a certain number of
days of Force Majeure have been
encountered. Such a deductible
allows both parties to share a set
known-unknown risk, but does
not put the contractor at risk for
extreme or catastrophic risk that
places its business in imminent
jeopardy.
Language that provides time relief
to the contractor if a workaround
cannot be developed and money
relief to the extent of impact not
covered by insurance or included in
the Contract Price (contingency).
16
Language that
gives time and
money relief and
species that
the contractor
must bear the
rst $XXX,XXX
of a Force
Majeure event,
with not more
than $XXX,XXX
expended by
the contractor
for all Force
Majeure events
cumulatively.
If after these
limits the owner
delays in paying
the contractor
for the Force
Majeure impacts,
the contractor
may terminate
the contract
(after X number
of days of nonpayment). Note:
This language
may be viewed as
a compromise if
the project is very
large in scope
and is located
in an area highly
susceptible to
Force Majeure
events.
6. Force Majeure (continued)

Favors Buyer
Compromises
Language that restricts recovery to time only.
Should the progress, performance

or completion of any portion of the
Contractor agrees that its sole remedy for
Work contemplated by this
delays of any duration resulting from Force
Contract be delayed as the result
Majeure, shall be an extension of time, which
of catastrophic ood, hurricane
extension shall be documented by Change
(including hurricane readiness in
Order.
accordance with the PROJECT
NAME facility on-site hurricane
Language that provides time relief only for
preparation standards), tornado,
a subcontractor. Furthermore, it requires
windstorm which impacts the Work
very stringent notice requirements be met in
or delays the Work for safety
order to pursue a time extension. Anytime
reasons, earthquake, re or other
an absolute timeframe is put in to place that
similar catastrophe; or as the result
denies or waives a right, the drafting party is
of Acts of God, the public enemy,
unfairly beneted. The statute of limitations
terrorists, Acts of the Government;
is 5 or 10 years and here the drafter gives 7
or epidemics, quarantine
days.
restrictions, strikes (other than of or
against Contractor), freight
If SUBCONTRACTORS performance of this
embargoes or other casualty which
subcontract is prevented or delayed by any
unforeseeable cause, existing or future, which is is not in the normal course of
beyond the reasonable control of the parties and business for Contractor and for
which the Contractor is not
without the fault or negligence of
responsible (a Force Majeure
SUBCONTRACTOR, SUBCONTRACTOR shall,
within twenty-four hours of the commencement Event); the time of completion of
of any such delay, give to CONTRACTOR written the portion of the Work directly
notice thereof and within seven (7) calendar days affected by such delay, shall upon
timely written request of the
of commencement of the delay, a written
Contractor, be extended by a
description of the anticipated impact of the
period commensurate as dened
delay on performance of the Work. Delays
below with time lost on the
attributable to and within the control of
Substantial Completion Date if a
SUBCONTRACTORS suppliers or
reasonable workaround cannot be
subcontractors of any tier shall be deemed
delays within the control of SUBCONTRACTOR. developed by the Parties which
mitigates any delay or additional
Within seven (7) calendar days after the
costs.
termination of any excusable delay,
SUBCONTRACTOR shall le a written notice
If a Force Majeure Event will
with CONTRACTOR specifying the actual
increase Contractors cost for the
duration of the delay. Failure to give any of the
performance of the Work,
above notices shall be sufcient ground for
Contractor will be entitled to an
denial of an extension of time. If CONTRACTOR
equitable adjustment of the
determines that the delay was unforeseeable,
Contract Price to compensate
beyond the control and without the fault or
Contractor for its actual additional
negligence of SUBCONTRACTOR,
costs reasonably incurred due to
CONTRACTOR will determine the duration of the
the Force Majeure Event, to the
delay and will extend the time of performance of
extent and amount not covered by
this subcontract by modifying the Special
insurance and not already included
Condition titled COMMENCEMENT,
in the Contract Price. Contractor
PROGRESS AND COMPLETION OF THE
will use all reasonable efforts to
WORK accordingly. Such extension shall be the
mitigate the effects of any Force
sole remedy for the delay.
Majeure Event.
17
Favors Seller
ISSUES: Notice provisions, mandated acceleration, constructive acceleration, recovery acceleration,
control of recovery plans, liquidated damages as direction to accelerate, excusable delays v. nonexcusable delays, ownership of oat, expert testimony/studies, time extension requests, owner response
time for determining if a delay is excusable, burden of proof of lost productivity, causation, liability,
resultant injury
Favors Buyer
Language that species that the contractor should
do whatever it takes to get the job done on time
(regardless of the circumstances) using its own
means and methods. If the required means
and methods happen to include acceleration, the
contractor is responsible for its extra costs.
Language that either gives the contractor no
compensation, or direct costs only for mandated or
constructive acceleration. The example language
below allows direct costs only.
Even if Contractors work is otherwise in compliance
with the Project Schedule, Owner may, at any time,
direct Contractor in writing to accelerate the Work and
to perform additional shifts or overtime and provide
additional equipment. In this event, Owners sole
liability to Contractor shall be to pay Contractors actual
direct costs related to the acceleration. Any adjustment
in the Contract Price for Owners voluntary acceleration
of the Work shall be implemented by Change Order.
Language that forces acceleration by overmanning
(with no means of recovery) if the contractor fails
to meet milestones. The milestone mention is
especially troubling because a contractor may fail to
meet the rst milestone and be forced to accelerate
when it actually may have been on pace to nish
the entire project early or on time. The inability of
the contractor to meet early milestones may not
necessarily mean that the contractor is on pace
to nish late. The milestones may have just been
inaccurately scheduled. Note: Elsewhere in the
contract, overmanning compensation is allowed if it
is necessitated and approved by the owner due to
an increase in the scope of work via a change order.
Should Contractor fail to achieve one or more
milestones by the projected date(s), Contractor
expressly agrees that it will add a sufcient number of
qualied and experienced personnel to its design and/
or construction management staff, as required, to
recover the projected schedule and shall not seek
reimbursement from Owner for such personnel even
though they may be added to Contractors manloader.
18
Compromises
Favors Seller
Language that gives

the contractor its direct
costs and a portion of
indirect costs and prot
for the accelerated work
when the acceleration
is mandated or
constructive. Similar to
the Cumulative Impact
of Change Orders, a
good compromise might
establish an unbiased
project neutral expert
on acceleration impacts
to apply a certain model
or method to quantify
impacts.
Language that
allows the
contractor to
recover its prot
and direct and
indirect costs
for mandated
or constructive
acceleration.
In essence,
the contractor
gets Time
& Materials
costs for the
accelerated
work. Although
uncommon,
language that
allows the same
compensation
for recovery
acceleration
would clearly
also favor the
contractor.
Compromising language
should also specically
set out what type of
documentation the
contractor is expected
to keep in order to prove
causation, liability, and
resultant injury of the
mandated or constructive
acceleration. The
recovery plan for
acceleration should
also be agreed upon
by both parties in a
compromising contract.
If the acceleration is
recovery acceleration,
the contractor should
be held responsible for
its extra costs and the
recovery plan should be
agreed upon since the
owner may have to pay
more labor expenses
to increase its safety
inspectors on site.

ISSUES: Cardinal change, abandonment, constructive change, waivers, reservations, causation, liability,
resultant injury, burden of proof, expert testimony/studies, altered working conditions, foreseeability,
accord and satisfaction, notice provisions, clause ambiguity, lack of consideration, performance, or
authority; unilateral or mutual mistake, misrepresentation, duress, coercion
Favors Buyer
Compromises
Language that explicitly waives the right

of the contractor to impact costs and
damages related to the execution of
change orders. The language species
that the contractor should account
for any impacts in the change order
submittal. This effectively cuts off any
ability for the contractor to bring a claim
for cumulative impact (unless reservation
language is inserted). The justication for
this language is that the owner does not
want to be blindsided by a cumulative
impact claim at the end of a project.
Unfortunately, cumulative impact is not
usually recognizable until the later stages
of a project.
Language that allows the

contractor to submit cumulative
impact claims that can display
causation, liability, and resultant
injury. A good compromise
might establish a project
neutral, unbiased expert on
cumulative impacts to apply
a certain model or method
to determine if cumulative
impact occurred and to what
extent the contractor should be
compensated. Compromising
language could also
specically set out what type of
documentation the contractor
is expected to maintain in order
to prove causation, liability, and
resultant injury to the owner.
Execution of a Change Order by

Contractor, or acceptance of payment by
Contractor constitutes waiver and release of
all direct, indirect, consequential and impact
costs and damages related to, or resulting
from, that Change Order, and its effect, if
any, on unchanged work, including, but not
limited to, jobsite overhead, home ofce
overhead, interest or carrying charges on
Contractors investment, expenses arising
from cost of capital, or for loss of use of, or
under-utilization of labor, equipment or
facilities. The execution of each Change
Order, or acceptance of payment by
Contractor shall constitute a full and
complete settlement for all claims
Contractor may have against Client, for any
damages and/or increased costs as a result
of any delay, acceleration, hindrance,
disruption, inefciency, or other interference
related to the Change Order and all previous
Change Orders. In estimating the effect of
changes upon the cost of its Work and
Contract Schedule, Contractor shall ensure
that it has properly accounted for all cost
and time impacts and shall not later make
any claim for reimbursement of impact
costs allegedly resulting from the number,
nature or extent of Change Orders.
Some contractors consider it

a compromise when language
species that reservations
of rights are OK only if the
contractor cannot ascertain
the cumulative impact of a
certain change by its goodfaith efforts. Furthermore, if
the contractor then wants to
le for a cumulative impact
that includes that particular
change order, the contractor
must let the owner know of
its intention to do so within
X days of the change. Some
contractors may take issue
with this, since research shows
that the total cumulative impact
cannot be known until late in
the project after many single
changes have synergistically
caused a cumulative impact. By
denition, the cumulative impact
is from multiple or cumulative
change orders, not singular
change orders.
19
Favors Seller
Language that
species a xed
schedule of
compensation
for changes. For
example, the
contractor may try
to draft language
that awards the
contractor a
xed amount of
compensation for
every X number
of changes or
disruptions to its
work to account
for the cumulative
impact.
Language that allows
the contractor to
fully recover its
cumulative impacts
after a certain
amount (%) of
change has occurred
on the project.
8. Cumulative Impact of Change Orders (continued)

Favors Buyer
Compromises
Language that disallows the contractor

to le for impact costs related to change
orders after the change order is signed.
This puts the burden on the contractor
to try and anticipate all of the impacts
that each change will have on the work
directly or indirectly. This is difcult,
since the cumulative impact of change
orders usually cannot be known until the
conclusion of the project.
For any Change Order which warrants an
addition to or deduction from the Contract
Price or Project Schedule, the Owner and
the Contractor shall execute a written
Change Order, in a form to be provided by
the Owner, and the Contractors signature
thereon shall constitute acceptance of the
change in price and/or schedule, and
acknowledgement that said change in price
and/or schedule represents full
compensation for all costs associated with
the Change Order, including delay costs,
impacts, acceleration, inefciency,
disruption, consequential damages, and any
other cost of any nature or type.
20
Favors Seller
ISSUES: Due diligence, owner-approved lists, contractor nominations, minority and women-owned
businesses
Favors Buyer
Compromises
Favors Seller
Language that
specically mandates
subcontractors and bars
the contractor its due
diligence rights.
If an owner provides a contractor with

a list of owner-approved (mandated)
subcontractors, the owner should allow
the contractor to nominate other qualied
subcontractors to the list. The contractor
should also be given due diligence rights
to review the subcontractor list and make
its selection based on the merits of the
subcontractors. Once this is done, there
has been a mutual agreement. In a lump
sum contract, the only risk remaining is
if the contractor has been lazy with its
due diligence and ends up with a poor
performing subcontractor. In a costreimbursable contract, some of the increased
costs may end up being passed on to
the owner. Regardless, inadequate due
diligence can quickly lead to claims and
disputes.
Language that
allows the contractor
to contract with
any subcontractor
(absolutely no ownercontrol in selection
of subs). In other
words, the contract
is silent regarding
mandation of specic
subcontractors.
If the owner mandates specic

subcontractors, the contractor may be
able to compromise if: (i) it requests the
difference in pricing between the bid of a
mandated subcontractor and the lower bid
of an un-mandated subcontractor that the
contractor would have used (this is only if the
mandated subs price is more expensive than
the contractor-selected subs price), or (ii) if
it expressly limits its liability concerning the
mandated subcontractors performance.
Language that does not mandate the
use of specic subcontractors, unless
such a practice would be practical. The
language states that the subcontractor
shall support the owners and contractors
policy to utilize small, minority, and womenowned businesses. No real mandation,
just encourages a cooperative working
relationship.
SUBCONTRACTOR shall support
CONTRACTORS and OWNERS policy and
commitment to maximizing, where practical,
business opportunities for small, minority and
women owned business enterprises (as
identied in the Glossary appended to these
General Conditions) by actively identifying,
encouraging and assisting in their participation.
21

