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Battle Against the Forms: Stating the Case for Attorney Preparation and Review of Critical Construction Documents

Edward B Gentilcore, Sherrard German & Kelly, US

In the earliest weeks of law school, eager counselors-to-be absorb a wide variety of legal principles that are used as a foundation for their training to be lawyers. Among the array of property, trust and estates, criminal law, and constitutional scholarly staples is a course in contracts. Included in text books for most of those contracts classes is a discussion of the "battle of the forms." This legal development emerged from parties engaged in commercial transactions who traded their pre-prepared and pre-printed forms to and fro often with materially conflicting provisions. The law needed to "step in," seeking to provide a resolution over whose terms would actually control in such a circumstance. The battle of the forms precedent was born and its progeny have been us for roughly one hundred years at this point.

Simply stated, in many cases, that party who provided the last document on which there was acceptance by word or conduct would be able to rely on their carefully crafted contract provisions throughout the balance of the commercial relationship, absent some other modification. However, not all determinations followed that path, some concluding that no deal was struck until the response matched the offer. Like many legal principles involving and emerging from commercial transactions, the battle of the forms itself underwent an evolution heavily impacted by the adoption of the Uniform Commercial Code ("UCC") in nearly all of the United States. Actually, included in widely-embraced Article 2 of the UCC, addressing sales of goods, were specific sections dealing with the battle of the forms. In turn, a comprehensive body of case law began to develop the Article 2 treatment of the battle of the forms. In addition, revisions to the UCC provisions in Article 2 sought to bring further clarity and refinement to this now well-established, but still at times perplexing and by no means fully settled, fixture in the law of contracts.

An excellent overview of the battle of the forms during the pre-UCC and post-UCC eras can be found in the article "Escape from the Battle of the Forms: Keep it Simple Stupid," by Corneill A. Stephens, Associate Professor from the Georgia State University College of Law and published in 11 Lewis & Clark L. Rev. 233 (2007), available at http://law.lclark.edu/live/files/9583-lcb111stephenspdf. Professor Stephens explores the historical origins and the "quagmire" of this legal precept, in addition to providing a proposed solution to a battle often inflamed by just about every step to end the conflict.

While the battle of the forms continues to wage on in transactions and courts alike, another battle is emerging, also with form documents at its epicenter. Although not as widely recognized, and with no official name just yet, this encounter is better characterized as a battle against the forms. Simply stated, this campaign stems from a steady move towards utilizing form documents for not only construction contracts, but also now in the filing of mechanics' lien claims. While the use of form documents for the construction process itself is not all that remarkable presently, using forms for other aspects of the construction process (especially the dispute segment) are not yet as ubiquitous.

A brief, but necessary, side bar needs to be made regarding mechanics' lien claims. Such liens are often very complex and involve pre-judgment attachments that are permitted by many states to allow an unpaid contractor, subcontractor or supplier to obtain a secured attachment in and against the property interests of an owner in order to preserve future rights of actual monetary collection in favor of those who have not been paid for the performance of labor and services or the supply of valuable materials.

Turning back to the broader point of discussion, there is an increasing pressure on companies and in-house legal departments alike to reduce spending on outside legal fees or even the engagement of external legal counsel. As a result, many parties with differing levels of commercial sophistication are turning to form documents as an avenue for eliminating the perceived need to have outside counsel (or any legal counsel for that matter) more deeply involved in the construction contracting or construction-related collection processes.

It is not intended, however, to say that all (or the use of any of) such documents are fraught with fault and peril. Indeed, the American Institute of Architects ("AIA") family of documents, covering a multitude of engagements, project types and project delivery systems, are an important contribution to the construction industry and the landscape of development throughout the United States and beyond. Similarly, contract form products developed by ConsensusDocs, the Engineers Joint Contract Documents Committee ("EJCDC") and the Design-Build Institute of America ("DBIA") provide valuable insights and approaches for construction contracting and have broad application to many desired buildings and other developments.

Nevertheless, whether using AIA, ConsensusDocs, EJCDC or DBIA forms, it must be remembered that these documents are just as stated, forms. As such, by their very nature, they are static. By contrast, there is not one project that can be said to be identical to another, even if the same plans and specifications are followed. In fact, it is important to acknowledge that differences in site conditions, climatological surroundings, material availability, and even differences in performance may impact the ultimate outcome of the project and make it very different from the project (or projects) that preceded it.

Likewise, the contracting parties are in many instances different from project to project. Whether the variable is the owner, the contractor or the design professional, there are a multitude of equations that can be performed but all with the same core form contracts in use. Therefore, utilizing these forms without specific and careful tailoring can very often yield surprises or uncertainty down the road.

Keep in mind as well that despite marketing campaigns to the contrary, each form document is developed by institutions that have certain perceptions, and those perceptions can be translated to bias, whether significant or slight. For example, it cannot be ignored that the AIA is an architect organization. As such, it should not be surprising that the architect's role is central to the AIA forms and that same architect's exposure to liability is guarded. Also, while the ConsensusDocs group can boast of having input from numerous industry sectors, it is still important to recognize that owner participation in even this organization's contract documents is less than other industry participants who have a more significant influence in the documents generated by this group in their final forms. That potential of bias towards or against any owner, design or construction party makes it even more important that these documents undergo not only a scrutiny in selection, but also specific tailoring to make certain that the documents themselves are serving the purposes of all of the project participants, not to mention the project itself.

