Jack O’Neil
General Counsel
Western Construction Group,
Inc.
Finding incentives and disincentives in
construction contracts requires some digging and some imagination. In the course of preparing for this paper and
the program which it accompanies, research into cases and statutes was not
particularly fruitful. What emerged was
a view of the same contract terms we look at for other reasons in a slightly
new light. In the end, looking for the
incentive or disincentive aspects of many terms adds another dimension which
can be useful in the drafting, discussion, and negotiation of particular
contract provisions.
A look at the Index pages of some readily
available treatises on construction law did not reveal any listings for
“incentives” or “disincentives.”
Therefore, some of what is discussed her is drawn from seventeen years
experience as the general counsel for a specialty contractor. I have had many discussions with lawyers, and
business people alike about why they “needed” a particular provision or why I
was proposing a particular change. Often
the reason is expressed as something to encourage the contractor to act in a
certain way, or to refrain from certain practices. Such sources are hard to cite or footnote,
even if I could recall all the names, and circumstances.
Small
Projects. The subtitle is also there because I have not
attempted to go too far beyond my own day to day experience. My work has been primarily with smaller
projects, up to a few million in some cases, but often projects in the low six
and even five figure range. Because many
owners and contractors may contract for such projects on “standard” forms, and
rarely involve their lawyers until later when a dispute arises, there are some
interesting reactions when the customer sees changes to their “standard” form
proposed by some presumptuous in house lawyer.
This is where some clues appear about what people view as incentives or
disincentives. These reactions often
come in the form of a reason for the provision expressed as a means to
encourage or discourage certain practices or conduct. The main difference with larger deals is that
there is more likely to be some exchange of ideas at the first draft or
preliminary term sheet of a negotiated contract.
In the broadest sense many things in a
contract are “incentives.” The incentive
for the contractor to do the work is to receive payment. The incentive for the Owner to pay is to have
the work done. But our question goes
deeper than that. Which of the many
terms and conditions are inserted by the drafters in order to encourage or
discourage particular conduct by the other party. Many provisions are later discussed in terms
of incentive or lack of incentive. These same terms are also there to preserve
legal positions, shift risk, and to give one side or other the ability to more
successfully argue a certain point. On
the other hand certain provisions may be drafted as protection for the client,
but in fact have incentive or disincentive tendencies without the drafter or
user of the form realizing it. One way
to protect from the consequences of perceived negative conduct or to increase
the chances of perceived positive conduct is through incentives or
disincentives. So, one may be inserting
incentives without even realizing it.
What
is an incentive, or a disincentive? Numerous
contract provisions, while not labeled as such, may actually encourage or
discourage certain behavior, conduct or practices in the course of a job. These provisions when examined in the context
of the concerns of the drafter have the appropriate characteristics. So, what are the definitions we need?
Incentive, according to a well known dictionary
means: “Something, such as fear of punishment or the expectation of reward that
induces action or motivates effort.”
Disincentive, looked
up in the same source showed “Something that prevents or discourages action; a
deterrent.”
So, not all incentives are positive
rewards, they may be negative as well. One could say that an incentive can be
either a “carrot,” and “stick.” The
“stick is not necessarily a disincentive.
The disincentive is something that discourages certain action usually
because of the negative consequences, or to make the discussion come full
circle, maybe just the loss of a reward. The stick incentive may be one that if not followed,
takes away a benefit if the party does not act according to the requirements. We
can all remember the loss of desert if we did not eat our vegetables.
Not all incentives are effective. When researching general indemnification
provisions, you might run across a court that limits the enforcement of
indemnification because if too much responsibility is shifted there is no
incentive to run a safe job, or from the Owner’s perspective, provide a safe
place to work. The risk of liability is
but one type of incentive that can be so shifted to the other party as to be no
incentive at all. Other real incentives
for running a safe job is the avoidance of injuries which lead to loss of good
workers, reduced productivity, workers compensation claims, OSHA citations, and
a high experience modifier which hampers the contractor’s ability to bid on
good work. The indemnification provision
probably does not always play a big role in the decision.
What
to Look for. The intent of the drafter is important to
understand. Consider the particular
conduct or practice to be regulated. What is the drafter really concerned
about? These are the same questions we
should be asking when entering into negotiations over those terms. However, the other party has to know the
incentive is there if it is to have the desired effect. On larger jobs, where lawyers and experienced
business people get involved to negotiate the many aspects of a construction
project, one presumes this is common.
