In the world of construction contracts, negotiations are critical to shaping fair and reasonable agreements that allocate risk to the proper party. However, those negotiations give rise to ethical considerations. Ethical negotiations require transparency, finding the right balance between zealous advocacy and upholding ethical standards, and fundamental fairness.
The Oxford Dictionary defines ethics as moral principles that govern a person’s behavior or the conducting of an activity and what is right and wrong. However, what constitutes ethical behavior can vary depending on the role a person plays in the negotiation process. Ethical negotiation ensures that parties do not engage in practices such as dishonesty, misrepresentation or unfair manipulation to secure an advantage.
Attorneys, owners and contractors each have unique perspectives on what is ethical based on their roles and responsibilities. Using ethical concepts to consider the differing perspectives among the different participants fosters more productive negotiations and promotes more successful outcomes.
For attorneys, ethics in negotiation require compliance with legal standards, confidentiality and a commitment to advocate for their client’s best interests. When representing owners, ethical negotiation is centered around protecting their investments, while ensuring they secure favorable terms. They may focus on transparency and clarity in agreements, seeking to avoid hidden costs, ambiguous clauses or unfair conditions that could jeopardize the project’s success or their financial interests. When representing contractors, an attorney seeks to ensure that the contractor’s work is properly compensated and risk is allocated fairly. Ethical considerations here may involve advocating for fair payment procedures, even-handed indemnity provisions and fair dispute-resolution policies.
How to Balance Zealous Advocacy and Ethics
An attorney’s obligation to be a zealous advocate for his or her clients must be balanced against the equally important requirement to act ethically. Finding the right balance can be challenging, particularly when clients are pressuring their attorneys to achieve favorable results.
Strategies for Balancing Zealous Advocacy and Ethical Conduct
- Educate Your Client About Ethical Considerations: One of the most important ways attorneys can balance zealous advocacy with ethical conduct is by setting the ground rules early. Letting clients know what the ethical considerations and legal limitations are helps prevent clients from pressuring attorneys into unethical actions, such as asking them to be dishonest or push for unfair advantages.
- Act With Integrity: Another crucial strategy is to lead by example. Zealous advocacy does not mean that it is acceptable to exploit or manipulate the other side. Unnecessary aggression to attempt to gain an unfair advantage is not ethical. Collaboration is the key.
- Be Transparent: Being transparent does not mean that you give away the store. Rather, ethical negotiation is about providing the right amount of information—without disclosing too much—that allows parties to make informed decisions. When all parties are on a level playing field in terms of having correct information about timelines, budgets and risks, they are more likely to work collaboratively. For example, when a contractor discloses potential delays or cost overruns early in the project, the owner can pivot to try to solve the issue before a small problem becomes a big problem. This enhances cooperation among the players.
- Avoid Disclosing Too Much: While transparency is essential, over-disclosure should also be avoided. Sharing too much information is not a good approach either when doing so adversely impacts that party’s negotiating position or gives the other side information they can use to exploit the situation.
Deception vs. Ethical Negotiation
Withholding essential information can be unethical, but this is a gray area. On the one hand, not showing your full hand is a strategic negotiation tactic. On the other hand, failing to provide full and complete information about materials costs, labor availability or anticipated delays to achieve a more favorable contract may be strategic. But, if the result is to mislead or manipulate the other party into agreeing to unfavorable terms, it can be considered deceptive—and therefore unethical.
Profit vs. Ethics for Contractors: What are the ethical concerns surrounding profit maximization? Is it ethical for a contractor to prioritize profit when it may lead to additional costs for the owner? While contractors, of course, need to make a profit in order to continue to operate, when profit becomes the prime factor over the success of the project it raises questions about the contractor’s ethical treatment of the owner. From the contractor’s point of view, increasing fees, upcharging materials and including contingency fees is necessary to cover risk. From an owner’s perspective, when the contractor’s main focus is maximizing profits, the owner will worry that the contractor is sacrificing quality for cost. Balancing these competing interests ethically—contractors need to be transparent and reasonable, while owners have to agree to fair compensation—can be challenging. Ethical considerations call for both sides to be accountable to each other.
Real-World Ethical Dilemmas: The below scenarios provide suggestions for managing common ethical dilemmas that arise in construction contract negotiations:
- In this example, a party alters the terms of an AIA construction contract form but does not highlight the change to the other party. What obligation does the receiving party have to carefully review the draft to determine changes to boilerplate language? Likewise, what obligation does the sending party have to make it clear what provisions have been changed?
- The answers to these questions seem clear: Both sides have an ethical duty. The receiving side should carefully review the draft as compared to the original version to determine whether the changes have financial or legal ramifications, while the sending party should highlight the changes to make clear what has been revised and why. Because the construction contract governs the relationship between the parties and has important consequences, ethical conduct here requires due diligence, transparency and communication by both sides.
- In another situation, the parties to a contract agree to a change in the draft document, but as a result of a scrivener’s error, the final version does not include the change, and the parties both miss the error and signed the contract containing the mistake. One side acknowledges that they agreed to the change, but that the final version does not include the changed term. Is it unethical for that party to refuse to modify the final contract to capture the agreed upon change? What are the ethics of maintaining that the contract should remain as signed with the error because the failure benefits one of the parties which is trying to capitalize on that advantage?
- Ethical conduct here requires that the error be disclosed and that the final contract be modified to accurately reflect the parties’ agreements. Allowing the error to go unreported and taking advantage of the mistake to gain an unfair advantage is unethical and unfair.
When done successfully, ethical construction contract negotiations result in trust between the parties, ensure fairness and reduce the risk of conflicts. The outcome of an ethical negotiation process is a more collaborative, successful construction project.
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