ISSUES: Liability of Builders Risk events, premiums potentially increasing, gaps in coverage,
difference in conditions insurance, due diligence, Owner-Controlled Insurance Programs, ContractorControlled Insurance Programs, allocation of deductibles, additional insured
Favors Buyer
Language that species that
the contractor will obtain the
Builders Risk policy, name
the owner as additional
insured without qualication,
and be responsible for the
deductibles (deductibles are
difcult to account for in a bid,
so the contractor may become
uncompetitive or nancially
distressed).
Language that species that the
owner will obtain the insurance,
but will not be responsible for
gaps in the insurance, while the
contractor is not allowed due
diligence to investigate the
gaps.
Compromises
Favors Seller
Owner purchases the Builders

Risk policy (or is self-insured),
or another party buys the
policy and passes the costs
to the owner. The deductibles
are either shared based on
the negligence of the parties
(determined by good faith
discussion), or the contractor
is given a xed portion of the
deductibles that it must pay.
This gives the contractor a
stake in preventing Builders
Risk events (if at all possible).
This xed deductible amount
must be a reasonable amount
that can actually be born and
survived by the contractor.
Owner is responsible for

obtaining the Builders
Risk policy, and the owner
is responsible for the
deductibles. The contract
would also hold the contractor
harmless for events covered by
the insurance, and name the
contractor as an additional
insured.
The contractor should also

be able to look at the gaps
in insurance, so that it is
able to purchase difference
in conditions insurance if
necessary. Furthermore, any
Builders Risk insurance policy
should have the contractor
named as additional insured.
It may also prove useful to
provide an incentive (reward/
bonus) to the contractor if
no claims occur. This will
encourage the contractor
to act defensively when
it comes to preventing
insurance losses if at all
possible. All of these factors
should be considered to
establish a compromising
situation that optimizes
insurance for project-specic
circumstances.
An Owner-Controlled or
Contractor-Controlled
Insurance Program may satisfy
the contracting parties as an
equitable compromise.
22

ISSUES: Which party determines the equitable adjustment, site inspections, special conditions
clauses, notice provisions, differing site conditions clearly dened, foreseeability, Type I & II
conditions, notice requirements, reasonable certainty, duty to disclose, impossibility, mutual mistake,
misrepresentation, fraud, breach of implied warranty, review and reliance
Favors Buyer
The contract is silent regarding differing
site conditions.
Language that pushes all the risk to the
contractor by giving it access to the site,
and telling it to rely on its own investigation
(or no site access is granted at all).
Language that gives the owner supreme
control over determining whether or not
the contractor is entitled to an equitable
adjustment to its contract time or price.
Different or Concealed Conditions. If
Contractor (i) encounters or discovers
conditions that differ from those reasonably
anticipated after Contractors examination of
the Site and diligent examination of reference
information made available to Contractor, (ii)
encounters concealed conditions existing
below the surface of the ground, (iii)
encounters conditions in an existing structure
that are at variance with the conditions
indicated by the Contract Documents, (iv)
discovers materials that are or that it
reasonably believes are Hazardous Materials
that are not controlled or have not been
rendered harmless, (v) encounters a condition
that is or that it reasonably believes is a
Wetland Condition that is not protected, or (vi)
encounters items or a circumstance that is or
that it reasonably believes is a Native
American Archaeological Site that is not
protected, Contractor shall immediately notify
Owner and cease performance of the Work in
that area of the Project where any such
condition or circumstance is encountered.
Compromises
Favors Seller
Language that species that if

differing site conditions occur, the
contractor will be equitably adjusted
for both time and money. The differing
site condition should be something
that the contractor could not have
foreseen. However, this determination
should not be independently made by
the architect or the owner. If there is
a disagreement as to whether or not
a differing site condition is present,
the disputes provisions should
specify a third-party to settle the
dispute. The sample language below
is almost identical to the rst example
of Favors Buyer language, except
the determination of the differing site
condition is made by both parties then a third party if no agreement can
be made. If a differing site condition is
determined to exist, the owner must
grant an equitable adjustment to the
contract (time and money).
Language
that
excludes
the
contractors
liability
when
there is
insufcient
time/effort
available to
investigate
site
conditions
sufciently.
Language
will also
exclude
contractor
liability for
any gaps
that may
exist in
existing site
condition
reports.
23
11. Differing Site Conditions (continued)

Favors Buyer
Compromises
Protective Actions. Upon ceasing the Work, or

upon discovery of any occurrence or condition
that constitutes or reasonably could constitute
an immediate danger to persons, property or
the environment, the Contractor shall take
such emergency actions as are reasonably
necessary to contain any suspected
Hazardous Materials or limit their effects, to
protect the suspected Wetland Condition or
the suspected Native American Archeological
Site, or to otherwise minimize the danger, shall
take such temporary measures as are
reasonably necessary to secure the involved
area of the Project site from further
disturbance. The Contractor shall not resume
the Work in the affected area until it has
received a written order from Owner to do so.
Different or Concealed Conditions. If

Contractor (i) encounters or discovers
conditions that differ from those
reasonably anticipated after Contractors
examination of the Site and diligent
examination of reference information
made available to Contractor, (ii)
encounters concealed conditions existing
below the surface of the ground, (iii)
encounters conditions in an existing
structure that are at variance with the
conditions indicated by the Contract
Documents, (iv) discovers materials that
are or that it reasonably believes are
Hazardous Materials that are not
controlled or have not been rendered
harmless, (v) encounters a condition that
is or that it reasonably believes is a
Owner to Review. Owner will promptly review
Wetland Condition that is not protected,
the condition and determine the extent, nature or (vi) encounters items or a circumstance
and scope of the condition.
that is or that it reasonably believes is a
Course of Action. If Owner determines that the Native American Archaeological Site that
is not protected, Contractor shall
condition(s) could not have been discovered
by Contractor through information available to immediately notify Owner and cease
performance of the Work in that area of
Contractor, they do differ materially from the
the Project where any such condition or
anticipated condition, and would cause an
circumstance is encountered.Protective
increase or decrease in the Contractors cost
Actions. Upon ceasing the Work, or upon
or time to perform the Work, Owner shall
discovery of any occurrence or condition
determine a course of action and may: (1)
undertake mitigation activities or other acts as that constitutes or reasonably could
its deems appropriate; (2) terminate or modify constitute an immediate danger to
persons, property or the environment, the
the Contract in accordance with its terms; or
(3) make an equitable adjustment by a Change Contractor shall take such emergency
actions as are reasonably necessary to
Order to the Contract.
contain any suspected Hazardous
Materials or limit their effects, to protect
the suspected Wetland Condition or the
suspected Native American Archeological
Site, or to otherwise minimize the danger,
shall take such temporary measures as
are reasonably necessary to secure the
involved area of the Project site from
further disturbance. The Contractor shall
not resume the Work in the affected area
until it has received a written order from
Owner to do so.
24
Favors Seller
11. Differing Site Conditions (continued)

Favors Buyer
Compromises
AIA language that gives control to the

architect to determine if a differing
site condition is present and what the
adjustment in cost and time should be.
Courts will enforce the architects decision
unless proven malicious.
DSC Review. Owner and Contractor will

conjunctly review the condition and
determine the extent, nature and scope of
the condition. If the Owner and Contractor
cannot agree, a pre-selected project
neutral will determine if differing site
conditions exist.
If conditions are encountered at the site

which are (1) subsurface or otherwise
concealed physical conditions which differ
materially from those indicated in the Contract
Documents or (2) unknown physical
conditions of an unusual nature, which differ
materially from those ordinarily found to exist
and generally recognized as inherent in
construction activities of the character
provided for in the Contract Documents, then
notice by the observing party shall be given to
the other party promptly before conditions are
disturbed and in no event later than 21 days
after rst observance of the conditions. The
Architect will promptly investigate such
conditions and, if they differ materially and
cause an increase or decrease in the
Contractors cost of, or time required for,
performance of any part of the Work, will
recommend an equitable adjustment in the
Contract Sum or Contract Time, or both. If the
Architect determines that the conditions at the
site are not materially different from those
indicated in the Contract Documents and that
no change in the terms of the Contract is
justied, the Architect shall so notify the
Owner and Contractor in writing, stating the
reasons. Claims by either party in opposition
to such determination must be made within 21
days after the Architect has given notice of the
decision. If the conditions encountered are
materially different, the Contract Sum and
Contract Time shall be equitably adjusted, but
if the Owner and Contractor cannot agree on
an adjustment in the Contract Sum or
Contract Time, the adjustment shall be
referred to the Architect for initial
determination, subject to further proceedings
pursuant to Paragraph 4.4.
(AIA: A201-1997,4.3.4)
Course of Action. If the condition(s) could

not have been discovered by Contractor
through information available to
Contractor, they do differ materially from
the anticipated condition, and would
cause an increase or decrease in the
Contractors cost or time to perform the
Work, Owner shall make an equitable
adjustment by a Change Order to the
Contract.
25
Favors Seller

ISSUES: Implied warranty (Spearin Doctrine), duty to inspect/review, reliance, express warranties (t for
purpose work), insurance, prescriptive v. performance specications, patent errors/defects
Favors Buyer
Language that holds the contractor
liable for damages if they would have
been prevented if the contractor had
performed a contract document and
design review with eld verication
measurements to verify existing site
conditions.
Before beginning each component of the
Work, Contractor shall carefully study and
compare the Contract Documents
(including the Drawings and Specications)
as well as reference documents and
information provided by Owner, and shall
check and verify pertinent gures therein
and take eld measurements of any existing
Site and existing facility conditions related
to the Work. If Contractor fails to diligently
review and properly consider them,
Contractor shall be responsible for costs
and damages caused by its omissions to the
extent that such costs and damages would
have been avoided if Contractor had
performed its document review, design
review, and eld verication obligations.
Language that expressly warrants that
the contractors work will be: t for the
purpose intended, of good quality, and
free from faults and defects. This type of
express warranty has been interpreted
by some courts as an exception to the
applicability of the Spearin Doctrine.
These courts have held contractors
liable for design errors/omissions that
manifest themselves in the work of the
contractor.
Contractor warrants that the Work shall be
in accordance with all applicable plans,
Drawings and Specications, or to the
extent not covered by such plans, Drawings
and Specications, in accordance with
applicable professional and industry
standards, and shall be t for the purpose
intended, of good quality, and free from
faults and defects.
Compromises
Favors Seller
Language that requires the

contractor to use reasonable
care in reviewing the design
documents and to report any
defects or errors noticed.
However, the language expressly
waives any liability for a claim
arising out of the contractors
failure to discover design defects
or errors. This encourages the
contractor to check the plans
thoroughly with no fear of
liability for defects or errors not
discovered.
Language that
is in accordance
with the Spearin
Doctrine. This
language attempts
to remove all liability
for design errors
and omissions from
the contractor, even
if the contractor
happens to know
that there is an error
or omission in the
design documents.
The Contractor is required to use

reasonable care to check any
Issued-For-Construction Drawings
(IFC Drawings) provided by or to
Engineer or the Owner for any Work
or Equipment supplied under this
Contract for compatibility with the
Work. The Drawings shall be marked
clearly with any errors in
compatibility, dated and returned
promptly to the Owner. Preliminary
notice of any correction or
comments shall in each case be
sent by the Contractor to the Owner
as soon as possible. Contractor
expressly disclaims any liability
arising out of any claim that
Contractor failed to ascertain and/or
report any error or omission in the
engineering or design of such
Drawings.
The contractor is
bound to build
according to plans and
specications
prepared by the owner,
and the contractor will
not be responsible for
the consequences of
any defects (patent or
otherwise) in the plans
and specications
under any
circumstances
whatsoever.
With Engineer/Procure/Construct
lump sum work, bid tenders
should be given by the owner
with adequate time for the
contractor to investigate the
design. Oftentimes, not enough
time is allotted to the contractor
to discover deciencies in the
owner-provided design.
26

