Date: October 22, 2021Attorney: Jacqueline Greenberg Vogt
We recently represented a veterinarian client in a construction contract dispute. He had contracted with a very sophisticated builder to build a brand-new veterinary hospital. He was a solo, and had a well-established, but relatively small practice. In the course of growing his practice and taking it to the next level, our client determined to build a new ground up facility. He contacted a reputable builder which held itself out as very experienced in this specialized type of construction. The builder developed a three- part program, with several different contracts governing each phase of the project. Our client signed the contracts and invested over $100,000 in preliminary budget discussions and design concept meetings. Our client told the builder that his budget was $ 4 million.
At first, our client was pleased with the level of detail in the proposal from the builder. Indeed, the builder’s proposal calculated the entire economics of the project – from the practice’s income from office visits, product sales, grooming etc., and analyzed its expenses from the cost of its bank loan to salaries and benefits costs. What ultimately happened is that the builder told our client that in order to get what he wanted, he needed to spend $ 5 million. When our client told the builder that the cost could not exceed $ 4 million as per their original discussions, the builder told our client that the only way to meet the budget was to build a lesser building. Not wanting to go over budget by a million dollars, and feeling duped by the contractor, our client terminated the contracts and had to start over from square one.
The good news is that our client was able to build his building with another contractor, at the high level that he wanted, while maintaining his $4 million budget. The bad news is that our client basically spent $100,000 and walked away with nothing from the first design by the original builder. He contacted us after these events occurred asking why he could not get the design drawings for his building in exchange for the $100,000 he paid? He wanted to use them to build the hospital with his new contractor.
Unfortunately, the damage was done. He signed the contracts without having qualified construction counsel review the contracts and explain it to him before he signed it. Had he done so, construction counsel would have pointed out to him that the design contract with the original builder contained language specifically claiming the design drawings as the intellectual property of the builder – even though our client paid $100,000 for the design. When we pointed out the language preventing our client from obtaining the drawings and using the design after the fact, he said he did not understand the meaning of that clause when he signed the contract. He is now faced with the loss of his $100,000 investment in the initial design and the delay involved in hiring a new contractor.
A construction lawyer also could have negotiated the terms of the contract to make sure the builder had an obligation to make a proposal within our client’s budget or be required to return the initial deposits. Also, our client would have been aware that the first $100,000 was for design concepts, not drawings, and that if he did not build the project with this contractor, he would forfeit the money.
When a lawyer is retained to represent a client in the negotiation and development of a construction contract, the lawyer will point out all the language in the contract that could either hurt the veterinarian’s business, require him to spend more money than anticipated and/or result in a one-sided unfair contract. Construction counsel will explain the contract terms in simple, understandable language, and ensure the project owner understands the consequences of the contract terms. Construction counsel will assist in identifying the terms of the contract that can and should be negotiated, and the terms that cannot and advise the client whether they should agree to those terms. Counsel will also propose new language to the contract to provide the best protection for the client, and educate the client regarding the construction process, so that when the unexpected occurs, they are prepared to manage it.
Many veterinarians are reluctant to hire construction counsel before there is a problem, thinking that they are saving money that they don’t need to spend if no problems occur. However, the reality is that penny wise is pound foolish – and this is particularly the case in construction.
Hiring qualified construction counsel before there is a problem is more likely to save money than to cost money – in the shape of avoiding problems, allocating risk and meeting expectations – so that problems like the one described above are avoided at the outset.
Involving construction counsel in a project from the very beginning will prevent unanticipated delays and payment disputes, and create mechanisms for ensuring quality workmanship, setting up fair and economical dispute resolution procedures and realistic budgets and schedules.