When playing a game of cards, how do you handle the “house” rules? You know, those unique ways of playing the game that may differ from those to which you are accustomed. Do you handle those nuances as they come up or before starting the game?
Contractors can often address similar issues before problems arise by deciding which rules will apply with a choice of law clause in their contracts.
Suppose you’re a contractor installing 55 miles of pipeline across three different states (PA, WV, & VA). If (when) a dispute arises, you’d like to resolve it with some consistency and predictability. So, before beginning work, you and the owner agree that no matter the state or the section of pipeline where the problem(s) occurred, the dispute(s) will be resolved according to the laws of only one state.
Good Idea: Include a choice of law clause in your contract to promote consistency and predictability (while reducing potential costs and risk).
But, what if Pennsylvania law prohibits a choice of law other than Pennsylvania, which says that if the construction project is located in Pennsylvania then no other state’s law can apply regardless of the parties’ agreement. Sometimes, the law seemingly frustrates the parties’ agreement. Unless, the “house” decides its own rules apply because the parties agreed by their contract.
Better Idea: When including a choice of law clause in your contract, consider if existing laws may void your choice.
In this example, the owner and contractor agreed that Virginia law would apply to the entire pipeline project spanning across portions of Pennsylvania, West Virginia, and Virginia. Although a Pennsylvania Law prohibited the parties’ choice of Virginia law, a Federal Court located in Virginia decided the parties’ agreement governed. Perhaps the house preferred its own rules?
Keep a Pass-Thru Claim Burning, Don’t Extinguish Liability
Prime contractors, have you ever submitted a subcontractor’s claim to a public owner? Subcontractors, have you ever wanted to submit a claim against the government, but you had no contract with government?
When You Can’t Recover from a Third-Party (The Economic Loss Doctrine)
Suppose that you (the Contractor) had extra costs and want payment for those extra costs from the designer.
Barbecue and Construction Contracts
While barbecue recipes can be short and simple, contracts can be long and complicated. Fundamentally, though, recipes are very much like contracts: what’s required, how much of each part/ingredient, in what order should they be assembled/added, when, and for how long?
Show Your Work
A mentor of mine once said that process and procedures can be more important than substance and results. Like solving a math problem, how you solve it is often more important than the answer itself. The same is true in resolving construction contract disputes with public owners.
Substandard is Not Defective
The government need not follow the industry standard. It can do less or more.
Hide, Seek, & Seek
Have you ever played hide and seek? If you are the seeker, do you win the game when you find the hidden person? Yes, of course! Unless, you’re a government contractor.
Contractor Schooled School
Have you ever done exactly what you were supposed to do, but it didn’t work and you were blamed anyway? Nevertheless, if contractors follow the owner’s plans and it still doesn’t work, the contractor may be without fault – this is as it should be.
Walk It Off, Keep Going
During a recent soccer game, my seven-year-old son took the ball squarely in the face. But, he walked it off and continued playing. Contractors must do the same with changes.
Are We There Yet?
Next time you close a deal, get the essential terms on paper and signed by all parties before it’s Miller Time.