ISSUES: Time limits, delay claim waivers v. nal releases, Statute of Limitations
Favors Buyer
Compromises
Common delay claim waivers

cause the contractor to lose its
right to delay compensation if it
does not provide notice within
the contractually specied time
limits. The language below
comes from a contract that
gives the contractor a veday time limit or else... The
contract gives the contractor
ve days from the occurrence
of the event if it is contractorinitiated, or ve days from when
the owner provides notication
if it is owner-initiated. The owner
is given ve days to respond to
a contractors notice, but there
is no contractual penalty if it
does not.
Reasonable time limits for

delay waivers, and mutual,
equal waiver of claims for nal
releases.
A more detailed, fair
compromise for delay claims
would require prompt notice
of impact events, with a
written statement of when the
quantication of the impact
can be expected. However, a
maximum time limit should be
specied for the quantication
to be submitted by the
contractor. This time limit is
needed to give the owner
adequate time to respond
to the claim. This type of
language promotes dialogue.
Waiver of Claims for Failure to

Provide Notice: CONTRACTOR
HEREBY EXPRESSLY WAIVES ALL
RIGHTS TO ASSERT ANY AND
ALL CLAIMS BASED ON ANY
CHANGE IN THE WORK, DELAY
OR ACCELERATION (INCLUDING
ANY CONSTRUCTIVE CHANGE,
DELAY, SUSPENSION OR
ACCELERATION) FOR WHICH
CONTRACTOR FAILED TO
PROVIDE PROPER AND TIMELY
NOTICE AS REQUIRED BY THIS
ARTICLE XX.
Final releases of claims are
appropriate. However, language
that addresses nal waivers
may favor the owner if they
dont allow adequate time to
the contractor to review the
acceptance of the owner.
Fair releases usually specify
that any and all claims must
be submitted within 90 days
after substantial completion is
achieved and approved for and
by the owner.
27
Favors Seller
No nal waiver of claims and
no time limits on delay claims
(other than the Statute of
Limitations).

ISSUES: Standards ambiguously dened, professional standard of care, ordinary standard of care (tort
negligence), proximate cause, defenses of assumption of risk, contributory negligence, and independent
contractor; Afdavit of Merit, foreseeability, economic loss rule, express duties and warranties
Favors Buyer
Compromises

highest or best industry
standards should be used. This
gives the owner leverage to be
able to point at another similar
project and say, That is the
highest or best standard. You
are liable because you did not
reach that standard.

work should be performed
in accordance with the plans
and specications with
measurable tolerances dened
for the contractor (construction
standard of care).
the design be prepared in
accordance with the care,
skill, and diligence that other
professional designers would
ordinarily and reasonably
conduct themselves by in
the same circumstances to
achieve a functional design
product that is promptly
usable (engineering standard
of care).
28
Favors Seller
Generally accepted
standards.
Chapter 3: Legal Research

Introduction
The legal research results are integral to an increased understanding of the respective risks and
the courts interpretations as to their allocations. In some instances the intervention of a Legislature
will preempt either the precedental value of cases or the ability of parties to allocate risk on their own.
For example, the Illinois Scaffold Act effectively renders indemnication clauses unenforceable in
Illinois. Courts sometimes will not prohibit a seemingly oppressively one-sided clause but will require
that the statement of the requirement to be so clear as to leave no doubt as to the parties intentions
(this has frequently been the case with indemnity clauses).
Each of the 10 risks listed in Table 2 have been analyzed and are summarized in this chapter.
This implementation resource contains a summary of the legal research only. The legal research
in its entirety, along with all citations of case rulings and decisions relied upon, can be found in
Research Report 210-11. The overall intent of the legal research is to determine how a court would
likely allocate each risk if it is not done so in the contract documents and what types of exceptions
have been established when the risk is included in the contract documents. The highlight of each risk
discussion is the legal issues and considerations ow chart. Each ow chart will aid the parties in
understanding the courts viewpoints concerning the risk.
Table 2. The 10 Hot-Button Risks Researched
Legal Research Risks
3. Indemnity
5. Force Majeure
7. Cumulative Impact of Change
Orders
Research and Findings

The research team conducted its legal research by reviewing legal opinions and reviews expressed
in U.S. Federal and state cases from the Lexis Nexis database, legal articles, and construction law
books. The attorneys on the research team were also heavily relied upon to provide their expertise
regarding the legal issues and considerations associated with each risk that was researched.
29
Initially the research teams hypothesis held that any particular risk is always best allocated to
one certain party regardless of project circumstances. After the data collection, the team concluded
that optimum allocation for any particular risk is not always best allocated to the same party in each
instance, but that it is in fact project-specic. Consequently, the team shifted toward legal research
that could aid contracting parties in determining the optimum allocation of the hot-button risks
on each specic project. The team found, however, that only 10 of the hot-button 14 risks yielded
readily available, documented legal information. As a result, the research team chose to limit its legal
research scope to the 10 risks that it: (1) had the most success in obtaining legal information for, and
(2) felt that the industry could benet the most from.
Readers should recognize that each case or legal principle discussed has to be understood
in its totality recognizing that the British and U.S. legal systems are adversarial in nature and not a
Socratic search for the truth. As a result, the specic legal circumstances (i.e., the skills, motivations,
and biases of judges, juries, lawyers, and expert witnesses) may vary greatly from case to case and
thereby result in very different rulings from those discussed herein.
Application of Findings
Through a careful review of the analysis and study of the legal issues and considerations ow
charts, parties should increase their understanding of each of the 10 researched risks. With this
knowledge, along with the information provided by the contract language tables, contracting parties
should then be able to draft more effective risk allocation clauses and more effectively scrutinize
contract clauses that are proposed to them.

No damages for delay clauses attempt to shift the risk of delay caused by one party to
another. It can be the owner as to the general contractor (and by virtue of ow-down provisions,
to the subcontractors), or solely by the general to its subs. Time delays can be costly and can
accumulate quickly. By accepting a contract with a no damages for delay clause, the adhering party
greatly increases its risk exposure on a project. If both the owner and the primary contractor on
a project include a no damages for delay clause, a participating subcontractor can essentially be
held responsible for all delay costs that occur on a project, regardless of the source. Because no
damages for delay clauses are responsible for such a large and highly volatile risk transfer, many
legal jurisdictions have carved out exceptions to their enforceability. Among the legal principles that
govern the exceptions that have been carved out by the courts are the following:
1. Owners have an implied obligation in every construction contract to cooperate with the
contractor and to not intentionally interfere with, hinder, or delay performance of the
contractor, and;
2. If damages are foreseeable as a probable result of delay and advanced awareness of the
risk is given to the contractor, the contractor has the responsibility to account for the risk
in its bid price.
No damages for delay clauses may be enforced by courts unless specic exceptions are present
(no-damage-for-delay provisions are valid and enforceable so long as they meet ordinary rules
governing the validity of contracts see United States v. Metric Constructors, Inc., 480 S.E.2d 447
(S.C. 1997)). Figure 1 generically lays out the allocation of owner-caused delays when this type of
clause is present. It should be noted that the gure depicts what the current legal trends indicate.
Jurisdictions may vary in their rulings regarding the enforceability of no damages for delay clauses
and even different courts within the same jurisdiction may not be entirely consistent. The following
gure (and all others in this chapter) should be used only as an educational tool and not relied upon
to predict how a court or arbitrator will rule.
Identify
contract risk:
Delay clearly
foreseeable and/or
specific delay
addressed in clause?
Which party
assumes the risk?
Yes
Contractor
No Damages
for Delay
Yes
Owner
No
Yes
No
Clause is silent
regarding
additional
compensation?
Length of delay
justifies an
abandonment of
the contract?
No
The owner
actively
?*interfered?*
Yes
No
Varies**
* Willful acts, bad-faith acts, gross negligence

** Mere negligent interference is not always
seen as an exception to the clause
Figure 1. No Damages for Delay Legal Issues and Considerations Flow Chart
If an owner-caused delay occurs and was clearly foreseeable and/or specically addressed in
the no damages for delay clause, the contractor will assume the consequences associated with the
owner-caused delay. If the delay was not foreseeable and/or addressed in the clause, the next step
is to determine if the clause specically bars monetary compensation for the owner-caused delay.
Many no damages for delay clauses allow only an extension of time; however, if the clause is silent
or ambiguous regarding monetary compensation, the owner may be held liable for costs incurred by
the contractor. If the clause does state that no additional monetary compensation will be allowed,
the court will then determine if the length of the delay qualies as an abandonment of the contract
by the owner. If the length of delay does not justify abandonment, the next consideration will be to
investigate if the delay was caused by the owners active interference. Active interference includes
willful acts, bad faith acts, and gross negligence. If the owner actively interfered, it will be held liable
for the contractors damages. If the owner-caused delay was not due to active interference, some
jurisdictions will still hold the owner responsible if the owner-caused delay was due to the mere
negligence of the owner.
31
It should also be noted that if the owner refuses to grant a time extension as the sole remedy
when a delay justies such an extension, the contractor may be able to recover for its time and money
impacts if it is constructively accelerated as a result (see schedule acceleration legal issues and
considerations ow chart).
A consequential damages clause either enables or disallows an owner to be compensated for an
indirect loss caused by the contractor, and likewise, enables or disallows the contractor to receive
compensation should indirect losses stemming from the owners actions occur. Consequential
damages claims differ, however, from owner to contractor. An owner usually les for consequential
damages caused by a contractors breach of contract when the breach causes the owner to lose
use of the nal project and the prots that otherwise would have been realized if the breach had not
occurred. A typical contractor claim for consequential damages occurs when the owners actions/
inactions cause the contractor to lose potential business or destroy the contractors reputation
(sometimes these are referred to as business devastation claims).
Due to the indirect and specialized nature of the losses, the denitions of true consequential
damages are often misunderstood. If a consequential damages clause is not present in a contract,
the common law rule will generally enforce or disallow the damages according to the legal principles
of foreseeability and certainty. The foreseeability principle allows for recovery of consequential
damages if the party in breach of contract could reasonably foresee that a contract breach would
result in the indirect consequential damages to the other party. Certainty requires that damages be
reasonably calculable and not the subject of mere speculation.
Court rulings on consequential damages have been highly variable due to the difculty in proving
losses with reasonable certainty. As a result, consequential damages waivers are increasingly
common and have thus set some standards of enforcement within the legal community. Traditionally,
contracts for construction of power plants and some other large industrial facilities have eschewed
consequential damages clauses in favor of liquidated damages for late completion.
In summary, several considerations should be made when drafting consequential damages
waivers. Foreseeable losses that are known at the time of contract signing should be specically
addressed in the waiver. Waivers may contain language that species that consequential damages
are waived except for those included in a liquidated direct damages provision. This may effectively
disallow the owner from accounting for any consequential damages in its liquidated damages clause,
since there is really no such thing as direct liquidated damages. Unfortunately, it is for consequential
damages that liquidated damages provisions are most needed (Sweet, 2004). By denition liquidated
damages are damages which are indirect or consequential which cannot be directly calculated at the
time a contract is entered into (Wallace, 1998).
Theoretically, by including the limitation to liquidated direct damages alone, the parties
effectively eliminate liquidated damages altogether. However, it is ambiguous as to what indirect
liquidated damages versus direct liquidated damages can actually be dened as. Owners should be
wary of this type of language in consequential damages clauses. It seems more equitable that the
32
owner would be allowed to account for consequential damages within its liquidated damages, but
that a cap would be specied concerning the damages. However, the cap should be high enough as
to provide an incentive for the contractor to perform.
Figure 2 lays out the allocation of consequential damages awards to any party in situations
involving and lacking a consequential damages waiver. It should be noted that the gure depicts
current legal trends. As such, jurisdictions will vary in their rulings regarding the enforceability or
application of consequential damages clauses.
Consequential
damages waived?
Yes, if court finds that the

damages fall under the
catch-all consequential
damages definition.
No
Identify
contract risk:
Yes
Consequential
Damages
Waiver is
present in
the contract?
No
Specific
damages
addressed
in waiver?
Yes
Yes
No
Yes
No
Damages were
reasonably
foreseeable by
injuring party?
Damages can be
proved with
reasonable certainty
by the injured party?
Yes
Yes
No
Figure 2. Consequential Damages Legal Issues and Considerations Flow Chart

