Pitfalls in Contract Administration

All too often, desires to “get the deal done” or “get it signed” or “get it built” result in poor contractual administration and eventual (often avoidable) problems.  That is somewhat understandable, given the fact that most contractual arrangements begin with grandiose visions and good feelings, and not with an eye on rifts and litigation.  Folks tend to gloss over the “fine print” and “legalese” but failure to adhere to contractual minutiae often leads to otherwise preventable problems.  The following are some common provisions parties unintentionally ignore that can sabotage the relationship.  Best practice is to follow the four-corners of the contract as it relates to the terms below, rather than relying upon assumptions and past procedures.

Communication

We find ourselves undoubtedly in the technology and information age.  As a society, our preferred mode of communication has become a flurry of e-mails and text messages with near instantaneous response.  Consequently, we tend to view e-mail and similar communication akin to verbal communication, complete with incomplete thoughts, run-on sentences, and slang.  Moreover, we have grown to assume that if an e-mail or text message is sent, it surely was received, processed, and accepted by the intended recipient.  However, the complete opposite is often the reality and the ramifications can be detrimental.  To address this issue, many contracts clearly and unequivocally state how parties are to communicate with one another.  And, often, that does not include the use of e-mail, Snapchat, Facebook Messenger, iPhone Message, or the like.  Well-drafted contracts often identify a specifically named person and an address to which certain important communications (like extensions of time, changes in scope, termination, etc.) must be directed.  Almost assuredly, the contract will require written, mailed communication.  Because those types of contractual terms tend to be material in nature, it is paramount that any related communication be succinctly communicated to the correct person, in a timely manner, and in the proper form.  However, all too often once the contract is signed, the parties fall back into bad habits of sloppy communication, opting for a quick text message or e-mail over a proper, contractually mandated written communication.  Resist the urge to rely upon the quick and easy text messaging when it comes to conveying information related to material terms.

Timing

Timely notice is often required to preserve contractual rights of the parties.  In fact, it is common for contracts to contain provisions acknowledging that certain rights are lost unless certain notice, submission, or communications occur within the prescribed time and in the prescribed manner.  For example, many construction contracts require that Contractor A notify Owner B within a certain time frame (say, 3 days) of an event that will require an extension of time and that the failure to do so will result in a waiver of the right to said extension.  Unfortunately, these time limits are often overlooked, which create bad habits that are difficult to break.

As applied to the above example: Rather than abide by the mandated 3-day written deadline, Contractor A might just tender a change order to Owner B at the end of the project, for purpose of recouping his costs related to the weather delay.  Although Contractor A did not intend to waive its ability to receive an extension of time for bad weather, Contractor A’s failure to properly abide by the prescribed 3-day period in the contract likely results in an unintended waiver of contractual rights.  That can have disastrous effect on the project, and the parties.  You must pay close attention to the stipulated deadlines and timing triggers in contracts, following them with the precision they call for.  Otherwise, you risk waiving contractual rights.

Contract Documents

Perhaps the most common pit-fall encountered when dealing with contracts and contract administration is for the parties not to have the entire contract.  Although a contract on its face can seem convoluted, onerous, and unnecessarily complex, quite often that contract does not even represent the entire agreement between the parties because it actually incorporates other terms, conditions, provisions of other contracts, or even entire additional documents.  Items like schedules, bids, specifications, insurance policy requirements, or the prime contract are just a few examples of extraneous papers that may be incorporated into a single contract.  By way of example: it is common for a subcontract between a general contractor and a subcontractor to incorporate the prime contract between the owner and general contractor.  Said differently, the subcontractor may very well be held to standards that are not explicitly stated in the subcontract that he is executing, because additional\higher standards are called for in the incorporated prime contract.  As such, when reviewing a contract, be sure that the “contract documents” are clearly defined and itemized, and that you have each and every document which is incorporated into your contract.  Only then can you review all applicable provisions to which you may be contractually liable.

Just because a contract is signed does not mean it should not be revisited or re-read.  During the course of a contractual relationship, the contract must be constantly consulted, reviewed, and utilized as a source of information and guidance.  A contract between consenting parties is ultimately the ruling document, governing the relationship of the parties.  As such, the goal should be to not only understand what your contract says, but abide by it.    Unfortunately, that is often easier said than done.

By: Cody R. Loughridge