More often than not, if significant attention is paid to the contracts and the contract language in the early stages of the project, the parties will have a greater understanding and appreciation of their respective obligations during the balance of the contract's use, which use should occur regularly during the course of the design and construction and delivery of the project itself (and not just in a dispute resolution proceeding). Still, the temptation of using the base form as it is exists, with many believing this is the faster and cheaper path to success, often proves to be counter-intuitive and, at times, bristling with uncertainty. This reality argues in favor of engaging experienced counsel to assist in the selection, modification, negotiation and interpretation of the contract documents throughout all aspects of the project. Such a view may be criticized as a means to increase the cost of the project by adding a further layer of overhead to the project delivery cost. However, that cost is but a fraction of potential legal fees that will likely be incurred should a dispute of significance arise during the course of the project, placing the fate of that undertaking into the hands of mediators, arbitrators, the courts and juries, making their own determinations based on lengthy and detailed presentation of facts, interpretations of experts and advocacy presentations of the various participants' litigation/dispute resolution counsel.

While the uses of these "standard" contracts for design and construction are still the most prevalent instances during which legal-based forms are encountered in the construction industry, the concerns expressed above are not solely relevant to those documents. More recently, and particularly with the explosion of the internet as an access portal for information and resources, forms are now being sold by companies (not law firms) for a wide variety of legal interfaces between the construction industry and the courts or other venues for dispute resolution. Without identifying any specific purveyor by name, included among these commercial entities are those who promote and sell forms for the notification, filing, perfection and pursuit of mechanics' lien claims.

Anyone about to use these forms and services should pause or hesitate for at least a moment and consider whether such services (using these forms) are akin to the practice of law. Indeed, at least two courts have reasoned to such a determination. See North Carolina State Bar v. Lienguard, Inc., 2014 NCBC 11 (2014), a copy of which can be found at: http://www.ncbusinesscourt.net/opinions/2014_NCBC_11.pdf, and Ohio State Bar Assoc. v. Lienguard, Inc., 126 Ohio St.3d 400, 2010-Ohio-3827 (2010), a copy of which can be found at: https://www.supremecourt.ohio.gov/rod/docs/pdf/0/2010/2010-ohio-3827.pdf. That is not to say the companies providing these forms and services are accepting this characterization. One has fought back, instituting an action in the United States District Court for the Eastern District of Louisiana, captioned as Express Lien, Inc. v. Cleveland Metro. Bar Assoc. et al., at Case No. 2:15-cv-02519, contending there that the defendants, including the Ohio State Bar Association itself, engaged in unfair competition, unfair trade practices, anticompetitive conduct and even civil rights violations by precluding those who offer services like the plaintiff ("a cloud-based accounts receivable and construction payment software platform for parties in the construction vertical, through which those parties can exert and maintain control over their security rights related to construction projects by using automated processes") from doing so in Ohio as the unauthorized practice of law. The complaint in the action immediately above-referenced can be found at http://www.americanbar.org/content/dam/aba/administrative/professional_responsibility/express_lien_complaint.authcheckdam.pdf.

Putting aside for the moment how a jurisdiction (other than North Carolina and Ohio) may react to the scenario presented in the prior paragraph, given how strictly some jurisdictions interpret compliance requirements for successful mechanics' lien claim filings (e.g., Pennsylvania), it is extremely risky to not engage qualified and experienced counsel, who have dealt with these types of issues previously, to prepare, file and pursue these lien claims on behalf of those who have been already impacted negatively due to failure of adequate and appropriate compensation on a project. Stated another way, if a party has not been paid $15,000 to $150,000 to $1.5 Million or more on a construction project, losing rights of recovery under the respective and applicable mechanics' lien statutes will only make that impact much more permanent and damaging to the company's bottom line. That does not necessarily mean every lien matter in which legal counsel is present will result in a total and complete victory, as there are often facts and circumstances that might otherwise impact the ability to successfully convert on a lien claim. Still, it is important to position oneself or one's business in such a way that the ability to maximize recovery remains at the forefront of a claim pursuit/management strategy.

Utilization of any form, whether contractual or lien-oriented, without supporting legal representation, may be perceived as efficient and cost-conscious if the project or claim proceeds smoothly. However, if and when complications arise, the forms themselves provide little in terms of counseling and guidance through a dispute or other legal conflict process. Having experienced counsel involved in these important stages of contract preparation and negotiation or, alternatively, lien filing, perfection and pursuit, will yield much greater benefits, over a broad spectrum of matters, in the long run, particularly in terms of responsiveness to the unique issues that can and often do arise on the myriad of construction projects being pursued.

© 2016 Edward B. Gentilcore

The author is the Chair of the Construction Services Group of Sherrard, German & Kelly, P.C., The Oliver Building, 535 Smithfield Street, Suite 300, Pittsburgh, Pennsylvania, 15222. Mr. Gentilcore can also be reached at 412.258.6714 or ebg@sgkpc.com.