As the legal and commercial landscape around construction projects continues to evolve, so must the contracts that govern these projects. In recent years, courts and contracting parties have emphasized how agreements allocate risk and define procedural obligations.
Careful drafting and informed negotiation of the following five areas can reduce the risk of contract disputes in construction agreements.
- Force Majeure and Supervening Events Clauses. The pandemic exposed the limits of force majeure provisions, particularly where contracts failed to explicitly reference terms like “pandemic” or “government intervention”. Similarly, force majeure clauses are often improperly used to address supervening events. Separate supervening events clauses should be used to address lower-impact, higher-probability occurrences, such as severe weather or supply chain delays. Clear definitions and detailed evaluation of risk in both types of clauses remain essential.
- Tariffs and Trade Barriers. The resurgence of tariffs and domestic procurement rules has prompted closer scrutiny of change-in-law provisions. Those same issues have also prompted the need for a closer evaluation of risk allocation with respect to supply chains. Owners must assess whether shifting tariff risk to contractors is commercially justified or feasible. Domestic procurement policies may also affect sourcing and supplier eligibility. As a result, clarity around supply chains, material sourcing and mitigation responsibilities is increasingly necessary.
- Change and Notice Provisions. Change order and notice clauses remain leading sources of construction disputes. Success depends on well-defined procedures and proper documentation. Parties should closely consider the content of these clauses, especially with respect to timing, documentation requirements and responsibility for approving changes. Parties must also be careful to strictly adhere to change requirements or risk waiving those requirements altogether.
- Arbitration Clauses. Arbitration clauses are an important, but often overlooked, part of construction contracts. Parties should carefully consider whether stepped dispute resolution clauses involving negotiation or mediation add value or simply add risks related to jurisdiction and limitation periods. Similarly, the insertion of institutional rules is a simple means of offering procedural clarity institutional support that ad hoc arbitration provisions often lack.
- Quebec Civil Law Considerations. In Quebec, the Civil Code applies in addition to the contract. As a result, force majeure defences are available even in the absence of a force majeure clause in the contract. Courts strictly apply notice and change order provisions, notably in public contracts and fixed-price agreements, but may grant relief in cases involving contracts of adhesion or if the duty of good faith has not been respected. Precise drafting is critical, as informal waivers may not excuse non-compliance.
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