The interaction between business people and lawyers can be productive or frustrating, depending on whether there is good communication and a shared understanding. Consider this conversation between a business manager (Murphy) and a lawyer (Landry):
Murphy: We are developing a data center and I want to get you on board.
Landry: Thanks for thinking of us. What can we do?
Murphy: You are the expert on this legal stuff. What do you propose?
Landry: Well, a project like this will have legal and technical challenges. We can help with the legal side. For example, do you need to confirm that your property is properly zoned? Do you need help with a financing agreement? Do you need a contract for the design engineer, the construction contractor, the vendors providing specialized equipment, the inspection company, or the utility providing power and water? Do you need advice about how to structure the deal to maximize favorable tax treatment?
Murphy: Those are all good thoughts. I’m concerned though. I worked on a deal with another lawyer before. He did a lot of things I didn’t need and charged me too much.
Landry: If we work together and have a clear understanding of what you need, I can work efficiently. What are your plans for the engineer/designer?
Murphy: We have already signed an agreement with a designer.
Landry: Is that an agreement you have used before?
Murphy: No, it’s new. I have not read all the fine print.
Landry: I can review that contract and highlight issues deserving attention. I have seen a lot of engineer contracts and I know what kinds of provisions can cause trouble.
Murphy: Is that really necessary? If difficult issues come up, can’t we just work them out?
Landry: Particularly with someone new, it’s good to remember that a written contract is like a life preserver: you don’t use it much until something bad happens. The contract provides agreed rules to resolve disputes in case your relationship becomes unfriendly.
Murphy: Do we need one of those contracts with a million clauses?
Landry: No, but it’s a good idea to provide for issues that are likely to arise: scope of work, schedule, payment, managing changes in the work, managing claims by third parties, etc. But one should beware of going too far. The contract needs to be usable.
Murphy: We haven’t chosen a contractor yet. What would you recommend about that?
Landry: You are the best person to choose contractor candidates. I can provide a form of construction contract that the candidates can refer to when they make their proposals.
Murphy: What is your approach to writing a construction contract?
Landry: I identify risks and assign each risk to the party best able to manage it. For example, the contractor is in the best position to make sure the work is done properly, so the contractor should correct defective work. You are providing the design, so you should be responsible for defects in the design (you may be able to go back to the designer for relief).
Murphy: What about risks that neither party can manage, like unfavorable underground conditions? Can we shift those to the contractor?
Landry: If you do that, then the contractor proposals will include a contingency to cover that risk, which means you will pay whether or not unfavorable conditions are found. It may be better to establish some baselines about what conditions the contractor can expect and to be prepared to pay extra for conditions outside those baselines. That way you pay only if unfavorable conditions are encountered.
Murphy: What do you think about shifting as much risk as possible to the contractor?
Landry: There are at least three problems with that approach. First, a competent contractor may refuse to make a proposal on an unfair contract. Second, your own staff may refuse to enforce what they consider to be unfair provisions. Third, an obviously unfair contract may not be enforced by a court or arbitrator. In my experience, it is good business to be able to say to the contractor, “Here is a contract that I would accept if I were in your shoes.”
Murphy: How do we combine my technical items with your legal terms?
Landry: I usually put general terms first and refer to appendices that contain the technical details for a particular project.
Murphy: That sounds good. Things do go better when we work together!
Karl Oles is an attorney in the Stoel Rives LLP construction and design practice group in Seattle. Contact him at 206-386-7535 or firstname.lastname@example.org.