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#23:  The Consequences of Shop Drawing Review and Approval

12/19/2014

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There is more than one way to build a project to the plans and specs that Architects and Engineers provide.  The “means and methods” for doing so are typically up to the contractor.  But sometimes those means and methods are subject to advance scrutiny by the design professional, through the “shop drawing” submittal process.

As the popular AIA A201 General Conditions of the Contract for Construction (2007) explains in Section 3.12.4, shop drawings “demonstrate the way by which the Contractor proposes to conform to the information given and the design concept expressed in the Contract Documents for those portions of the Work for which the Contract Documents require submittals.”  Section 3.12.5 requires the contractor to review shop drawings “for compliance with the Contract Documents, and approve and submit to the Architect Shop Drawings, Product Data, Samples and similar submittals required by the Contract Documents.”  By the act of submitting them, the contractor warrants that he has “(1) reviewed and approved the shop drawings; (2) determined and verified materials, field measurements and field construction criteria related thereto, or will do so; and (3) checked and coordinated the information contained within such submittals with the requirements of the Work and of the Contract Documents.”  Section 3.12.6.

At that point, the Architect’s own review kicks in―but it is more limited.  Section 4.2.7 says that a design professional’s review of shop drawings is "only for the limited purpose of checking for conformance with information given and the design concept expressed in the Contract Documents."   The phrase “design concept” is undefined, and vague enough to preclude the argument that an Architect’s shop drawing approval incorporates the drawing into the Contract Documents. 

The Catch 22 for the contractor is that he has no choice but to implement approved shop drawings, yet he is on the hook if they don’t conform to the Contract Documents.  Section 3.12.8 says that “The Work shall be in accordance with approved submittals except that the Contractor shall not be relieved of responsibility for deviations from requirements of the Contract Documents by the Architect’s approval of Shop Drawings.”  Since the contractor must implement that approved drawing, in practical effect it is indistinguishable from any other plan or spec in the Contract Documents that the Contractor must implement―except that the contractor “owns” it; the Architect does not.  The drawing effectively becomes part of the design, but the only part of the design that a contractor implements at his own risk.

How great is the risk that an approved shop drawing will come back to haunt the contractor despite Architect approval?  This is where human nature kicks in.  Because the Architect who approves a shop drawing is normally the same person signing off on compliance with the Contract Documents for purposes of payment and substantial completion, any “deviations from the requirements of the Contract Documents” arising from that shop drawing are unlikely to be called out.  Subjecting the contractor to liability for repair and replacement of the “approved” item could subject the Architect to a bit of embarrassment as well.  But even if the Architect certifies compliance with the Contract Documents, that won’t relieve the contractor of liability under his warranty.   Section 9.10.4 makes sure of that (“The making of final payment shall constitute a waiver of Claims by the Owner except those arising from . . . failure of the Work to comply with the requirements of the Contract Documents . . .”).

If Architect approval doesn’t get the contractor off the hook to the owner, does it put the Architect on that hook with him?  That depends.  An Architect who didn’t catch or correct an error in a shop drawing and approved it could well be liable to the owner if his contract doesn’t absolve him in advance.  The AIA B101 Standard Form of Agreement Between Owner and Contractor (2007) attempts to do exactly that, parroting the A201 in providing that review is “only for the limited purpose of checking for conformance with information given and the design concept expressed in the Contract Documents” (Section 3.6.4.2).  Once again, “design concept” is undefined.

No surprises here, when you remember what AIA stands for.


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#22:  Working Without a Signed Contract

12/9/2014

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I’ve seen it many times: a contractor hires a subcontractor, sends him its standard form contract to sign, and then lets him start work before a signed contract is returned.  Sometimes this is a result of extended negotiations over particular terms coupled with the need to get started in a hurry.  Sometimes it just slips through the cracks until the first pay requisition is submitted.  And sometimes it’s never signed, with varying consequences as to payment and as to whether the sub is allowed to continue.  I’ve even seen subs send in their insurance certificates and other required documents, but mark up the GC’s form in ways unacceptable to the GC, while the project continues to completion with the sub getting paid anyway.  The form never gets signed, yet the parties treat it as though it was.  Until something goes wrong.

If you think of this scenario as working without a contract, you’d be wrong.  Laymen automatically think of the piece of paper as the contract.  Lawyers know it’s not.  A contract is an agreement, a meeting of the minds on bargained-for exchanges of performance by both sides.  The piece of paper simply memorializes that agreement, but the agreement itself is the “contract,” and it can be verbally expressed or even inferred from conduct.  As long as certain essential and material terms are agreed to (scope of work and price being the main ones), and as long as no statute prohibits the courts from enforcing an unwritten contract (lawyers call this the “statute of frauds;” it doesn’t apply to construction contracts capable of being performed within one year), the courts will enforce the deal―provided those legally essential terms can be proven.  The value of the paper is twofold: making such proof easy, and expressing the parties’ assent on the legally non-essential terms of the deal (schedule, timing of payment, retainages, insurance, change order procedures, documentation, tests for acceptability of workmanship, lien waivers, dispute resolution mechanism, etc.)―terms which may be “essential” to one of the parties even if not to the court.

Sometimes an unsigned form can nevertheless bind the parties to its terms.  Such “acceptance by conduct” can happen if the GC tells the sub “These are the terms on which I will hire you, and if you show up and start performing you will be deemed to have accepted all of them that I haven’t waived in writing – so if you have any reservations about any of them, either get my signature on something that waives it, or don’t show up.”  In such a case, showing up becomes acceptance.  This can work both ways.  Suppose a sub sends a written proposal or quote to a GC, and the GC sends back a lengthy form subcontract that isn’t signed but the GC nevertheless allows the sub to work on site.  The bare bones terms of the written proposal, which usually include the essential and material terms needed for legal enforcement of a contract, may end up governing.

Unwritten contracts are still contracts, and still require payment for performance.  But it is not certain that they require partial payment for partial performance at regular intervals, even if an unsigned form provides for that.  The usual legal rule in contract cases is that unless the parties agree otherwise, payment is due only upon full performance.  This rule can be harsh when a project is lengthy, and courts often temper it by resorting to “custom in the industry” as an implied term.  The custom in the construction industry is for regular (usually monthly) progress payments.

More generally, a covenant of “good faith and fair dealing” is implied in every contract, written or unwritten.  That covenant will often be invoked by the courts to constrain one party from taking unfair advantage of the other, in ways often indistinguishable from enforcement of some of the terms in an unsigned form.

The bottom line is that a written contract, while always a good idea, need not be “signed, sealed and delivered” in order for legally enforceable rights to arise.  Those three features were required hundreds of years ago when contract law was in its infancy.  Today the phrase only applies if you’re marrying Stevie Wonder.


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    Frank Spinella

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