When the other party sends the contract to a lawyer, the lawyer can ask
the questions, about purposes, concerns, and possible alternatives. However, to understand that something is an
incentive or disincentive you have to know it is there, and have some idea what
it means. Many contracts are obviously
written with the idea that no one reads them, and often they are in fact are
not read. In this case the positive
incentives may be overlooked and the negative incentives or disincentives are
just traps. In such cases they may not have the result of influencing on the
job behavior, only dispute resolution positions. All too often the non-drafting party does not
look at the contract until a dispute arises which, of course, is too late.
Lawyer’s
Role. In many cases the lawyer’s role in preparing
the construction contract is in drafting a form which the client can use for
various projects. These are then
presented to a Contractor, Subcontractor or Owner as a “standard”
contract. If a lawyer for the other side
is engaged to review this, it is incumbent upon that lawyer to have some idea
of the reason behind certain provisions. This helps the lawyer explain to his
or her own client what the party who drafted the contract is concerned about,
what risks are imposed, or what conduct is being encouraged or
discouraged. The client is then in a
better position to make a more informed business decision about the risks
assumed and the incentive opportunities.
If the lawyers actually get the opportunity to discuss such things with
each other, this understanding should make the negotiation more efficient.
What
conduct are you trying to encourage, or discourage? Incentives are very closely related to
risk allocation, so the provisions discussed are not new, just looked at in a
different light. We should look at some
contract terms that among their various intended functions have some aspect of
incentive or disincentive.
Incentives. Some
are carrots and some are sticks. The
carrots are those which provide something positive in return for the conduct or
result that is desired.
Schedule Bonus for early
completion. This is probably the most obvious example of
an incentive. It provides a cash bonus if
the project is completed ahead of the agreed deadline. This can be a daily amount, or in other
increments as seems appropriate.
Projects with very critical time requirements may make use of this along
with liquidated damages to provide the good with the bad. These provisions are reputed to be frequently
used in highway construction contracts. The
goal is to encourage good planning and attention to the details of
scheduling. On the downside, an Owner
may want to be careful not to provide such a good carrot, that the quality
suffers from a few shortcuts to save days. A sample bonus provision might read as
follows: “Contractor will be entitled to receive a bonus of $____ for each day
in advance of the scheduled completion date that substantial completion is
reached, such bonus to be paid after final completion.” An alternative would be to make the whole
dependent on final completion, or issuance of a certificate of occupancy.
This provision is perhaps less common
that its evil twin liquidated damages.
Some contractors can relate stories of the puzzled or amused looks they
received when they suggested this as a balance for liquidated damages. This may be reasonable in some circumstances
but not all. If the Owner has financing
and everything in place to begin operations in the new location at a certain
time, finishing early may not be that much of an advantage, where finishing
late would be a significant problem.
Performance Bonus for exceeding performance
criteria. This provision may be used
where the measure is not the completion time but certain performance criteria
for a functional structure. Power plants
may be a good example. The builders plan
on a certain output, and efficiency. If
the finished facility exceeds the goals, a bonus may be paid for each increment
over the goal. The aim here is to
encourage creativity, and diligence to make the result exceed expectations. As with any incentive, the target must be realistic
and potentially achievable to be meaningful as an incentive, rather than just
“pie in the sky”.
Reduction in retainage at the half way
point. The withholding of retainage can be considered
an incentive in itself encouraging the contractor to keep the project on
schedule, and to reach final completion.
However, it has become so prevalent in the industry that it may have
lost some of the edge of an incentive, and is just a normal cost that
contractors figure into the price. A
positive way of encouraging timely performance without adding to cost by paying
a bonus is to agree that if the project is on time, the retainage will be
stopped or reduced at some milestone if things are on schedule, and results are
satisfactory. The halfway point seems to
be the most common. This provides a cash
flow incentive for the contractor to keep the project going on schedule. The owner will want to keep some
discretionary control over the trigger of such change. In such case the inclusion of the phrase
“may, in the Owner’s sole discretion, be reduced….” The trick is to find a balance between an
incentive that is too automatic, and one that is illusory.
“Provided
that Contractor has reached 50% complete within the scheduled time, and the
work is satisfactory to Owner, Owner may, in its discretion, reduce the amount
of retainage on subsequent payments from 10% to 5%.”
An alternative would be “…in its
discretion eliminate any retainage from subsequent payments.”
