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Understanding and Negotiating Construction Contracts: A Contractor's and Subcontractor's Guide to Protecting Company Assets / Edition 1

Understanding and Negotiating Construction Contracts: A Contractor's and Subcontractor's Guide to Protecting Company Assets / Edition 1

by Kit Werremeyer
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Construction is a complex business. Each project has its own unique physical and commercial considerations. Since there’s no such thing as a “standard” or “typical” construction project, construction contracts should also not be considered standard. The contractor must carefully manage both in order to have a successful outcome and protect the company’s interests and assets.

This book will help you manage all these elements of the contract:

  • Scope of work and schedule
  • Terms of payment and cash flow
  • Assurances of performance
  • Insurance, bonding, indemnity, and warranties
  • Changes to the contract
  • Disputes and their resolution
  • Damages
  • Termination and suspension
  • Force majeure
  • International contracting

Product Details

ISBN-13: 9780876298220
Publisher: Wiley
Publication date: 09/28/2006
Series: RSMeans Series , #66
Edition description: New Edition
Pages: 320
Product dimensions: 8.30(w) x 10.60(h) x 0.70(d)

About the Author

About the Author:

Kit Werremeyer is the owner and president of Southernstar Consultants LLC, of Valrico, Florida, a provider of training in construction contract negotiations and management and other services for U.S. and international engineering and construction companies. He has more than 30 years' experience in international sales, contracting, claims settlement, dispute resolution, and EPC project development, including work for major companies such as Bechtel, Kellogg Brown & Root, Fluor, J.A. Jones, Black & Veatch, DuPont, Shell Oil, Exxon/Mobil, BP/Amoco/ARCO, and many others.

Table of Contents


About the Author.




The Goals of This Book.

What Are the Benefits of This Book.

Contractor & Owner Conventions.

Private Contracts or Government Contracts?

Key Contracting Concepts.

Two Types of Commercial Terms & Conditions.

The Most Important Commercial Terms & Conditions.

The Contracting Process.

Excuses for Not Negotiating Better Commercial Terms & Conditions.

The Concept of Risk Transfer.

This is a Book Developed Just for Contractors.

Chapter 1: Contracts: Basic Training.

What Is a Contract?

The Steps to a Contract.

Coming to the Party?

The Starting Point.

“Here’s My Proposal”.

“Consideration,” or Something of Value.

The “Happy Test”.

“Can That Person Sign Th is Contract?”.

Call in the Enforcer To Close the Breach.

A Contract Example.

Strange Words & Long Paragraphs.

Contracting Myths.

Contract Negotiations.

Chapter 2: Types & Forms of Contracts.

Fixed Price & Fixed Schedule Contracts.

Reimbursable Type Contracts.

Combined Fixed Price & Reimbursable Contracts.

Cost Plus Fee Contracts.

Guaranteed Maximum Price Contracts.

Target Price Contracts.

Contracts with Performance Incentives.

Form of Contracts.

Some Final Contract Housekeeping—Definitions.


Chapter 3: Scope of Work.

The Scope of Work Matrix.

Scoping Drawings.


Chapter 4: Terms of Payment & Cash Flow.

Cash Flow.

Interest Rates.

Periodic Progress & Milestone Payments.


Chapter 5: The Schedule.


Time Is of the Essence.

Extra Time, but No Money.


Chapter 6: Assurances of Performance.

Guaranties & Bonds.

What Does “Failure to Perform” Mean?

What Is a Bond?

Forms of Assurances of Performance.

Surety Companies.

Some Language Considerations on Guaranties & Bonds.

Types of Performance Assurances.


Chapter 7: Insurance.

What Is Insurance?

Claims Made vs. Occurrence.

Types of Insurance.

Important Issues Associated with Insurance.

Additional Insured Status.

Additional Insurance Basics.

A Typical Insurance Clause in a Construction Contract.


Chapter 8: Indemnity.

Insurance & Indemnity.

Indemnity Definitions.

Transferring the Owner’s Risks to Contractors.

Fairness Is Not a Consideration.

Is an Indemnity Required in a Construction Contract?

Anti-Indemnity Legislation.

Examples of Indemnification Clauses.

Indemnification, Additional Insured Status, & Contractual Liability Insurance.

Owners Love CLAIMS!

Negotiating Indemnity Clauses.

Knock-for-Knock Indemnities.


Chapter 9: Changes.

Some Ground Rules.

Protecting the Project Manager.

Owners’ Directives.

Constructive Changes.

Payment for Changes.

Sample Change Clauses.

Major Contract Changes.

Negotiating Change Clauses.


Chapter 10: Disputes & Their Resolution.

What’s a Project Manager To Do? A Short Story To Start With.

Disputes—The Construction Contract’s Bad Actor.

An Ounce of Prevention.

Dispute Resolution Options.

The Folks Who Negotiate, Mediate, Arbitrate, & Litigate.

Dispute Resolution Clauses.


Chapter 11: Damages.

Breach of Contract/Failure To Perform.

Contractors’ Financial Exposure.

Actual Damages—A Silent Risk?

Liquidated Damages.

Consequential Damages.


Chapter 12: Warranties.

A Workable Definition of Warranty.

Warranty Issues.

The Uniform Commercial Code.

When Is No Warranty Appropriate?

Extended Duration Warranties.

Limiting Provisions in Warranties.

Pass-Th rough Warranties.

Latent Defects & Warranties.

A Sample Warranty.


Chapter 13: Termination & Suspension.

Termination for Cause.

Termination for Convenience.




Chapter 14: Force Majeure.

Negotiating Clauses.

Sample Contract Language.


Chapter 15: Other Contract Clauses.

Site Conditions.

Use of Completed Portions of the Work.

Patent Indemnity.

Secrecy & Confi dentiality Clauses & Agreements.

Owner’s Right To Inspect.

Independent Contractors.


Acceptance & the Punch List.

Advance & Partial Waiver of Liens.

Final Waiver of Liens.

Audit Rights.

Severability or Validity Clauses.

Venue & Applicable Law.

Some Interesting Clauses to Close.

Chapter 16: International Contracting.

International Contracts.

The U.S. Foreign Corrupt Practices Act.

Letters of Credit.

Split Contracts: Onshore & Off shore Contracts.

Political, Religious, & Economic Risks.

Overseas Private Investment Corporation (OPIC).

Legal Systems in Foreign Countries.

Local Employees, Partners, & Agents.

Off shore Companies.

Currency Risks.

Applicable Law.

Joint Ventures.

Joint Operations.

Import & Export Considerations.

Understanding INCOTERMS.

The Export-Import Bank of the United States.

Where to Get Some Help—Ask the U.S. Government.

Lastly, Use the Right Paper Size!


Chapter 17: Some Final Th oughts on Negotiating Contracts.

Why Negotiate?

The Concept of Standard Terms & Conditions.

Risk Transfer Item 1: Get Rid of the Indemnity Clause!

Risk Transfer Item 2: Don’t Provide Additional Insured Status.

Risk Transfer Clauses, Insurance, & Safety.

How to Say No Without Aggravating the Owner.

The Worst Contracting Word: “Reasonable”.

The Best Contracting Word: “Notwithstanding”.

Win-Win & Lose-Lose in Contract Negotiations—Fairy Tales?

Is There a Price for Bad Commercial Terms & Conditions?

Terms of Payment.

Some Tips on Successful Negotiating.

Th ree First (and Final) Suggestions.




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