First, considering the case where a waiver is included, a waiver with specic examples and a clear
denition of consequential damages is preferred to disallow award of the damages. As such, even if
the event is not listed in the waiver, it can still be ruled a consequential damage if the waiver contains
a catch-all consequential damages denition and the court interprets the denition to cover the
damages in question (courts will rely on the concepts of foreseeability and certainty to ascertain the
intentions of the contracting parties). When the event in question is included in the listed events, it will
normally result in a ruling upholding the consequential damages waiver.
If there are not clauses present in the contract that address consequential damages, the legal
principles of foreseeability and certainty become the only judicial guide as there is no contract
language to indicate the intentions of the contracting parties. As previously discussed, if the party
in breach of contract had no reason to foresee that their breach would result in losses to the other
party, then the party in breach is only at fault for breach of contract, and is not responsible for the
consequential damages incurred by the other party. If the party in breach of contract did have reason
to foresee that their actions would result in damages to the other party, however, the losses incurred
must still be proven with reasonable certainty before consequential damages will be awarded.
33
3. Indemnity
Indemnication can be dened as the action by which one contracting party (indemnitor)
holds another party (indemnitee) or parties (indemnitees) harmless for a loss that was caused by
the indemnitor. In other words, if the actions of the indemnitor cause a large loss which may or
may not manifest itself with a lawsuit, the indemnitor will shield the indemnitee from liability for the
loss. Depending on the contract and the legal jurisdiction in question, the indemnitor may also end
up indemnifying the indemnitee even if the loss was caused in whole or in part by the indemnitee.
Indemnity can be provided contractually through express written provisions or non-contractually
through the courts application of the legal concepts of qualitative (common law indemnity) and
quantitative (doctrine of contribution) comparisons of negligence.
Typically, when a severe personal injury or loss occurs on a construction project that yields legal
action, most every project party is named in the lawsuit so that the injured party will have a higher
probability of collecting its damages. If there are no contractual indemnication clauses that prevent
or allow the shifting of guilt for the event, one of the contributing parties may end up bearing all of
the loss even when other parties contributed to the injury or loss. This may happen out of court when
the party with the deepest pockets chooses to absorb the entire loss in order to forgo the costly
legal process, or in the case of litigation, a court may allocate the entire loss to one individual party
through the application of common law indemnity (qualitative comparison of negligence).
When no contractual indemnity provisions exist, the party who pays all of the losses will oftentimes
be interested in recovering some of its losses from the other guilty parties. This reimbursement is
known as contribution. Most U.S. courts do not require contribution among wrongdoers (Sweet,
2004). In Johnson v. Chicago & P. Elevator Co., 105 Ill. 462 (1882), the court afrmed that, There is
no right of contribution between wrong-doers. However, approximately half of the U.S. states have
implemented some type of contribution statute (Sweet, 2004). These statutes vary from state to state,
but most of the statutes generally specify that a joint tortfeasor (wrongdoer) against whom judgment
is entered is entitled to recover from other joint tortfeasors whose negligence contributed to the
injury. Contribution will only be allowed if the other joint tortfeasors are not protected by workers
compensation statutes (applicable if a joint tortfeasor is the employer of the injured party).
Indemnity can be provided by express written provisions in a contract or by application of
common law indemnity. In this manner, an offending party may nd protection from losses that it
otherwise would have been liable for. The doctrine of contribution among wrongdoers is another
method by which contracting parties can mitigate losses by forcing other wrongdoers to contribute
to the loss. As such, the indemnity legal research efforts focused on differentiating and separately
discussing common law indemnity, contractual indemnity, and contribution among wrongdoers.
Indemnication is a highly complicated contracting issue, and as such, it requires extensive
attention when drafting associated clauses. Each party should investigate their states public policies
and/or statutes that regulate indemnication clauses in construction contracts to ensure that a
particular clause will be enforceable as written.
Rulings on requests for indemnity vary depending on the existence of an indemnity clause and
the laws regarding indemnity within a state. Figure 3 outlines the granting of indemnity based on
34
situations regarding contractual and non-contractual indemnities in states that allow indemnication
clauses in some magnitude. Indemnity is a complex issue and the gure attempts to generalize the
common principles regarding the risk. As such, jurisdictions will vary in their rulings regarding the
granting of indemnity.
Clause expressly
indemnifies
indemnitees sole/
partial negligence?
Contractual
intention of the
parties provides
indemnity to
indemnitee?
Indemnity
provided to
indemnitee?
No
No
Yes
Yes
No
No
Indemnification
clause present?
Yes
Broad /
Intermediateform clause
No
Sole/partial
negligence indemnity
prohibited by Public
Policy/Statute?
No
Yes
Yes
No
Yes
Identify
contract risk:
Indemnity
Comparativeform clause
Yes
Active
No clause*
No
Type of
negligence by
indemnitee?
Comparative
contribution
(quantitative)
Passive
Indemnitees
financial
responsibility?
Common law
indemnity
(qualitative)
* Or clause rendered
general or ambiguous,
thus voiding it
No
Yes
Figure 3. Indemnity Legal Issues and Considerations Flow Chart

In instances where an indemnity clause is not present in the construction contract (or the clause
has been rendered void), the party seeking indemnity must show that they were only a passive
participant in bringing about the loss. Based on the results from the active and passive conduct
comparison, indemnity can be granted according to comparative contributory negligence (shared
nancial responsibility) or common law indemnity (all-or-nothing). Common law indemnity simply
shifts the entire loss from one party to the other depending on active and passive conduct. Many
states, however, have moved to comparative negligence as a method of avoiding the all-or-nothing
aspects of common law indemnity. Comparative negligence determines what portion of the loss or
damages can be allocated to each party individually. In instances where each party has violated
the same duty (both active participants), indemnity is usually denied. The logic of these governing
factors, however, is ignored in situations where an indemnity clause is present in the construction
contract.
35
Where a clause is present, indemnication rights depend on the type of clause found in the
contract. Provided the clause is broad or intermediate, the written indemnication of the indemnitees
sole and partial negligence can only be upheld in states where this type of indemnication is not
against public policy or statute and the indemnication intentions are expressly or clearly and
unequivocally stated in the clause. Public policy restrictions stem from the belief that if the indemnitee
is indemnied in the case of its own sole negligence, it will become careless in its responsibilities.
When expressed indemnication is not present in the clause and the state does not prohibit complete
indemnication, an indemnitee can still receive indemnity where it is proven that the contractual
intentions of both parties were as such; this is often difcult to prove, however.

If a contract contains ambiguous acceptance criteria (especially troubling in design-build and
process-oriented contracts) costs can increase quickly. All parties will benet when the acceptance
criteria avoid qualitative statements and contain clearly measurable, objective, and quantitative
criteria. Frequently, acceptance criteria may include phrases that specify that the work be completed
so that it is t for purpose or to the owners satisfaction. This can lead to a situation where the
contractor may feel that it has achieved the acceptance criteria, but the owner views the contractors
performance as falling well short of acceptance. Some contractors feel that ambiguously dened
acceptance criteria can also lead to the owner using the punchlist as a catch-all to modify or netune the design to make it acceptable.
When ambiguous acceptance criteria do exist, delays will almost certainly result as the contractor
works towards criteria that differ from the owners actual needs. Both parties will likely absorb
direct and indirect costs that stem from the delays. In the end, the owner may be forced to accept a
nished product that does not meet its needs and may have to absorb additional costs for rework.
Ambiguous acceptance criteria closely relates to the scope denition of a project. If the scope is not
clearly dened, even well-drafted acceptance criteria may become unreasonable under the extrinsic
circumstances of the project.
Contracting parties may often disagree as to whether or not a certain clause provides clear
and unequivocal terms. Furthermore, parties may not possess an adequate understanding of how
U.S. courts commonly approach rulings when confronted with ambiguous acceptance criteria. This
section will discuss how courts determine whether or not a criteria is ambiguous or not, and which
party will be held responsible for the resultant increase in costs. After reading this section of the
publication, contracting parties should be able to more adequately draft acceptance criteria that
are not ambiguous. At the very least, contracting parties will have more knowledge of how courts
commonly deal with the risk of ambiguous provisions. Accordingly, parties may be able to make
better decisions regarding the pursuit of legal action if they have a good idea of how ambiguous
acceptance criteria will be interpreted by the court.
Ambiguous acceptance criteria commonly occurs within the contract clauses that address
mechanical completion, substantial completion, contract or nal completion, and nal
acceptance. Within these types of clauses testing, commissioning, and permitting requirements
will be established along with more generic requirements such as, The Work is structurally,
mechanically, electrically and functionally constructed in accordance with the requirements of the
Contract Documents. Ambiguities can surface within any sentence in a contract, but ambiguities
regarding acceptance of the project have the potential to fundamentally alter the entire objective
of the contract as perceived by the contractor versus as perceived by the owner. This conict in
interpretation has the potential to severely delay a project since major completion milestones always
fall on the critical path of a project schedule.
The following discussion of legal principles pertains to any and all ambiguities that may be found
in a contract, not just in the acceptance criteria. A court will view all ambiguities in a similar manner,
so there is no specialized difference in interpreting ambiguous acceptance criteria.
Figure 4 displays the ambiguous acceptance criteria legal issues and considerations ow chart
that generically lays out the allocation of risk when an alleged ambiguity is present.
Prior to bidding,
clarification is sought
from the drafter of the
ambiguity?
Yes
Yes
Identify
contract risk:
Ambiguous
Acceptance
Criteria
Criteria has
more than one
reasonable
interpretation*
and/or does
not have a plain
meaning?
No
Ambiguity is patent
to a reasonable
individual?
Yes
Yes
No
No
No
No
Yes
Yes
Drafter assumes
costs resulting
from ambiguity?
Interpretation* relied upon

is consistent with the whole
portion of the contract
containing the ambiguity?
Established trade
practices or
customs evidence a
competing, alternate
interpretation*?
Yes
Interpretation* relied upon