Other retainage related issues that can
provide some incentives for the Contractor include release of retainage for
early subcontractors. Retainage is a
significant financial drain on subcontractors who do early work on projects
e.g. excavation, site work, foundations.
If they have 10% of their revenue tied up in retainage for months or
even years after their work is complete, it increases their cost, which goes
into the price. If there is some
assurance that the retainage will not be held so long, there is an incentive to
reflect it in the price. Retainage is often
not a part of the material supply on jobs, especially where the material is
just purchased from market sources.
Suppliers and Equipment rental companies resist retainage. If the Prime Contractor has to front the
money for the additional 10% for long periods of time, is has an impact on the
cost. One way to provide for this is to add the
following:
“One hundred
percent (100%) payment will be made on a line item basis within 60 days after
substantial completion of the following line items: (a) excavation, (b)
sheeting and shoring, (c) site utilities ….”
A similar provision could be made for
materials once delivered and properly secured at the site.
Cost
plus pricing with sharing of savings. Cost
plus pricing can work in a variety of ways. It is often used where there is
some uncertainty in the design and conditions. It
can be set up as cost with a fixed fee, or cost with a percentage mark-up. It may be thought of as a cost control
measure, but without a limit, it is an incentive to maximize cost. The fixed fee is less of an incentive to
increase costs. A guaranteed maximum
price or “GMP” can provide an incentive for the contractor to keep costs under
control. If the GMP is exceeded, there
is no more money, so the fee, or profit is eaten away. An incentive is created if the savings below
the GMP are shared in some fashion.
Without the sharing, the only incentive is to get as close as possible to
the GMP without going over. An Example
of such a provision is: “If the actual
Cost of the Work and the Contractor’s Fee total less than the guaranteed
maximum price, then the savings will be divided as follows: [____ percent
(___%)] to the Owner, [____percent (___%)] to the Contractor.” The GMP is often an item for the Contractor’s
bid. But, if the work is not well
defined there is no incentive to provide a GMP that does not have a lot of
hedging in it. If the parties are
flexible and somewhat creative, there may be room for adjustment if the scope
evolves significantly.
A related provision is the passing on of
discounts. If the entire discount is
required to be passed on, then there is little incentive to seek the
discount. This is especially true when a
cost plus pricing is used. In some
contracts Owners have added a requirement that the Contractor seek all
discounts and pass them on. This is an
added financing burden because many discounts are tied to prompt (e.g. 10 days)
payment. Unless the Owner is then going
to accelerate payment, it just means the contractor has paid for material that
much more in advance of the time when payment for that material will be
received for the Owner.
Value
Engineering. The contractor can sometimes suggest an
alternative way to achieve a particular result at less cost. This so called “value engineering is another
cost saving device. If the saving is not
shared, there is little incentive to look for ways to do it cheaper especially
with the increased risk if something does not quite work right. Like the cost plus, a sharing of the savings,
provides some incentive for the contractor to look for these savings
opportunities.
Sticks.
These provisions vary only in that they
are designed to encourage much of the same behavior, but in the opposite, more
negative or more punitive way.
Liquidated
damages, for schedule. This is probably the first thing that
comes to mind when any list of incentives is made. It is a stick. If the work is not completed on time, the
contractor agrees to pay as liquidated damages and not as a penalty, a
specified sum, usually expressed as a daily amount. Courts do not like to enforce penalties, so
such provisions will be scrutinized. The
seventh circuit spoke of actual damages being hard to measure, so an amount is
agreed to. It must also be reasonable in
light of the anticipated or actual loss. The obvious incentive is to encourage the
contactor to complete the work within the time agreed to in the contract. A related incentive that may not be obvious
is the incentive to more carefully prepare a schedule. It certainly behooves the contractor to
carefully consider the overall time to complete the project as well as the
schedule when considering a project where liquidated damages are part of the
bargain.
The AIA standard forms do not contain a
liquidated damage provision per se.
There is a reference in the section on Contract Time that suggests that
one can be inserted. The parenthetical also recognizes that a bonus for early
completion may also be appropriate.
