Contract Drafting Mistakes and Lessons Learned in the Construction Industry: A Case Study

When a contract doesn’t reflect the intention of the parties, who bears the cost?

Drafting errors in construction agreements can have devastating consequences. A single contract drafting mistake can lead to negative profit margins, strained relationships, or even the administration of the construction company.

Therefore, meticulous attention to detail and the engagement of experienced construction contract specialists is vital in ensuring error-free construction agreements that safeguard financial stability and long-term success.

In the following sections, I’ll go over a case study that showcases the impact of construction contract drafting mistakes and highlight some key lessons.

Background of Case Study

Errors in construction contracts can have severe financial consequences, jeopardizing profitability, and damaging relationships. In this case study, a construction company made a contract drafting mistake and encountered a problem that threatened their profit margins and almost led to a severe dispute with the client.

The Mistake

The construction company mistakenly excluded ground conditions from their tender when negotiating a multi-million-pound contract. However, upon commencing excavation, they discovered unforeseen ground conditions, which were not succinctly designated as the client risk in the contract. This oversight exposed the construction company to potential significant financial liabilities, litigation, and even strained relationship with the client.

The Causes

The review of the contract revealed that the clause that failed to assign ground conditions as the client risk was erroneous due to a clerical mistake. It appeared that the clause had been cut and pasted from another contract without proper verification. The failure to thoroughly check the entire contract and ensure consistency resulted in the drafting error.

The Approach

Addressing the dispute required a comprehensive review of the parties’ intentions. Through collating additional evidence, it emerged that the technical teams from both the construction company and the client had engaged in extensive discussions before signing the contract.

These discussions included the topic of ground conditions, with the contractor expressing the client’s need to assume the risk associated with unforeseen ground conditions. The absence of any objection from the client during these discussions indicated a shared understanding and agreement on this issue.

Building on this evidence, the contractor built a compelling case to demonstrate that the intention of both parties was to exclude unforeseen ground conditions from the contractor’s responsibility. After several meetings and discussions, the client agreed to acknowledge the parties’ original intent, work collaboratively to mitigate the risk, settle the costs reasonably incurred, and amend the contract to reflect their true intentions.

The Lessons

While it is common for mistakes to occur during a typical contract drafting process, to ensure that a construction agreement doesn’t have drafting errors, I recommend the following best practices:

• Amend copied text to fit the current contract and the parties’ intention

When utilizing text from previous contracts, it is imperative to review and amend the copied text to align with the specific requirements and intentions of the current contract. Failure to do so can lead to inconsistencies and potential disputes.

• Always read the entire contract, including the specification and schedules

Thoroughly reviewing the entire contract, including specifications and schedules, is essential to identify any discrepancies or errors that may exist. Careful scrutiny ensures accuracy and consistency throughout the document.

• Understand the importance of risk distribution

A comprehensive understanding of risk distribution is critical in contract drafting, particularly in industries like construction. Accurately allocating risks between parties helps reduce the likelihood of disputes and protects profit margins.

• Include order of precedence clauses

Including order of precedence clauses in contracts can effectively address and resolve potential inconsistencies. These clauses specify the “default ranking” of various documents forming part of the contract. Additionally, they establish a hierarchy for interpreting conflicting provisions, providing clarity and reducing the likelihood of disputes arising from inconsistencies.

Conclusion

This case study underscores the significance of accurate contract drafting and the potential consequences of errors, particularly in industries with slim profit margins such as the construction industry. By analyzing the lessons learnt from this case study, contract drafters can enhance their practices and ensure that contracts align with parties’ intentions, reducing the risk of costly disputes and financial implications.