conflicts with extrinsic
evidence speaking to the
intention of the parties?
Yes
No
No
* Relied upon in preparing bid
(NOT an after-the-fact interpretation)
No
No
Figure 4. Ambiguous Acceptance Criteria Legal Issues and Considerations Flow Chart
If acceptance criteria do not have more than one interpretation or are seemingly plain in their
meaning, the only mode of recovery against the drafter will be when the party performing the contract
relies on an interpretation of the criteria that corresponds with established trade practices or customs.
Also, the interpretation must have been relied on when the contract was entered into.
If the contract terms are ambiguous, the court will determine whether or not the ambiguity is
patent or latent. If the ambiguity is patent, the bidder will be bound to inquire upon the drafter for
clarication. If the bidder does so, it will usually be able to recover its costs from the drafter if the
claried interpretation later results in project difculties.
37
If the ambiguity is latent, the bidders interpretation will be construed over the drafters
interpretation according to the Contra Proferentem rule, so long as the bidders interpretation does
not conict with extrinsic evidence or other portions of the contract when read as a whole (Pari
Materiae).
5. Force Majeure
In any construction project, the fear of the unknown is an ever-present reality. At the time a
construction contract is entered into it is impossible to predict every single event that could occur
and have a devastating impact on the project. These unknown events are commonly referred to
as force majeure events. According to Websters dictionary force majeure can be dened as
a superior or irresistible force or an event or effect that cannot be reasonably anticipated or
controlled. The denition goes on to compare it to an act of God, which is further dened as: an
extraordinary interruption by a natural cause (as a ood or earthquake) of the usual course of events
that experience, prescience, or care cannot reasonably foresee or prevent.
Force majeure (acts of God) clauses, particularly considering the catastrophic hurricane
damage to Louisiana and Mississippi in late 2005, need to eliminate the risk for potential disputes.
Force majeure invoking events should be clearly and unambiguously dened along with the allowable
compensation measures. Oftentimes contracting parties will rely on insurance companies to provide
protection from force majeure events. However, the potential for insurance companies to go insolvent
in the case of a force majeure event makes it even more important that the contract documents
clearly address the risk factors surrounding force majeure events.
In construction law, the contractor is responsible for any damage or loss that occurs to
a structure during its construction (Clough, 1994). However, if a force majeure event causes the
damage, the contractor can nd relief via a force majeure clause. If there is no force majeure clause
several common law principles may provide relief when a force majeure event occurs: impossibility,
impracticability, and frustration.
Impossibility is the common law rule that a court can use to relieve contracting parties if it can be
concluded that performance has become physically impossible. If a contracting party contributes to
the impossibility through its own actions, excuse from the contract will not be granted. Impossibility
doctrine is based on the assumption that both parties will be able to perform as originally contemplated
at the inception of the contract. Impossibility doctrine (along with impracticability and frustration) is
a default and does not apply when contracting parties have agreed to a different allocation of risks
through direct contract language.
The doctrine of impossibility includes physical impossibility as just described as well as extreme
impracticability of performance. Impossibility and impracticability doctrines are closely related
and often indistinguishable in application by courts. The application of impracticability allows for a
broader scope of circumstances that may allow a grant of discharge from a contract, since absolute
physical impossibility will not be a prerequisite for excuse. Instead, continued performance amounts
to an impractical venture instead of a literally impossible situation.
38
Frustration or frustration of purpose is the third and nal common law principle that may allow
discharge from a contract in the absence of a contractual provision addressing force majeure. In the
absence of a force majeure clause, if an event occurs that causes performance of an obligation not to
become impossible or extraordinarily difcult, but to substantially frustrate the principle purpose for
which one of the parties entered into the contract, the doctrine of frustration may apply.
The doctrines of impossibility, impracticability, and frustration are similar concepts and thus
are often confused in their applications (some cases speak of a contract as frustrated when
performance has become impossible or impracticable 7200 Scottsdale Rd. Gen. Partners v. Kuhn
Farm Mach., 909 P.2d 408 (Ariz. Ct. App.1995)). Although inferred by their denitions, in order for the
application of the doctrines of impossibility, impracticability, or frustration, the invoking event must
have been unforeseeable at the time the contract was entered upon.
Apart from a direct contract clause addressing force majeure events, an injured partys only
hope is that the court will provide relief through one of the common law doctrines just discussed.
Because it is impossible to predict every event that could occur and have a devastating impact on
a construction project, Force Majeure clauses are usually incorporated in some form into modern
construction contracts.
Figures 5 and 6 illustrate the force majeure legal issues and considerations ow chart. For
the purposes of the ow charts it was assumed that a typical force majeure clause was being
examined, i.e., a clause constructed to give relief to the contractor in the case of a force majeure
event. Contracting parties should investigate their own legal systems to specically determine what
portions of the ow chart do and do not apply. For example, Indiana law does not allow a buyer to
claim impracticability and does not recognize the defense of frustration (N. Ind. Pub. Serv. Co. v.
Carbon County Coal Co., 799 F.2d 265 (7th Cir. 1986)). Furthermore, Texas courts have abandoned
the application of the doctrine of impossibility (Perlman v. Pioneer Ltd. Prship, 918 F.2d 1244 (5th Cir.
1990)).
Contractor
relieved?**
See Figure 6
Yes
Identify
contract risk:
Force
Majeure
Yes
Contract
contains a
force
majeure
clause?*
Did the contractor

substantially
comply with notice
provisions?
No
Yes
Yes
Impossibility,
impracticability, or
frustration of purpose
apply?
No
No
No
* Even if a force majeure clause does not specifically exist, other clauses may allow or disallow recovery
- Examples: No Damages for Delay clauses, Labor Strike clauses
** Relief limited to the extent that the contractor could not reasonably mitigate against
Figure 5. Force Majeure Legal Issues and Considerations Flow Chart
39
The ow chart generically lays out the ability of a contractor to nd relief in the case of a force
majeure-type event. Again, if the contract does not contain a specic clause addressing force
majeure, relief will be governed by the doctrines of impossibility, impracticability, and frustration. If
there is a clause, the contractor must comply with the notice provisions or its sole recourse will again
be to seek recovery under one of the three doctrines just mentioned.
Contractor
relieved?**
Yes
Yes*
No
Clause
contains
catch-all
phrase?
No
Cont. from
Figure 5
Clause is
ambiguous?
Yes
No
Clause
contains
list of
force
majeure
events?
Event
is in
the
list?
Yes
No
No
Event is of the
same type as
the listed
event(s)?
Yes
Yes
Yes
Relief available if court

finds the event to be
covered by force
majeurecatch-all phrase
No
* If contractor didnt draft the clause, and it is not patently ambiguous
** Relief limited to the extent that the contractor could not reasonably mitigate against
Figure 6. Force Majeure Legal Issues and Considerations Flow Chart (Continued)
If a contractor complies with notice provisions but the clause is ambiguous, the contractor will
nd relief unless it drafted the clause or the ambiguity was patent. If the clause is not ambiguous
there are three different situations of contract language that will be present: a clause containing a
catch-all phrase, a clause containing a list of specic events, or a clause that contains a catch-all
phrase and a list of specic events. If the clause consists solely of a catch-all, boilerplate provision,
the court will have great liberty in deciding whether or not the event in question triggers relief. If
the clause solely contains a list of specic events, the clause will provide relief only if the event in
question is contained within the list. If the clause contains a catch-all phrase along with a list of
specic events, the event in question will trigger relief if the event is construed to be generally of the
same nature as the events listed per the legal rule of Ejusdem Generis.
It should be noted that if economic conditions are not specically listed, they will not be construed
by a court to constitute a force majeure event. Also, contracting parties have a duty to mitigate their
losses whenever possible. If this is not done, relief will be adjusted to reect the failure to mitigate.
40
Oftentimes a contractor may have to accelerate its work progress during a construction project.
This acceleration is typically accomplished by working overtime, adding more workers to the project
(overmanning), or working multiple shifts (shift-work). Mandated acceleration, recovery acceleration,
and constructive acceleration are the three main types of acceleration possible.
Mandated (or direct) acceleration occurs when the owner directs the contract to accelerate the
schedule merely because it wants an earlier completion (no excusable delays or substantial increases
in scope have occurred).
Recovery acceleration occurs when the contractor falls behind schedule due to its own actions or
inactions that have resulted in schedule delays. The contractor will need to accelerate the schedule in
order to nish by the original completion date. Although rare, the contractor may choose to accelerate
the schedule voluntarily in order to achieve an earlier completion.
Constructive acceleration occurs when the contractor les a justied time extension, the owner
denies it, the contractor is held responsible for the original completion date, and thus the contractor
is forced to accelerate its work. A justied time extension may result when the contractor experiences
an excusable delay, or a large increase in scope requires more time for completion.
Acceleration of work creates labor inefciencies such as fatigue, low morale, loss of job rhythm,
and pacing, which tend to lower labor productivity and thereby increase construction costs. When a
contractor accelerates work because it has fallen behind schedule due to its own actions or inactions,
the contractor must absorb the additional costs associated with lost labor productivity.
An owner needs to recognize that when a contractor makes a request for an extension of time,
the owners failure to act in a timely manner may be interpreted by the court to constitute as a
justication for the contractor to constructively accelerate its work. Therefore, as soon as the owners
agent has decided whether or not the delay is excusable it should notify the contractor, even if the
exact amount of time extension is not known yet. This way the contractor will not accelerate the
schedule prematurely. When possible, the owner should always extend the project completion date
since a simple delay claim is usually much cheaper than a constructive acceleration claim (Interface,
2005). However, if the schedule is so sensitive that an extension in time is simply not possible, the
owner should seek to come to a contractual agreement concerning compensation for acceleration
prior to project commencement.
In summary, if the owner mandates acceleration for its own purposes, it will almost always pay
the additional contractor costs associated with that action. However, if acceleration occurs from no
fault of the contractor, it will be able to collect its extra costs only if it meets the specic constructive
acceleration stipulations outlined herein. Figure 7 (next page) illustrates the schedule acceleration
legal issues and considerations ow chart. Contracting parties should check to see if their local legal
jurisdictions recognize the concept of constructive acceleration.
If the owner mandates acceleration merely to achieve an earlier completion for its own
convenience, the contractor will be able to recover its acceleration costs unless the contract clearly
and unequivocally waives this right. Obviously, if the delay is not excusable, the contractor will not
41
Contractor acceleration
costs recoverable?
Identify
contract risk:
Schedule
Acceleration
Yes (unless the contract gave the owner

the right to mandate with no additional
compensation)
Yes
Owner
mandates
acceleration?
No
No
Contractor
experiences
an excusable
delay?
42
Yes
No
Yes
No
Contractor
submits timely
and sufficient
request for time
extension?
Yes
Yes
Yes
Owner
approves
request in a
reasonable
timeframe?
No
Yes
Owner
requires
schedule
adherence?*
If necessary,
contractor
notifies the
owner that it
will accelerate
at the owners
expense?
Yes
Contractor
attempts to
accelerate
the work and
increases its
costs?
No
No
No
No
* This can come in the form of liquidated
damages, direct command, or coercion
Figure 7. Schedule Acceleration Legal Issues and Considerations Flow Chart
recover its costs for acceleration efforts stemming from the delay. If the delay is excusable, the
contractor must submit a timely and sufcient request for an extension of time. Failure to do so
will result in a forfeiture of acceleration costs. If the contractor submits an appropriate request, the
owner must approve the request in a reasonable timeframe. If the owner approves the extension in a
timely fashion, the contractor will not receive any compensation if it accelerates the schedule since
it has ultimately been awarded extra time for the delay. If the owner fails to grant a time extension
in a timely fashion, however, the court will look to see if the owner required the contractor to adhere
to the original completion date. If the owner did require schedule adherence through the threat of
liquidated damages, a direct command, or coercion, the court will then look to see if the contractor
subsequently notied the owner that it was going to accelerate under protest at the owners expense.
In some circumstances this duty of notication is not required: if (1) the acceleration has been directed
by the owner; (2) the owner has communicated that no time extensions will be granted; or, (3) the
owner has waived the need for notice (Wray, 2000). If the contractor meets notication requirements
(if necessary) and it actually attempts to accelerate the work, it must lastly prove that the acceleration
effort resulted in increase costs (even if the acceleration effort is not successful). If the contractor
can meet these nal requirements, in most circumstances it will be able to recover its acceleration
costs.

Once a construction project has begun, the cost of making a design change tends to exponentially
increase as the project progresses. Because of the direct and indirect costs associated with change
orders they are often at the center of legal disputes. As change orders on a project multiply, their
disruptive impact to the project as a whole begins to exceed the sum of their individual impacts to
the project when analyzed individually. When the number of change orders becomes unreasonably
high, the cumulative impact of the change orders creates an excessive disturbance to the project in
terms of performance time and productivity. These changes come in primarily three forms of change:
directed, constructive, and cardinal.
A directed or actual change occurs when the owner directs a change and all parties agree that the
change is actually a change; consequently the change is then quantied for its impacts on time and
cost. A constructive change occurs when the contractor is ordered to perform work that it views as
an increase in its scope, whereas the owner feels that the work is included in the contractors original
scope. In order to collect compensation for the disputed work, the contractor must indicate that it
will perform the work, but will submit a claim at a later date. At the later date, the contractor must be
able to prove that a change order should have been issued by showing that the work was outside the
scope of the contract, the owner ordered the work to be performed, the contractor performed the
work in protest, and the contractor expended additional time and/or money to perform the work.
When a cardinal change occurs, it qualies as a breach of contract by the owner. A cardinal
change can occur when the owner mandates (not proposes) that a contractor perform a change that
is outside the scope of the contract or when the owner directs multiple or drastic change orders that
cause the contracted work to become materially different from what was expected when the parties
entered into the contract.
43
In order to construct a successful cumulative impact claim, the contractor has the burden of proof
to establish liability, causation, and resultant injury. Liability can be established by merely showing that
a substantial amount of owner changes or disruptions occurred. Proof of both liability and causation
are satised within a cardinal change. However, simply showing that a large number of changes and
a cost overrun occurred is not enough to establish causation; rather, the substantial change must
be linked to the cost overrun. Therefore, contractors should make sure that they keep scrupulous
records in order to provide proof of causation via individual impacts of changes or changed working
conditions that led to an overall decrease in labor productivity.
Commonly, the resultant injury is calculated by using the total cost method, the modied total
cost method, or the measured mile approach. In any method, it is imperative that the claimant obtain
an expert witness who will provide an exhaustive analysis and defense of the project documents
associated with the cumulative impact.
Due to the poorly dened nature of cumulative impact, it is not clear how a jurisdiction will rule
concerning compensability. If an impact of a change order on the unchanged work was foreseeable, it
should have been included in the pricing of the change order and therefore is not recoverable. However,
the increased effects of cumulative change orders are often not considered or foreseeable.
Assuming the change orders did not include contingency options that were collected by the
contractor and the contractor did not knowingly waive its right to assert cumulative impact claims, it
will still possess the right to a damages claim due to cumulative change orders. In the past, courts
required that a cardinal change be established in order to allow recovery of cumulative impacts from
change orders; however, in recent years this has shifted to requiring proof of a constructive change
instead.
Figures 8 and 9 display the cumulative impact of change orders legal issues and considerations
ow chart. Each individual industry participant should investigate its own jurisdictional history
concerning cumulative impact in order to more fully comprehend how it might adequately prepare or
avoid a cumulative impact claim.
The ow chart establishes a generic guide for determining when a cumulative impact claim will
be successful or not. First, a large number of owner-caused changes must be issued. Secondly,
the contractor must be able to either: (1) separate owner and contractor caused labor inefciencies
or (2) prove that the owner is the sole source of all inefciencies (no other source is possible). If
the contractor is able to achieve one of these requirements it may be able to pursue a cumulative
impact claim by citing a constructive change, cardinal change, or abandonment of the contract.
If the contractor can establish one of these three recovery doctrines it must then prove liability,
causation, and resultant injury from the cumulative impact of change orders (although some courts
and boards may only require proof of resultant injury after one of the three recovery doctrines has
been established). Typically, the proof of resultant injury will require an experts assistance and
testimony.
Contractor may collect

