Construction Contract Fundamentals

The fundamental parts of a construction contract are the scope of work, the contract amount, and the schedule.  In addition, a good contract provides for contingencies such as changes and disputes, and will allocate risks which may not be fully known.  There is no fully standardized language, and it is probably impossible to write enough intelligible words to address every situation which may arise during or after construction.  Thus, construction contracts, as a whole, are inherently ambiguous, particularly when allocating risk.

Even if a contract is perfectly clear on a particular issue, circumstances extrinsic to the contract can modify the language or change its meaning.  For example, many construction contracts contain written notice provisions for changes in the scope of work.  The purpose of written notice is to protect both the contractor and the owner from later disputes over such things as the scope of the change and responsibility for the additional costs.  Nevertheless, the parties can modify this provision merely by their conduct and without a written amendment to the contract, notwithstanding a contract clause which requires that all modifications be in writing.  See, e.g., Hahl v. Langfur Const. Corp., 529 P.2d 1369, n.s.o.p. (Colo. App. 1974) (written change order requirement modified by parties’ conduct allowing oral changes).

The point is that even well-drafted construction contracts have uncertainty as to risk.  When a contract fails to provide for specific contingencies such as environmental incidents, or where the provisions are incomplete or unclear, the parties do not have full agreement as to responsibility for these contingencies when they arise.  For the owner, this can mean that it may be paying more for a project than it intends.  For the contractor, it may be inadvertently agreeing to incur more risk than it is being paid for.  In Colorado, if a contract does not provide for an unforeseen contingency, the contractor probably assumes the risk.  Newcomb v. Schaeffler, 279 P.2d 409 (Colo. 1955).