“(Insert provisions, if any, for liquidated damages relating to failure
to complete on time or for bonus payments for early completion of the Work.)” This could pose problems in a competitive
bidding situation, if a blank AIA-101 form is inserted in the bid package,
without any specific mention of the desire for liquidated damages. The Point is that Liquidated damages should
be part of the bargain from the beginning, not just thrown in when the final
contract is prepared. The EJCDC contract
forms do provide a liquidated damage provision in the form. The only blank is the dollar amount. The 1990 version of the contract had a very
comprehensive treatment of the language usually found in Liquidated damage
provisions.
Sometimes
it seems liquidated damages are inserted to show that “we mean business on this
schedule.” If actual damages can be
determined, the Owner may want to leave that option open. Liquidated damages can be a limit on recovery
in case of serious delays in completion. One downside incentive may occur when the
cost to meet the schedule exceeds the liquidated damage amount causing the
contractor to favor the less expensive option.
This might be curiously called a “positive disincentive.” This provides some incentive for the Owner
to use a reasonable number in adding liquidated damages to the contract. If it is too high, it may not be
enforceable. If it is too low, it may
not have the intended incentive clout.
Liquidated
damages for shortfall in performance criteria.
The same approach can be used to encourage maximum effort to achieve
performance goals. It may be harder to
calculate the proper number because the shortfall may be a permanent shortfall
in usefulness, rather than the more temporary damage caused by late completion. The main criteria would seem to be a reasonable
standard against which to measure performance.
It should be achievable, or it becomes a vehicle for a discount more
than an incentive. If a contractor
senses this, they may build the discount into the price, in which case, any
incentive value is lost. A persistent
question here, more perhaps than in schedule related damages, is the argument
that it is the design, and not the contractor performance that is the cause of
the shortfall. This is a topic for a
more in depth treatment than called for in this survey.
Withholding of payment. Most contracts have a laundry list of
reasons for withholding payment. Some may
encourage certain conduct; some are more just a means for protection of the
Owner when a project starts down the road to problems. Some like failing to have enough men and
material are subjective standards which can lead to separate disputes about
whether they are properly applied. This
raises a number of questions. Does the
threat of withheld payment really provide an incentive for the contractor to add
manpower to the job? What is the proper
amount of manpower to do the job? Having
disclaimed any responsibility for means and methods, are either the owner or
design professional really in a better position to know this? The main consequence of the problem with
inadequate staffing is timely completion. There are more direct ways to encourage the adequate
staffing that results in timely completion.
Since payment should be based on the amount of the work performed, then
slower pace is going to reduce the progress payments. Careful attention to the progress payments
may prove more effective that arbitrary withholding based on judgments about
the level of manpower on the job. It is
often the role of the design professional to certify amounts completed for
payment. If this process is working correctly, it is
the amount of work done, rather than the staffing that should affect the
payment.
Another reason for withholding is some
indication that there is not enough left in the contract price to cover the
cost of completion. This whole subject
is one that owners and contractors can debate at some length. But as for an incentive, it may be effective
to avoid heavily front loaded billing.
However, such practices may only lead to disputes on the first
invoice.
Disincentives. Provisions
to discourage or deter certain action or activity. Disincentives,
even more than incentives, can just be traps or “gotchas” if the party against
whom they are to be enforced does not appreciate the disincentive message, or
even worse, does not even know the provision is there. Often disincentives come in the form of
remedial measures that are agreed to in the contract, and can be exercised
without a judgment of breach against the other party. They are useful as some more immediate
consequence is included to make the deterrent more effective. However, some provisions may also provide
such a lack of incentive for conduct that the drafter wants to encourage, as to
be of little value.
Pricing and payment. Cost
plus pricing without a share of the savings. As discussed above, cost plus type contracts
can and often do award the contractor a share of the savings using an agreed
formula. However, if there is no sharing of the savings,
there no financial incentive to seek such savings. Furthermore, if the “plus” is a percentage
mark-up, the loss of the mark-up on the costs that are saved is not going to
encourage anyone to seek out cost savings.
Thus, it can actually be a deterrent to seeking the cost savings. This is likely an unintended result, but it
is there just the same. One way to
change the impact of this disincentive is to use a fixed fee rather than a
mark-up, so that the cost savings do not cut into the fee. So when preparing a pricing provision like
this the drafter needs to consider what the contractor’s reaction is likely to
be?
Value Engineering, no share of savings. Similarly, if the Contractor is asked to look
for ways to cut costs by making adjustments in the original design, and there
is no sharing of savings, it is a deterrent due to the increased risk that is
taken on by getting into the design function.
Changes.
