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The construction industry loves paperwork. Whether it’s actual “hard copy” pieces of paper or digitized documents in the cloud, the average construction project generates a ton of paper that flows back and forth among all of the different project stakeholders.

Project plans are an important item in the paperwork category. But the construction contract should be just as important any other project document as a “source of truth” that helps to guide the project participants for the entire duration of the project. 

However, most construction contracts use protection-first language that immediately puts the contract parties into an adversarial position, especially with regard to payments. On top of that, construction contracts have become so bloated with confusing clauses and “CYA” language that understanding even the most basic boilerplate contract requires a law degree.

The bottom line? The construction contract status quo is not ready for today’s connected jobsite.

 

Construction Contracts Aren’t Ready for a Connected Jobsite

The gains made by the construction industry over the past 100 years or so -- both in productivity and sheer technological accomplishment -- have been nothing short of miraculous. While much of this progress has been fueled by technology, the impact of specialization along with the rise of the specialty trade subcontractor cannot be overstated. 

But while the advent of the specialty sub has been overwhelmingly positive, the rise of specialization has brought many more players into the industry. Not only does the industry have many more participants overall, the same is true for each individual project. These days, it’s not uncommon to have subcontractors, sub-subcontractors and other participants all spread out across a multi-tiered “payment chain.”

This means that it’s now common for project participants to not know or have a direct contractual relationship with many of their fellow project participants. This introduces an element of fear into the equation, simply because it’s easy to fear what can’t be seen. The business word for fear is “risk.” And it’s the attempt to manage this fear which has led to the overly complicated contracts.

Contracts Overloaded with Protections in Response to Fear

Construction has always been a relationship business, but it seems like those relationships used to come much easier. It wasn’t that long ago when all it took to cement a deal was a handshake. Since everyone working on the project already knew each other, payments were guaranteed by nothing more than mutual trust.

Those days are over, and that handshake has been replaced by an overly complicated contract that would probably be a challenge for many of the brightest attorneys out there. These days, contracts contain pages of clauses that all attempt to do the same thing -- shift the risk from one party (typically, the one with the most leverage) to another. Some of these clauses may even be downright dangerous to one or more of the contract parties. And yet, it seems like contracts continue to get more complicated with each passing year.

Complicated Problems Need Uncomplicated Solutions

The answers to the problems described above are elusive, and like a lot of things in life (and in business), things will probably get worse before any improvement comes.

However, one thing that’s clear is that the payment status quo isn’t working for anyone -- not for the general contractors and owners at the top of the payment chain, and not for the subcontractors and the lower-tiered project participants, either.

The way construction contracts are created and used these days isn’t helping anyone. Maybe it’s time to rethink how the industry utilizes these important documents.

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