cumulative impact?
Identify
contract risk:
No
Cumulative
Impact of
Change
Orders
A significantly
large number
of owner
changes
experienced?
Yes
No
No
Contractor is able
to separate owner
and contractor
caused productivity
losses or prove that
the owner is the
sole source?
45
Yes
No
No
Cardinal
change,
abandonment
of contract, or
constructive
change
established?
Yes
Contractors
productivity is
impacted?
Yes
No
Impact stems
directly from
synergy of # and
scope of changes?
Yes
No
See Figure 9
The cumulative
impact was
previously
foreseeable?
Yes
No
No
Liability, causation,
and resultant
injury* proven
Yes
Yes
* Almost always requires an expert
Figure 8. Cumulative Impact of Change Orders Legal Issues and Considerations Flow Chart
Contractor may collect

cumulative impact?
No
No
No
Cont. from
Figure 8
Change
order form
contains
release?
No
No
Yes
Contractor
reserved its
rights to assert
cumulative
impact?
Release is ambiguous or boilerplate

regarding umulative impact (AND)
parties never discussed whether
or not cumulative impact was
covered by the release (OR) parties
discussed but never reached
meeting of the minds?
Yes
No
Release voided by lack of

consideration, performance, or
authority; unilateral or mutual
mistake, misrepresentation,
duress, or coercion?
Yes
Yes
Yes
Yes
Figure 9. Cumulative Impact of Change Orders Legal Issues and Considerations Flow Chart
(Continued)
If the contractor is unable to establish one of these three doctrines of recovery it may be able to
continue through a more generic recovery method. First, it must prove that its productivity suffered
from the multiple change orders, the impact stemmed from the number and scope of the changes,
and the impact was previously unforeseeable. Once these elements have been established, a court
or board will typically examine the contract documents to see if there was a release. If a release
was present, the contractor can continue with its claim if it clearly reserved its right to assert a
cumulative impact claim. If the contract did not reserve its right, it may still be able to recover its
losses if the court establishes that the release was ambiguous or general (boilerplate) and the parties
either never discussed the applicability of the release to cumulative impact or they discussed the
concept but never reached a meeting of the minds. If neither of these situations applies the last
opportunity of recovery will hinge on whether or not the release is voided by lack of consideration,
lack of performance, lack of authority, unilateral or mutual mistake, misrepresentation, duress, or
coercion.

The risk of differing site conditions is broken into two distinct types (where the absence of such
conditions was an assumption upon which both parties entered into the contract): Type I conditions
that materially differ from those indicated or represented in the contract documents, and Type II
conditions that materially differ from those which can ordinarily be reasonably expected by the
contracting parties for the type of work being performed.
Since differing site conditions can increase costs drastically by causing severe delay and
mitigation costs, differing site conditions clauses are commonly used to allocate the risk. These
clauses typically provide a denition for a changed condition and specify the procedures and
cost reimbursement policies for both the owner and contractor when differing site conditions are
encountered.
46
The goal of many clauses is to shift the responsibility to the owner in an attempt to obtain a fair and
equitable bid price from the contractor. Yet general clauses often attempt to require the contractor to
assume responsibility for verifying the existing site conditions to assure that they do not differ from
what is specied in the design plans and specications. This can become a heated source of debate.
The general clause puts this problem on the contractor, yet the contractor is essentially required
to use the information supplied by the owner in order to remove the contingency cost for unknown
site conditions from its bid price and remain competitive with other contractors. Consequently, the
assignment of responsibility hinges on the reasonableness and results of any existing site conditions
investigation.
Differing site conditions clauses are typically drafted with the intention of allowing a contractor
recovery if it encounters conditions that materially differ from those indicated in the contract
documents or conditions that materially differ from those that could reasonably be expected.
However, a contractor cannot expect to be able to rely on a differing site conditions clause to save
it from increased costs in any and all differing site condition circumstances. On the contrary, there
are several elements that may prevent a contractor from recovery notwithstanding the presence of a
differing site conditions clause: site investigation requirements, exculpatory contractual statements,
notice requirements, and proof of the certainty of resultant damages.
Generally, site investigation contractual requirements will not prevent a contractor from recovery
unless an encountered condition should have reasonably been discovered by a site investigation
conducted by a reasonably prudent contractor. Some investigation clauses also require the
contractor to review pertinent documents concerning site conditions made available by the owner.
If the contractor fails to review the documents, it may not be able to recover its losses if the site
condition causing the loss would have been exposed if the contractor would have reviewed the
required information.
If a contractor has examined and discovered all site information made reasonably available to it
and none of it conicts with the owner-provided information within the contract documents, many
courts will rule that the contractor has reason to rely on the owner-provided information despite any
exculpatory language that appears in the contract in an attempt to disclaim the accuracy of ownerprovided information.
A differing site conditions contractual provision will typically state that a contractor has a certain
time limit in which in must notify the owner or its agents in writing of any conditions encountered
that may qualify as a differing site condition. If the contractor does not adhere to these notice
requirements, it may lose its ability to recover damages under a differing site conditions clause.
Just like any other claim, regardless of if there is a differing site conditions clause in the contract
or not, a claimant must be able to prove its injuries with a reasonable amount of certainty. If it is not
able to reasonably do so, it will not be able to recover said damages.
A contractor does have several means of compensation for costs relating to changed conditions
as a matter of common law when there is no contract clause present that addresses differing site
conditions, or there is a clause but it is rendered void through the contractors failure to adhere
to its requirements (e.g., non-compliance with notice provisions). Most commonly, the contractor
47
must be able to prove one of the following avenues of recovery: duty to disclose, mutual mistake,
misrepresentation, breach of implied warranty, or impossibility.
If the owner possesses site information that would have assisted the contractor in identifying
potentially differing conditions, the owner may be held liable for differing site conditions thereafter
discovered per the owners common law duty to disclose.
Mutual mistake can be claimed by a contractor to recover its losses associated with a differing
site condition if it can show that a condition existed of which both the contractor and owner were
equally unaware.
The concepts of duty to disclose and misrepresentation are closely related. Generally speaking,
the difference is that recovery under the duty to disclose concept can be sought when the owner
did not reveal information that would have allowed the contractor to account for the differing site
conditions, while recovery under the concept of misrepresentation can be claimed when the owner
fraudulently or innocently (unintentionally/negligently) misleads the contractor (orally or through
contract documents).
The Spearin doctrine (see design responsibility risk discussion) establishes that the owner
impliedly warrants to the contractor that the plans and specication will be adequate to achieve an
acceptable product. Pertaining to differing site conditions, if the plans and specications indicate
what type of existing conditions may be encountered, the contractor may be able to make a claim for
breach of contract when conditions are encountered that materially differ from those indicated.
The doctrine of impossibility includes physical impossibility as well as extreme impracticability of
performance. If discovery of differing site conditions render performance impossible or impractical,
the contractor may be excused from the contract.
Differing site conditions clauses can be an effective method for achieving an equitable allocation
of this risk in a construction contract. By an owner accepting responsibility for such a risk, the
contractor will not have to price this risk, which may or may not occur, into the bid price. Regardless
of the allocation, if a differing site condition arises, the contractor should give notice to the owner and
detail its effects on schedule and performance.
The risk responsibility for existing and differing site conditions highly depends on the contract
language, or lack thereof, regarding this matter. Figures 10 and 11 contain the differing site conditions
legal issues and considerations owchart. This owchart represents the general persuasions of the
U.S. judicial system. However, it would be impossible to create a ow chart that would accurately
capture every manner in which a court may rule. The specic circumstances of each case along with
the controlling legal jurisdiction presiding over each case will carry the most weight in predicting how
differing site conditions issues will be resolved by a court.
The ow chart shows that rst a contractor and owner must establish if site information
represented in the contract documents can be relied upon by the contractor. Investigations into
the local legal jurisdictions should be made in an attempt to determine if exculpatory provisions will
be strictly construed. If they are not construed as such, generally contractors will be able to rely
on the site information contained within the four corners of the contract. However, if the contractor
48
Which party
assumes the risk?
No
Yes
Did
encountered
conditions
differ from
those
indicated?
Yes
Identify
contract risk:
49
Differing Site
Conditions
Was there
ownerfurnished site
information
that the
contractor
could review
and
reasonably
rely upon*?
No
Yes
Yes
Was the
contractor
responsible
for further site
investigation?
No
See Figure 11
Did the contractor

discover (or
reasonably
should have)**
and rely on
conditions in
direct conflict with
all of the ownerfurnished
information?
No
Contractor
Yes
Yes
Was there a
differing site
conditions
(Type I & II)
clause?
Did the
contractor
substantially
comply with
the notice
requirements?
Yes
Owner
Did the
contractor prove
increased costs
with reasonable
certainty?
No
No
No
* Contractors cannot reasonably rely upon owner-provided
information if a court strictly construes an exculpatory
provision, or if there is no such information provided
** In the case of fraudulent misrepresentation, the contractor

will only be liable if it did in fact discover conditions
that contradicted ALL of the fraudulent owner-provided
information. In all other cases, the contractor will assume
the risk if it did or should have discovered and relied on
conflicting site information
No
Duty to disclose,
mutual mistake,
misrepresentation,
breach of implied
warranty, or
impossibility
apply?
Yes
Contractor
No
Did the
contractor prove
increased costs
with reasonable
certainty?
Figure 10. Differing Site Conditions Legal Issues and Considerations Flow Chart
Yes
Owner
Which party
assumes the risk?
No
Yes
50
Cont. from
Figure 10
Was there a
differing site
conditions
(Type I & II)
clause?
Type II Recovery:
Did the
encountered
conditions differ
materially from
those reasonably
anticipated***?
Yes
Contractor
Yes
Yes
Did the contractor
substantially comply
with the notice
requirements?
No
No
*** If the contractor was required to investigate the
site conditions it will be held to the expectation that
it should have reasonably anticipated conditions
that it did or should have discovered by conducting
a reasonable investigation
Owner
Did the contractor prove

