Construction Contracts 101 – The Basics

by Ken Robinson

This is the first of a three part series on construction contracts. Please check back next week for Construction Contracts 102 - Interpreting Contracts and again in two weeks for Construction Contracts 103 - Breach

Virtually all construction projects are accomplished by way of a contract of some sort, and it is important to keep basic contract law in mind when drafting, negotiating, reviewing and entering into construction contracts.  To be enforceable, a contract must be supported by consideration.  In its simplest form, consideration is a promise – a contract thus is a promise given in exchange, that is in consideration, for a promise received.  A contract does not necessarily need to be in writing; the conduct of the parties can rise to an enforceable oral contract.

In a construction setting, a contractor agrees, promises, to build a structure in exchange for the owner’s promise to pay for the construction.  Of course, the complexities of a construction project require that there be many promises given and received.  These promises create rights and obligations on both sides that are expressed in the written contract language.  However, the effect of a contract doesn’t end there, as there are often obligations that are attendant to a written contract implied by law.  For example, every contract in Colorado contains an implied duty of good faith and fair dealing.  Wells Fargo Realty Advisors Funding, Inc. v. Uioli, Inc., 872 P.2d 1359, 1362 (Colo. App. 1994).  The doctrine exists to effectuate the parties' intentions and to honor their reasonable expectations.  City of Golden v. Parker, 138 P.3d 285, 292 (Colo.2006); Amoco Oil Co. v. Ervin, 908 P.2d 493, 498 (Colo. 1995) (Good faith performance of a contract involves “faithfulness to an agreed common purpose and consistency with the justified expectations of the other party.”).

While it is unlikely that anyone can draft a truly "impenetrable contract," it is possible to craft a relatively clear and consistent document that is not susceptible, at least on its face, to multiple interpretations giving rise to the possibility of a dispute over contract meaning.  To do so, it is helpful to understand some of the basic rules of contract construction that a judge, or an arbitrator, will use in trying to decide a claim.

For more information on construction contracts, please contact Ken Robinson or another member of our Construction Contracts, Real Estate Law, or Construction Law & Litigation teams.