At first look, the disincentive aspects of change order rules may not be
apparent. One reason to have tight
controls is to protect against late claims for changes or claims that things
were changed by oral direction. But
beyond the defensive measures, is a message to the contractor and the
subcontractors not to be looking for changes on this job, because we are not
going to pay, unless you do it exactly right.
The careful contractor can find these rules and, assuming they are
realistic and reasonable, set up its project management to deal with them. The Owner can use them to keep costs under control. But, both parties must know what they are,
and follow the agreement to live by them.
No
changes paid for unless written approval first. This
discourages claims for changes and extras after the work has been done. Certainly this is a defense to late claims,
but when it is a known condition, it has the additional effect of deterring
such claims. This can lead to conflict
when the owner’s on site representative does not recognize that changes must be
directed in writing. Jobsite harmony can
be disrupted if the contractor reminds the owner that they made that rule, and
should live by it also. A strain on
working relationships can also result when the owner’s representative makes an
oral request then later insists that the contractor has waived the claim
because it did the work without written authorization. The EJCDC form states it as follows:
“CONTRACTOR shall not be entitled to an increase in the Contract Price or
Contract Time with respect to any work performed that is not required by the
Contract Documents as amended, modified or supplemented as provided in
paragraph 3.04….” A reference to paragraph 3.04 includes a “Work
Change Directive” which suggest that a final Change Order is not
necessary. Some less exacting contracts
just make reference to “written authorization”.
The message is clear, however, if you don’t do it right, don’t bother
coming in and asking for change order payments at the end of the job. The requirement for a written authorization is
in one sense a disincentive for conduct that should be discouraged, but it is
also a good rule to have for both parties, so as to eliminate disputes.
Short
time limits to get claims in coupled with a waiver. Such provisions do discourage asserting claims
late in the project to increase revenue or make up for losses. However, such time limits should be
reasonable and realistic. Some of these
limits are as short as 24 hours, while more reasonable ones are 7-21 days. Among the longest ones noted are the EJCDC’s 30
day requirement for initial notice, and the 60 day deadline for final
documented claims. The 24 hour requirement is both unrealistic,
and unreasonable. This time can
evaporate over a weekend. One wonders
how the owner is prejudiced if the claim comes in 5 days after the “event” which
causes the claim instead of 24 hours.
The deterrent effect on late claims is still there.
Back
charge for cost of A/E responding to inquiries. This is a deterrent to asking unnecessary
questions, or using the inquiries as a means to fish for extras. It might also be an incentive to ask as many
questions as you can up front, before the extra charges start. If used incorrectly, or too much, it is a
deterrent to questions altogether, and may be a deterrent to some useful
dialogue between the contractor and the design professional.
Broad
representations coupled with waivers. Discourages claims for supposedly
unanticipated conditions. This can be
thought of as the “you should have known” provision. The representations and warranties should be
reasonable, and consistent with the actual opportunity to inspect the
site. This is a deterrent to making
claims for unanticipated conditions where the contractor knows that the
response will be to remind the contractor of the representations made in the
contract, and the accompanying waiver.
All of these change-related items have
some disincentive qualities to them, and if taken together should also
encourage careful change order management.
No damage for delay. These provisions not only discourage, but
probably eliminate delay claims. Such provisions often read something like the
following: “Under no circumstances shall contractor be entitled to any increase
in the Contract price, or any damages on account of any delay in the progress
of the work. Contractors sole remedy
shall be an increase in the Contract Time commensurate with the delay, except
if the delay is caused by the fault of Contractor.” The
subject of weather delays is sometimes dealt with in detail by providing a
chart for the normal number of adverse weather days in each month of the year,
and extensions will only be granted if the number of actual weather days
exceeds the stated amount. The Owner
wants to encourage the contractor to evaluate the project for the potential for
delay, and build in some provisions for specific situations peculiar to that
project or allow for some of it in the proposed schedule. One issue encountered on restoration projects
on existing buildings may be noise. All
parties should understand what noise is likely and what the consequences will
be if requested shut downs are requested due to noise. This can be the subject of a special
stipulation without eliminating the general “no damage for delay”
provision.
Claim Procedures. While the claim procedures have other reasons
to be in the contract, some disincentive purposes can be seen.
