Why Contracts Are Risk Shifting Tools (and How to Negotiate Them)

During any construction contract negotiation, you will hear the same refrain: “We just want a fair contract.” But fairness in construction law isn’t about good intentions.  It is about risk allocation. Every clause in a construction contract is a lever that shifts risk from one party to another. Understanding how that happens and how to negotiate such terms is the difference between profitable project and a financial disaster.

A construction contract does not just describe the work, the schedule and the contract amount.  A construction contract decides who pays when things go wrong.  Delays, design errors, payment disputes, and unforeseen conditions are not abstract possibilities. These events happen on the majority of projects.  The contract determines whether those costs land on the owner, the contractor, or the subcontractor.

Owners want certainty in the form of a fixed price, a firm schedule, and minimal exposure to claims. Contractors want the flexibility to recover for changes, delays, and unexpected conditions. Subcontractors want timely payment and protection from upstream disputes. The negotiation process is where these competing interests collide.

Risk allocation starts the moment the parties start negotiating the contract. The parties must first decide whether to use one of the available contract forms or draft a custom draft. Standard forms are less costly to prepare and tailor to the specific project, but the standard forms are not neutral.  These agreements reflect the priorities of the organizations that wrote them. AIA documents lean toward design professionals and owners, while ConsensusDocs aim for a more balanced approach.

During the initial negotiations and the formation of the contract, ambiguity is the enemy. A vague clause does not eliminate risk.  A vague clause increases the likelihood that the project will end in litigation. For example, a termination clause that states that the owner may terminate “for cause” without defining cause invites disputes. A payment clause that references “reasonable time” without specifying specific number of days after the application for payment is submitted creates uncertainty.  A good negotiation session eliminates such ambiguities before an agreement is signed.

Ambiguity does not merely create confusion.  Ambiguity increases each party’s risk. When language is unclear, courts fill the gap with interpretation, and that interpretation may not be in your favor.  One tool that may help avoid disputes are precedence clauses, which determine the order of priority if one contract document conflicts with another.  Another way to avoid dispute is to include an integration clause which declares that the written contract is the entire agreement, wiping out prior negotiations and oral promises.

Ambiguity is eliminated by the use of an integration clause because the principle behind an integration clause is that, if it is not in writing, then it does not exist. Integration clauses require the parties to make certain the intended agreement is fully expressed in the written document.

In order to negotiate contracts that fairly allocate risk, start by identifying the pressure points:

• Payment Terms: Define submission procedures, approval timelines, and retainage release. Connecticut law caps retainage at 5% on private work, 7.5% on state projects. Make sure your contract reflects those limits.
• Change Orders: Require written authorization for extra work, but build in a mechanism for timely processing. Delays in approving changes create cascading disputes.
• Delay Clauses: Watch for “no damage for delay” provisions. Connecticut enforces them, but courts recognize exceptions for bad faith, active interference, and uncontemplated delays. Negotiate carve-outs for owner-caused delays.
• Dispute Resolution: Decide whether claims go to court, arbitration, or mediation and under what rules. Venue and governing law clauses matter more than most parties realize.

Negotiation is not about winning every point.  Negotiation is about aligning risks. If you control the design, you should bear the risk of design errors. If you control site access, you should bear the risk of access delays. Contracts that ignore this principle create friction that may lead to litigation.

The Bottom Line is that every construction contract is a risk-shifting device. Owners, contractors, and subcontractors all want certainty, but certainty doesn’t come from using a boilerplate form.  It comes from eliminating ambiguity, understanding integration and aligning risk with control. The time you spend negotiating clarity today is the money you save avoiding disputes tomorrow.

If you should have any questions about drafting or negotiating construction contracts, please give me a call at (203) 640-8825.

Scott Orenstein