PALO ALTO, CA-In the world of real estate development, one ofthe most significant and often undervalued agreements is thecontract between the owner/developer and the generalcontractor. Drafting and negotiating construction contractsfor commercial and/or large scale construction projects is, in itssimplest form, an exercise in risk management. Each side jockeysfor position on where and how to allocate risk; while, at the sametime, managing those risks through a variety of mitigationtechniques.

A construction contract should clearly and unambiguously lay outnot only the tangible terms such as the scope of work, the projectdelivery methodology, the project schedule, the project budget, thepayment terms and the insurance coverage, but it also must addressvarious foreseeable and unforeseeable risks that may arise eitherduring the course of construction or after the project is complete.In an effort to streamline negotiations and reduce initial fees andcosts, various organizations have developed form contractsincluding, but not limited to, the American Institute ofArchitects, the Associated General Contractors of America,ConsensusDOCS, the Engineers Joint Construction Documents Committeeand the Associated Owners & Developers. While these forms areregularly used under the pretext of being fair and equitableconsensus documents, it is critical to remember that the draftingorganizations prepare the forms from the perspective of their ownconstituents. For this reason, regardless of whether theparties use a form or sui generis contract, the documentsmust be modified and tailored to each particular project in aneffort to allocate risk to the party who is in the best position tocontrol or manage the same. In some instances this may be theowner/developer and in others it may be the contractor. What ismost important to remember is that, when it comes to construction,one size does not fit all.

A comprehensive discussion of all the risks that should beaddressed in a construction contract is beyond the scope of thisshort article; however, a few of the more heavily negotiatedprovisions in the current marketplace are summarized below.

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