increased costs with
reasonable certainty?
No
No
Duty to disclose,
mutual mistake,
or impossibility
apply?
Yes
Contractor
No
Did the
contractor prove
increased costs
with reasonable
certainty?
Yes
Owner
Figure 11. Differing Site Conditions Legal Issues and Considerations Flow Chart (Continued)
is required to investigate the site it will be held responsible if it discovers (or reasonably should
have discovered) site conditions that contradict or clarify what the contract documents indicate. If
a portion of misrepresented site conditions are not claried after a reasonable investigation by the
contractor, it should still be able to recover for damages resulting from the undiscovered portion of
the misleading owner-provided information.
In the case of fraudulent misrepresentations of site conditions, the contractors site investigation
will shift the risk back to the contractor only if it did in fact discover conditions that contradicted
or claried ALL of the fraudulent information. If the contractor discovers site conditions that only
render some of the owner-provided fraudulent information useless, it will still be able to recover for
damages stemming from the portion of the fraudulent misrepresentations that were not rendered
void by the contractors reasonably prudent investigations. If the contractor should have discovered
conditions that would have contradicted or claried fraudulent information but did not discover
such conditions, the law will generally still allow the contractor to pursue a claim stemming from the
fraudulent misrepresentations.
If a contractors required site investigation, or lack thereof, does not shift the risk to the contractor,
it will be able to pursue equitable adjustment under a differing site conditions clause. Common law
mechanisms such as duty to disclose, mutual mistake, misrepresentation, breach of implied warranty,
or impossibility can be used by the contractor to seek recovery if: (1) a differing site conditions
clause does not exist, or (2) a differing site conditions clause is voided due to non-compliance with
notice requirements. Regardless of the mode of recovery sought (contractual or non-contractual), a
contractor will still have to prove its resultant injuries with a reasonable amount of certainty.
If the contractor cannot reasonably rely upon site conditions contained within the contract
(because of a strict enforcement of an exculpatory provision), or no such representations exist, it may
still be able to recover its increased costs stemming from differing site conditions. First, if there is a
differing site conditions clause, the contractor will be able to recover if the encountered conditions
could not have been discovered through a reasonably prudent contractor site investigation, or no
such investigation is contractually required. Furthermore, the contractor will also have to substantially
comply with the notice requirements to be able to seek equitable adjustment under the clause. With a
typical type 1/type 2 clause, recovery will now come under a type 2 condition (conditions materially
different from what can normally be expected), since a type 1 condition (conditions differ from those
indicated in the contract) can not exist due to the strict upholding of an exculpatory provision, or the
fact that no owner-provided site information exists in the contract documents.
If there is no clause or the clause is rendered useless due to non-compliance with notice
provisions, the contractor may still be able to recover under the common law mechanisms of duty to
disclose, mutual mistake, or impossibility. Misrepresentation and breach of implied warranty do not
apply because at this point in the ow chart it has been established that there is no owner-provided
information in the contract documents that the contractor could reasonably rely on in the rst place,
or there is no owner-provided information in the contract at all. Again, if the contractor is going to be
able to successfully recover its damages, it must be able to prove them with reasonably certainty.
51
The ultimate responsibility for defective plans and specications can often be a source of ambiguity
in the construction industry. Oftentimes the owner will attempt to place the risk associated with
the plans and specications onto the contractor through direct contractual language. Complicating
matters, a contractor may also attempt to include clauses within its subcontracts that attempt to
further shift the design risk down to the subcontractors. For the sake of simplicity, the following
discussions on design responsibility will focus on the ownercontractor relationship.
When an owner inserts a clause attempting to shift the design risk, the contractor will typically
be required to bring any and all errors and omissions in the design to the attention of the owner or
architect. In many cases, the contractor will demand compensation for the changes or delays caused
by undiscovered design inaccuracies, while the owner will claim that the contractor is responsible
for the associated costs since it was contractual responsible for reviewing the design plans and
specications and discovering all inadequacies. These types of disputes often result in a construction
claim. Depending on the defective nature of the design along with the contractual language present,
the courts may or may not reject the notion that the responsibility of design lies with the contractor.
The following pages will provide insight as to the terms and conditions for which both an owner and
contractor can be held responsible for the risks involved in design responsibility.
In every traditional construction contract, the owner impliedly warrants that the plans and
specications are accurate and sufcient enough to build the project. This implied warranty for the
plans and specications on a construction project has been upheld as a result of the Supreme Court
case of United States v. Spearin, 248 U.S. 132 (1918).
Although the Spearin doctrine is considered good law on face value, there have been instances
where courts have not relied on a strict application of the doctrine. The following sections will
discuss several elements that may prevent a contractor from recovery under the Spearin doctrine.
These elements are the contractors duty to review the design documents, the presence of an
express warranty in the contract, and the existence of performance specications instead of design
specications.
First, the implied warranty of specication does not relieve the contractor from its duty to conduct
a reasonably prudent review of the plans and specications and bring any noticeable errors and
omissions to the attention of the owner. If the contractor fails to notify the owner of a design error or
omission that the court deems obvious, the implied warranty of the design will not be upheld and the
contractor will be held responsible.
Secondly, oftentimes an owner may claim that a contractor cannot recover losses under the
Spearin doctrine if the contract documents contained either an express disclaimer of the owners
responsibility for the information represented in the plans and specications, or an express warranty
that the contractors work would be free from faults and defects and that any defects in the work
would be reworked at the contractors expense. It is widely known that courts will typically not enforce
boilerplate or broad-form statements within a contract. However, clear and unequivocal language that
adopts express language may be enforced by some courts to shift the responsibility of the design.
52
Lastly, design specications will specify the particular components, dimensions, and types of
materials to be used by the contractor, whereas performance specications will simply specify the
qualities of the end product then leave the contractor to determine the means it will use to achieve the
desired product. Some contracts may contain a mixture of design and performance specications.
In these cases, the Spearin doctrine will apply, but only to the portion of the specications that are
design specications.
The situations discussed herein outline a number of possible scenarios that may arise when
dealing with design responsibility in construction contracts. The Spearin doctrine plays a big role
in determining which entity will ultimately be held responsible for the design. It should be noted
that in a traditional design-bid-build contracting method, the owners implied warranty of the plans
and specications will remain even if the design is completed by a consortium of A/Es which are
separately or conjointly contracted with the owner. Similarly, in a design-build contracting method,
the design-build contractor will impliedly warrant the overall sufciency of its design according to the
Spearin doctrine regardless of how many specialty A/Es and/or consultants retained by the designbuild contractor assisted in the design process.
Figure 12 contains the design responsibility legal issues and considerations ow chart.
Owner retains design
responsibility through
implied warranty?
No
Yes
Identify
contract risk:
Yes
Design
Responsibility
Design
(prescriptive)
specifications
(not performance)?
Contractor
reasonably
reviewed*
and relied upon
the contract
documents?
Yes
Contract contains
an express
disclaimer or
warranty?
Yes
Varies
No
No
No
* Reasonable review = contractor was not aware of design errors or
could not have reasonably discovered them. Also, if patent design
ambiguities existed, contractor must have sought clarification.
Figure 12. Design Responsibility Legal Issues and Considerations Flow Chart
The ow chart shows that if the design in question does not qualify as a design specication, then
the owners implied warranty of the design will not apply. However, when the design does qualify as a
design specication, the contractor must have reasonably reviewed all of the contract documents in
order to be able to claim reasonable reliance. A reasonable review will have occurred if the contractor
was not able to discover any design errors or could not have reasonably discovered them. Also, if
patent design ambiguities existed, the contractor must have sought clarication from the owner or
its agents (i.e., A/E). If a reasonable review and reliance can be established, it can be conrmed that
information represented within the contract documents may have misled the contractor. If the contract
53
contains express disclaimers or express warranties, the end result will vary. Some courts may strictly
construe such provisions, while others will narrowly construe them. Each cases unique characteristics
and circumstances will determine whether or not an express provision will limit the applicability of the
Spearin doctrine. It should be noted that not all legal jurisdictions specically recognize the Spearin
doctrine, but most recognize that the owner does have an implied duty nonetheless to provide plans
and specications that are sufcient to produce a functional constructed product.

Standards of care in the construction industry are important concepts that help to ensure
the quality and cost-effectiveness of the constructed product, and most importantly the safety of
all participants during and after the construction process. If an individual does not conduct itself
according to the standard of care expected, it may be liable due to its negligence. If the negligent
party is a licensed professional (e.g., engineer) it will be held liable due to its professional negligence.
If the negligent party is not a licensed professional (e.g., contractor) it will be held liable due to its
ordinary negligence. Professional and ordinary negligence are similar legal concepts, and are both
used to recover losses associated with negligent performance of a duty to conduct oneself according
to a certain standard or care. One of the earliest legal denitions of the standard of care expected of
all business participants (licensed professionals and non-professionals) is given below:
[T]o exercise the average degree of skill, care and diligence exercised by members of
the same profession, practicing in the same or a similar locality, in the light of the present
state (Gillette v. Tucker, 65 N.E. 865 (Ohio 1902)).
The following pages will explore two separate standards of care within the construction industry:
(1) the engineering standard of care, and (2) the construction standard of care.
A design professional is held to a higher professional engineering standard of care than
other construction participants since it must be professionally licensed to practice its craft. Design
professionals in the construction industry consist of engineers and architects, often referred to as
A/Es when they are acting together under the same rm or in a joint venture. The discussions
herein will refer to a design professionals standard of care as an engineering standard of care.
However, the standard of care concept remains the same for any design professional whether it is
an engineer, architect, or A/E. An engineering standard of care can be established through direct
contract language, but if it is not, an engineer will still be required to act according to a standard of
care implied by tort law outside of its contractual obligations.
A contractor is also responsible for performing its work according to a certain construction
standard of care. Contracting parties are free to specify what this standard will be within the contract
documents, but if they do not, a contractor will still be required to install its work without negligence
according to an implied standard of care through tort law.
Ultimately, all construction participants are held to a standard of care pertaining to negligence
standards implied by law. Regardless of whether or not the negligence in question is professional
negligence, a claimant must be able to establish the following for recovery:
54
[A]n action in negligence may be maintained upon the plaintiffs showing that the
defendant owed a duty to him, that the duty was breached, and that the breach
proximately caused an injury which resulted in actual damagesDuty and liability are
only imposed where both the plaintiff and the risk are foreseeable to a reasonable
person (Donnelly Constr. Co. v. Oberg/Hunt/Gilleland, 677 P.2d 1292 (Ariz. 1984)).
The above language sets forth the parameters by which any contractual party can be held liable
to another for its negligent failure to fulll a duty implied by law.
Standards of care in the construction industry involve several complex applications of contract
and tort law. Notwithstanding the difculties in predicting how a court will accordingly rule, contracting
parties should clearly allocate the expected standards of care within the contract. Furthermore,
to the extent possible, contracting parties should attempt to include provisions which will provide
protection from economic losses caused by third-parties which are connected through the network
of contracts that tend to exist on a construction project.
Under the economic loss rule, a contractor is unable to collect its economic losses from an
engineer for a negligent design. However, if the contractor bargains with the owner to account for
the possibility of economic losses arising from the negligence of the engineer, recovery can be found
under the contractors agreement with the owner. The owner then has the opportunity to bargain with
the engineer to allocate the risk of economic losses caused by the engineers negligence. This type
of contracting strategy is consistent with the attitude of many courts that enforce the economic loss
rule.
Figure 13 (next page) displays the engineering standard of care legal issues and considerations
ow chart. This ow chart attempts to capture the general attitude that the U.S. judicial system has
assumed. Contracting parties should use the ow chart to educate themselves on the major issues
and considerations involving the engineering standard of care as generally perceived by the U.S.
judicial system. The chart adheres to the general or ordinary negligence rules of recovery.
When an engineer allegedly negligently fails to perform its professional design services according
to the standard normally expected, a claimant must rst prove that the actions or inactions of the
engineer proximately caused the claimants injury. Next, the source of the allegedly breached duty
of care must be determined. If the standard of care duty expected was established in a contract, the
claimant will not be able to recover solely economic losses if the court strictly applies the economic
loss rule (applies to one-to-one and third-party contractual relationships). If the damages are physical
in addition to economical, the claimant will be able to pursue a claim under tort law regardless of
what the contract states pertaining to the expected standard of care. If the source of the breached
standard of care arises outside of the contract in the rst place, the claimant will also be able to
pursue its negligence claim.
The next step in pursuing a claim is to determine whether or not the engineer acted reasonably
and competently as other engineers would have acted in similar circumstances. This determination
will typically require expert testimony unless the actions or inactions of the engineer are so obviously
negligent that any common layperson would come to the same conclusion. If the engineer acted
55
No
Identify
contract risk:
Engineering
Standard of
Care
A proximate
causal
relationship
exists
between the
designers
actions or
inactions and
the claimants
injury?
Yes
Designer liable due to

implied professional
standard of care?
Yes
No
Breach of
standard of
care duty
arises from
the designers
contract?
56
Yes
No
Breach
results
solely in
economic
damages?
No
** Affidavit of merit not required when: (1) state legislature