Forum
selection not at place where project is located. One
wonders why in a construction contract, the forum for dispute resolution should
be anywhere except the forum where the project is located. However, some parties insist that all
disputes must be in the county where their corporate office is located. Presumably this discourages all but the most
significant litigation, if the other party must go to a city distant from the
project, and retain a local lawyer to pursue a claim. Another reason may be to get all claims in
the same place, so that they can be handled by the law firm of choice. This is
complicated when mechanics liens are involved, because it may be difficult to
enforce a Minnesota mechanics lien in Texas. When arbitration is involved, it will
probably require an additional proceeding.
Attorneys
fees provisions. One of the first questions asked by clients
is whether they can collect attorney’s fees if they “win.” One sided attorneys fees provisions are
sometimes encountered. Why pursue a
claim if you can’t collect attorney’s fees, but the other side can. One reason to write them that way is to
discourage the other party from resorting to litigation. However, at least one state has a policy
against enforcing attorney’s fees provisions at all, unless the court
determines that the action was frivolous or brought in bad faith.
Prevailing
party Definition. Many contracts have a prevailing party
provision for recovery of attorney’s fees and costs in litigation or
arbitration. But often the question of
just who is the prevailing party is just as difficult to resolve as the
underlying dispute. Some provisions now
provide some guidelines for what is a “prevailing party.” The general ideas is that one who sues for
$100,000 and recovers only $10,000 is really not the prevailing party, and
should not recover attorneys fees. If
drafted carefully this should be a deterrent to questionable or frivolous
claims. Therefore, some creative
adjustment of the traditional prevailing party agreement not only helps bring
some order to the definition of prevailing party, it may offer some incentive
to try and settle the matter.
Termination
for Convenience. Here is a provision that if misused can
provide an incentive for bid shopping after the contract is signed, or provide
an out on a project when disputes arise.
To balance this, there should be some cost for such action. The AIA forms provide that the contractor
“shall be entitled to receive payment for Work executed, and costs incurred by
reason of termination, along with a reasonable overhead and profit on the Work
not executed.” Many
contracts leave out all but the payment for the work executed. The inclusion of termination costs, and
overhead and profit on the cancelled work, serves as a disincentive for an
owner to use the termination for convenience provision too lightly.
A variation on the termination for
convenience, which shows up occasionally is the provision that payment for work
done will be based on a cost plus a small mark-up. This is without regard to what the pricing of
the underlying contract is. In some
cases, it could give the owner a significantly better price than
completion. Is this an incentive to
terminate for convenience? Probably not,
but it does raise a question.
Partnering.
Partnering is not really a contract term, although some contracts
require the contractor and other parties to participate. It is not a project delivery method, but if
seriously undertaken can provide incentives for the parties to a construction
contract to find mutual objectives, enter into cooperative decision making, and
use feedback to improve joint objectives. It
is an attempt to change the adversarial nature that exist on some construction
projects, and the view that one can gain only at another’s expense. The incentive to participate is that it may
avoid disputes, or make them easier to resolve later on. A smother running project should be an
incentive to participate.
Dealing with provisions that have
incentives and disincentives. These
kinds of terms are encountered in most construction contracts, but in a wide
variety of levels of reasonableness.
Approaching the negotiation over particular terms one should explore the
incentive, disincentive questions, as well as the question of what the other
party is concerned about. If a question
is posed in those terms, it may surprise the person on the other side, even if
that person is a lawyer. Ask if this
provision is written the way it is just to remove an issue or shift a risk, or
are they trying to create an incentive for a certain behavior by your client?
Is there overkill? This may give you two ways to deal with the
overkill that creeps in to many contracts, as lawyers try to draft around real
or perceived problems. You may be able
to draft an alternative, that still contains and incentive in the right
direction without going so far as to kill any incentive to want to enter into
the contract. The consideration of incentives or disincentives is a second
avenue to compromise.
Can
a compromise be proposed? If the real reason for a provision is to
provide some incentive for the other party, perhaps something less that the all
out waiver of rights is sufficient to create that incentive. Another possibility is to look for other
incentives that balance the lowering of the provision in question.
Can
you live with it if you understand it? When crossing the street, it is the car you
don’t see that hits you. In contracts,
it is the term you haven’t looked at that nails you in the final closeout of
the project. So, when you look at
contracts for your clients, think about what incentive is created, or perhaps
squelched by this provision. If it is known,
perhaps the client can live with it. Ask
them what they can handle, don’t just tell them “you have to have this.” When drafting contract provisions, remember
that carrots should be attainable, and sticks avoidable if they are to be
effective.
