Dr. Maryam Mirhadi, PMP, PSPS
Project risks are treated in a variety of ways. Contract documents are among the key mechanisms that parties to a contract may use to transfer a risk to another party, accept a risk, or select other risk response strategies to treat the risk. The use of waiver language in contract documents is one way to achieve this objective. Waiver language is increasingly incorporated in various contract documents such as contracts, payment releases, and change orders or directive forms. The intent of waiver or disclaimer language is to constrain a contractor’s entitlement to compensation for resultant damages that are not expressly identified as compensable in the executed change order.
Therefore, it is important that contractors closely examine contract documents to identify which risks they are taking by entering into a contract or by accepting to include certain waiver language in the contract documents. This close examination becomes more important if a contractor intends to reserve its right to seek compensation for resultant damages. One of the other reasons that highlight the importance of close examination of waiver language in contract documents is that the impact of some changes on a contractor’s productivity or performance is not readily apparent. In these cases, a contractor may be able to evaluate these damages or assess their actual cost impact only after executing the work. In these cases, it is likely that the contractor has already been asked to execute a variety of contact documents containing some form of waiver language. Therefore, contractors are generally advised to exercise caution to the extent possible and soften the contract language to avoid unintended consequences. One of the mechanisms to achieve these objectives is to use conditional phrases. An example provision that uses a conditional phrase may be as follows:
The amount of the individual change is in full satisfaction of the changed work and the contractor waives any claim for further compensation for cumulative impact costs unless the contractor expressly reserves that right or if no other change concurrently impacts the scope of work.
It is imperative that construction contractors seek legal and expert advice prior to executing contract forms that contain some form of a waiver or release language to determine the best strategies that can be used to avoid unintended consequences of waiver language to the extent possible. Contractors are typically advised to avoid executing overarching waiver provisions.
The second strategy that a contractor may choose to pursue if a client requires the contractor to sign some form of an overarching waiver or release language is to engage in bilaterally negotiations that aim to include alternative language or adjustments to language as appropriate. These alternative language or adjustments are project-specific conditions or language that the contractor creatively phrases to appear on the contract document or forms, and they may entitle the contractor to reserve, at a minimum, a portion of the contractor’s rights to recover proper damages under defined circumstances.
Accepting a unilateral change order that pays for most of the costs without executing documents that contain overarching waiver language is another strategy that prudent contractors may pursue if the magnitude of consequential impacts justifies the use of this strategy.
The fourth strategy that contractors may choose to pursue instead of executing documents that contain overarching waiver language is to complete the work without formally signing the change order form and at the same time use the capacities of the contact dispute clause to seek payments to the extent contractually allowed.
Prudent contractors should closely examine contract documents to identify which risks they are taking by entering into a contract or by accepting to include certain waiver language in the contract documents. They are also advised to use any of the four main strategies discussed above if they are asked to execute forms that contain overarching waiver language to avoid the negative risks of waiver and release language and mitigate their potential impact to the extent practically feasible.