Type: Law Bulletins
Date: 11/07/2017

The Paradigm Shift on Risk in Construction

Many owners still rely on heavy-handed contracts to provide them with risk certainty. The goal is to reduce their risk by shifting it to designers and contractors.

While this approach has a certain logical appeal, it has the paradoxical result of increasing risk instead of eliminating it. A review of case law shows that careful drafting of contracts does not provide the imagined protection. The reason is found in the contradictory, unpredictable results that reported decisions reveal on provisions that either limit or shift liability. For example, a limitation on delay damage claims may cancel an owner’s implied warranty in one court’s estimation. Yet another court may nullify such a clause, citing the owner’s planning and design deficiencies as the root cause of the delay. More and more litigation of bedrock cases and principles, such as Spearin and the Economic Loss doctrine, have resulted in a proliferation of inconsistent decisions. The deeply fractured landscape of legal precedent has resulted in an environment where the outcome of disputes and impact of contract terms are unforeseeable. Rather than placing a premium on careful contract drafting, this approach renders careful contract drafting useless in the circumstances for which it was intended.

The search for stability calls for a dramatic change in approach — a paradigm shift. Among the possible solutions on the horizon, only an approach that eschews claims-making and litigation seems to offer the potential for success. Integrated Project Delivery ("IPD") provides a radically different approach to construction. It supplants adversarial and fragmented relations with a contractual commitment to incentivizing collaboration among project participants. Strong consideration of IPD becomes essential in light of recent case law and recurrent conflicts spawning litigation among owners, designers and contractors.

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