The Pros and Cons of the New ConsensusDOCS

By Leonard R. Ruzicka, Jr.

In today’s marketplace, all the standard forms for the construction industry are commonly biased in favor of the party who initiates the forms. However, a new set of contract documents, ConsensusDOCS, is unique because in many respects the forms are favorable and fair to all parties. In some respects, they are more favorable to owners and subcontractors and not always favorable to the sponsoring general contractors.

ConsensusDOCS consists of about 70 documents divided into six separate categories intended to cover the various methods of project delivery employed in the industry today: general contracting, collaborative, design-build, construction management, subcontracting, and program management. 

More than 20 trade associations participated in the negotiations and drafting of the ConsensusDOCS, including various owner, subcontractor and surety associations.  Notably absent from participation in the process, however, were associations representing design professionals.  The American Institute of Architects (AIA) refused to participate and the Engineers Joint Contract Documents Committee (EJCDC), although in attendance at some meetings, took no active role in the process. Because of this lack of participation by design professionals, we expect there will be resistance to use ConsensusDOCS by their organizations.
This article provides a brief overview of the provisions common to all of the ConsensusDOCS, and some of the benefits and potential problems of these provisions. 

Indemnity 
All of the agreements require each of the parties to indemnify the other party or parties, but only to the extent of the indemnifying party’s negligence.  The indemnity provisions only cover the insurable risks of personal injury and property damage.  Because these indemnification provisions are based on a comparative negligence standard, there is no duty to defend.  However, all of the agreements provide that a party who is liable under an indemnity clause must reimburse the indemnified party’s legal fees paid above that party’s percentage of liability for the underlying claim.  This is certainly a beneficial provision for those providing design and construction services. But owners, who typically refuse to provide indemnification, may object to this provision. 

Insurance 
The insurance requirements are fairly standard, except for the Builder’s Risk Policy to be obtained by the owner.  The requirements for that coverage are extremely broad and could only be satisfied by endorsements.  This should be a concern not only for the owner, but also the contractor, because the contractor is responsible for any loss not covered by insurance.  In addition, the parties can choose to have the contractor provide additional insurance coverage primary to the owner’s coverage.  If the additional insured election is made, the insurance provided is limited to covering the owner “…to the extent caused by the negligent acts or omissions of contractor…” This limitation is significant because a party could, through additional insurance coverage, expand its liability beyond the indemnity provision.  Overall, this provision is beneficial and fair to all parties since the coverage mirrors the contract obligations.  

Consequential Damages
All of the agreements provide for a mutual waiver of consequential damages.  Under these provisions, the parties to the various agreements agree to waive all claims against each other for any consequential damages arising out of or related to the agreement.  This is certainly beneficial to those providing the design and construction services.  In the event that an owner wants to recover damages because of a delay, there is an elective provision for liquidated damages. 

Owner’s Ability to Pay 
ConsensusDOCS contain very broad provisions requiring the owner to provide financial information to the contractor and subcontractors.  This responsibility of the owner to demonstrate its ability to pay is continuing and the party requesting the information does not have to provide a reason or basis for the request.  This is especially beneficial to subcontractors.  However, some owners will strongly oppose this clause, especially non-public companies that may have other reasons for not wanting to grant such a broad and pervasive right to its financial information.

Dispute Resolution 
The ConsensusDOCS include a number of steps to resolve disputes.  If the parties involved in the dispute cannot work things out, the agreement requires a meeting of “senior representatives” within five business days to reach resolution.  If the dispute remains unresolved after 15 days of the first discussion, then the selected dispute mitigation and resolution procedures come into play.  One of the selections is to designate a Project Neutral or a Dispute Review Board.  This device has been used extensively on large government projects with mixed reviews.  If the parties do not elect a Project Neutral or Dispute Review Board, or if the dispute remains unresolved after five business days of a finding by the Project Neutral or Dispute Review Board, the parties then agree to submit the dispute to mediation within 30 business days and conclude within 45 business days of the matter first being discussed.

The parties also must make a binding selection of either arbitration or litigation in order to resolve disputes.  The intent of these clauses is to put in place a process to reduce the need for costly, third-party resolution when disputes arise.  However, if this process does not result in settlement, the claimant would have unsuccessfully spent a lot of time and effort on an unsatisfactory outcome – in addition to potentially providing free discovery to the other side.
   
Working with ConsensusDOCS will naturally require you to modify the forms to fit your risk profile and specific project. But, because of the comprehensive nature of this family of forms and the focus on allocation of risk to the party that can best control the risk, the forms are certainly worth your consideration.

Leonard R. Ruzicka is a partner in the Business Litigation Division of Stinson Morrison Hecker LLP.

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