doesnot require one, or (2) breach of standard of care duty
so obvious that no expert is needed to establish burden
of proof
No
Yes
An express
disclaimer is
enforced by
the court or
the claimant
deviates
from the
design?
No
Yes
* Typically requires expert testimony speaking as to whether
or not a reasonably prudent design professional should
have foreseen the consequences of the acts or omissions
per the foreseeable harm rule
Designer acted
competently*
and reasonably*
as other
designers
would have
acted in the
same
circumstances?
No
No
Affidavit
of merit
required
by the
state**?
Yes
Court
adopts the
economic
loss rule?
Yes
Yes
Affidavit
of merit
filed?
No
Yes
See
Fig. 14
Designer owed a
duty (e.g., as
construction
manager) to the
claimant outside of
its professional
design capacity
(ordinary negligence
can be claimed)?
No
Yes
Figure 13. Engineering Standard of Care Legal Issues and Considerations Flow Chart
No
reasonably and competently, the claim will not be able to proceed. However, if the engineer failed
to conduct itself accordingly, the court may still bar the claim if an express disclaimer exists in the
contract, or the injury resulted from the contractors deviation from the engineers design. If neither of
these exceptions applies, the claim will proceed.
If required, an afdavit of merit must have been led if a negligence claim based on the professional
standard of care expected is to be successful. If the negligence is so obvious that an expert is not
required, however, an afdavit of merit may not be required. If the afdavit of merit is not required,
or it is required and it is obtained and led, the designer will typically be held responsible for the
damages produced by its negligence in acting according to the engineering standard of care. If the
afdavit is required but not led, a claimant will need to establish a separate independent duty of
care apart from the professional duty of care in order to proceed with a claim. If this type of separate
duty can be established, recovery will be governed by Figure 14.
Figure 14 (next page) displays the construction standard of care legal issues and considerations
ow chart. Similar to Figure 13, this ow chart adheres to the general or ordinary negligence rules of
recovery. Again, this ow chart attempts to capture the general attitude that the U.S. judicial system
has assumed.
When a contractor allegedly negligently fails to perform its services according to the standard
normally expected, a claimant must rst prove that the actions or inactions of the contractor
proximately caused the claimants injury. Next, the source of the allegedly breached duty of care must
be determined. If the standard of care duty expected was established in a contract, the claimant will
not be able to recover solely economic losses if the court strictly applies the economic loss rule. If
the damages are physical in addition to economical, the claimant will be able to pursue a claim under
tort law regardless of what the contract states pertaining to the expected standard of care. If the
source of the breached standard of care arises outside of the contract in the rst place, the claimant
will be able to pursue its negligence claim.
The next step in pursuing a claim is to determine whether or not the contractor acted reasonably
and competently as other contractors would have acted in similar circumstances. This determination
will typically require expert testimony unless the actions or inactions of the contractor are so obviously
negligent that any common layperson would come to the same conclusion. If the contractor acted
reasonably and competently, the claim will not be able to proceed. However, if the contractor
failed to conduct itself accordingly, the court may still bar the claim if the defenses of assumption of
risk or contributory negligence apply. If neither of these defenses applies, the claim will proceed and
the contractor will be liable for the negligent fulllment of its construction standard of care.
57
No
Identify
contract risk:
Cont. from
Figure 13
A proximate
causal
relationship
exists
between the
contractors
actions or
inactions and
the claimants
injury?
Yes
Contractor liable due

to implied professional
standard of care?
Yes
No
Breach of
standard of
care duty
arises from the
contractors
contract?
58
Yes
No
Breach
results
solely in
economic
damages?
Yes
No
Contractor
acted
competently*
and reasonably*
as other
contractor
would have
acted in the
same
circumstances?
Court
adopts the
economic
loss rule?
No
No
Yes
Defenses of
assumption
of risk or
contributory
negligence*
** apply ?
No
Yes
Yes
No
* Also may apply to designer in a construction manager role

** Typically requires expert testimony speaking as to whether or not reasonably prudent
contractor should have foreseen the consequenof the acts or omissions per the
foreseeable harm rule
*** Comparative negligence used in many states, and will allow recovery proportional to
contractors contribution of negligence
Figure 14. Construction Standard of Care Legal Issues and Considerations Flow Chart
Chapter 4: Conclusions
Inappropriate allocation of risk can result in nancial consequences and ultimately litigation.
Contracting parties may nd themselves blindsided by a courts interpretation and resultant ruling
concerning a contract clause. This implementation resource provides industry participants with
contract language tables that may assist in drafting agreeable clauses that will keep the parties out
of court in the rst place. Further, the legal research laid out in this publication will educate parties
concerning the legal issues and considerations as they are commonly viewed by the U.S. courts.
By examining the seemingly pervasive opinions of the current courts, contracting parties can obtain
a better understanding of how the hot-button risks will be allocated if the project does end up in
litigation.
When trying to establish risk allocation clauses, especially for parties unfamiliar with dealing with
contracts, the contract language itself can often become a confusing obstacle to incorporating such
clauses. Due to this understanding, the team created its contract language tables for each of the 14
hot-button risks researched. These cooperatively constructed tables provide contract language
seemingly favorable to the buyer (e.g., owner) and seller (e.g., contractor), as well as language that
may provide a compromising position between both sides. It is highly recommended that parties
involved with drafting or approving a risk allocation clause review the appropriate contract language
table before signing any documents.
As part of the research teams task to develop a product to aid the construction industry in
contracting to appropriately allocate risk, the team felt the necessity to establish a base from which
to compare risk allocation. Consequently, the base was chosen to be situations where no contractual
allocation of risk was conducted and the resulting court rulings when that risk came to fruition. For
some of the hot-button risks, this analysis was not entirely possible. For example, a no damages for
delay clause and its associated risks of enforceability become non-existent if the clause is removed
from the contract, since owner-caused delays would subsequently result in equitable adjustment.
Therefore, the legal research for these types of risks focused on observing the exceptions courts
have carved out regarding the enforceability of the related contractual clauses.
Legal issues and considerations ow charts were developed for 10 researched construction
risks, each specifying either the allocation of a risk or the recoverability of damages caused by a risk,
given various circumstances and the existence and/or non-existence of contractual clauses. From
these charts, it becomes rather evident that there is far less ambiguity and chance of no damage
relief when appropriately drafted risk allocation clauses are included in the contract between the
owner and contractor.
The research team developed the Two-Party Risk Assessment and Allocation Model with the
intention of the contract language tables and legal research being used as risk allocation tools after
one of the 14 hot-button risks was cooperatively identied as a high concern by the two-party
risk assessment process. However, the research team realizes that not all industry participants will
embrace the model with the rigor that is intended. As a result, some parties may nd it most useful
to utilize the contract language tables and legal research as legal perspective references on risk
allocation apart from the Two-Party Risk Assessment and Allocation Models full application. At the
59
very least, the research team recommends that contracting parties make this publication available
to its employees, especially the next generation, for the purpose of knowledge-transfer and overall
education on the widely misunderstood legal aspects of risk allocation.
Construction will always have risk associated with it, however, careful drafting of construction
contract clauses can allocate risk where it appropriately belongs and therefore eliminate some of the
uncertainty and legal arguing of common law principles if something does go wrong on the project.
With pre-contract meetings and discussions with the use of these CII materials, inappropriately
allocated and unallocated construction risk claims may be signicantly decreased on a variety of
construction projects.
60
References
7200 Scottsdale Rd. Gen. Partners v. Kuhn Farm Mach., 909 P.2d 408 (Ariz. Ct. App.1995).
Clough, Richard Hudson, and Glenn A. Sears. Construction Contracting. 6th ed. New York:
Wiley, 1994. 204.
Donnelly Constr. Co. v. Oberg/Hunt/Gilleland, 677 P.2d 1292 (Ariz. 1984).
Gillette v. Tucker, 65 N.E. 865 (Ohio 1902).
Holmes, Oliver Wendell. The Common Law. Boston: Little, Brown, and Co., 1881. 1.
Interface Consulting International, Inc. Constructive Acceleration. Industry Research:
Articles. Interface Consulting Articles. 6/30/2005 <http://www.interface-consulting.com/
articles/constructive_acceleration.html>.
Johnson v. Chicago & P. Elevator Co., 105 Ill. 462 (1882).
Merriam-Webster, Inc. The Merriam-Webster Dictionary. 50th anniversary ed. Springeld,
Mass.: Merriam-Webster, 1997.
N. Ind. Pub. Serv. Co. v. Carbon County Coal Co., 799 F.2d 265 (7th Cir. 1986).
Perlman v. Pioneer Ltd. Prship, 918 F.2d 1244 (5th Cir. 1990).
Sweet, Justin, and Marc M. Schneier. Legal Aspects of Architecture, Engineering, and the
Construction Process. 7th ed. Toronto, Ontario, Canada: Nelson, 2004. 65-66, 245, 437,
593, 685, 688.
United States v. Spearin, 248 U.S. 132 (1918).
United States v. Metric Constructors, Inc., 480 S.E.2d 447 (S.C. 1997).
Wallace, Brian D. Is the AIAs Mutual Waiver of Consequential Damages Really Mutual?
Faireld and Woods, P.C. (1998). 6/20/05 <www.fwlaw.com/aia.html>.
Wray, Russel W. Constructive Acceleration. FindLaw Library (April 2000). Wray & Pierce, LLP.
6/30/2005 <http://library.ndlaw.com/2000/Apr/1/129764.html>.
61
Contracting to Appropriately Allocate Risk Research Team

Shameem Akhtar, Zachry Construction
Rick Bradford, Bechtel, Chair
Roland Frenck, U.S. Department of Energy
Jim Graham, ExxonMobil
** Awad Hanna, University of WisconsinMadison
William McCauley, Shell Global Solutions
Tom Miller, Zurich
DeWitt Patterson, AMEC
Joseph Peer, BE&K
Phil Peterson, Bibb & Associates
Stanley Scoeld, U.S. Department of State
Rob Smith, CH2M HILL
Robert Smith, Wickwire Gavin
* Justin Swanson, University of WisconsinMadison
* Gregory Thomas, Fisk Electric
Past Members
Susan Alexander, Abbott
Frank Erichson, Fluor, past Chair
Jenny Morrow, AZCO INC.
Warren Nelson, GlaxoSmithKline
Curtis Strauss, ABB Lummus Global
* Principal Authors
** Principal Investigator
Editor: Rusty Haggard

The University of Texas at Austin
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Austin, Texas 78759
construction-institute.org
(512) 232-3000
FAX (512) 499-8101
Bureau of Engineering Research

The University of Texas at Austin

Ic Equitable Risk Allocation Legal Perspective

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Ic Equitable Risk Allocation Legal Perspective

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Construction Industry Institute

ABB Lummus Global

Equitable Risk Allocation:

Implementation Resource 210-3

2007 Construction Industry Institute.

8. Cumulative Impact of Change Orders

10. Insurance Allocation

4. Ambiguous Acceptance Criteria

11. Differing Site Conditions

5. New or Unfamiliar Technology

12. Design Responsibility

13. Waiver of Claims

14. Standard of Care

8. Cumulative Impact of Change

10. Insurance Allocation

4. Ambiguous Acceptance Criteria

11. Differing Site Conditions

5. New or Unfamiliar Technology

12. Design Responsibility

13. Waiver of Claims

14. Standard of Care

Risk Allocation Tools

Risk Allocation Principles: A Risk Allocation Tool

General Risk Allocation Principles

The optimum allocation of many risks may involve shared responsibility.

Legal Risk Allocation Principles

Legal Perspective References: Risk Allocation Tools

Common Law Denition

Legal Perspectives Disclaimer

Chapter 2: Contract Language Tables

Research and Findings

The Contract Language Tables

1. No Damages for Delay

Language that provides time

Language that contains limits/

Language that provides

Language that contains a mutual waiver

Language that waives the owners

AIA mutual waiver language

The Contractor and Owner waive

Broad-form language that requires indemnication

The Contractor agrees to indemnify and hold harmless

SUBCONTRACTOR hereby releases and shall indemnify,

4. Ambiguous Acceptance Criteria

Language that states that the contractor shall construct

Generally speaking, when acceptance criteria language

5. New or Unfamiliar Technology

Language that shifts the

Language that keeps the risk

Language that holds the owner

However, if the new technology

If the contract is silent regarding Force

First and foremost, Force Majeure

AIA language that favors the owner

Compromising language will

6. Force Majeure (continued)

Language that restricts recovery to time only.

Should the progress, performance

Language that gives

8. Cumulative Impact of Change Orders

Language that explicitly waives the right

Language that allows the

Execution of a Change Order by

Some contractors consider it