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International Construction Law Review

STANDARD CONSTRUCTION CONTRACTS IN THE USA

JUSTIN SWEET

John H Boalt Professor of Law Emeritus University of California, Berkeley, USA

Introduction

Those who design, usually architects or engineers (design professionals), make contracts with those for whom they work, such as their clients, as well as those entities who work for them, such as consultants. Builders, usually called contractors, make contracts with those who engage them, called owners (employers), those who work for them, such as subcontractors, and those who provide materials, called suppliers.
This linked set of contracts describes the project, allocates risks in this risk-prone activity and provides methods for resolving the seemingly inevitable disputes. If contracts provide the structure which informs us of the rights and duties of the participants, standard construction contracts are the substructure of the construction project.
Were each contracting party to negotiate all the terms of its contracts, the transaction costs would be unpredictably high and the crucial element of familiarity endangered. The term “transaction costs” includes the costs of preparing for negotiation, negotiating, drafting and finalising the contract. These are formidable expenses. For these reasons, and others, we shall see construction could not function efficiently without the use of standardised construction contracts. In America, as elsewhere, these prototype contracts are prepared by professional and trade associations.
At the outset I shall define standard contracts. I shall also compare them to adhesion contracts, which they resemble. I shall give examples of standard contracts in the construction context. I shall look more closely at who makes them, why they make them and how they are made. I shall canvass reasons for their importance other than simply reducing transactions costs to which I have referred. I will describe them in the construction context and make some observations about the American standard contracts market. I shall give examples of how they allocate risk and how they fit into the American common law system. I shall discuss how they are interpreted by American courts. Because of their use in a common law system I will note increased legislative activity.1


The International Construction Law Review [2011

102

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