Every construction project carries with it numerous risks to the parties involved. Thischapter deals with the types of contract clauses that might be used by the parties to manage,allocate, and transfer the risks among the parties to the contract.Most people’s initial reaction to management, allocation, and transfer of risks is, “let’stransfer every risk I have.” However, upon more considered deliberation, most people in the con-struction industry recognize that the proper allocation of risk defines the role of each party to theconstruction project and determines the ability of each party to bear these risks. Equally impor-tant, in particular circumstances such clauses may not be enforceable. Hence, the most importantsection of this Chapter may be § 26.5.Throughout this Chapter, the authors provide examples of types of common risk alloca-tion and transfer clauses found in construction contracts. Please note, however, that these sampleclauses are not drafted for insertion into specific contracts. Rather, they are drafted to provide basic ideas as to the types of clauses that can be considered. These types of clauses must be draft-ed to meet the facts and circumstances of the particular project and contract, and only after fullyconsidering the validity and desirability of the clauses. Note should also be made that the UCCgenerally applies to only construction contracts that involve the sale of goods, not all constructioncontracts.
This chapter attempts to provide an overview only of Colorado law, although foreign jurisdiction cases are sometimes cited as examples. No attempt has been made to cover allColorado case law, and clauses should be carefully researched before used. It should be noted thatthe attitude of the courts toward the validity/enforceability of risk management clauses varies dra-matically from state to state.
§ 26.1.2—Types Of Risks To Which Parties To AConstruction Contract Can Be Exposed,And Which Risks Can Be Managed, Allocated, And Transferred
As indicated above, there are numerous risks inherent in a construction project. However,these risks are not shared equally by all parties involved in the project. Thus, the question becomes what risks
the risks of which parties. For example, being unable to obtainfinancing for a project normally is a risk for the owner/developer. Should financing ever be a risk of the subcontractor, and if so, under what circumstances?This chapter is about the management, allocation, and transfer of construction projectrisks through contract clauses. Of course, many risks have been managed and allocated by the leg-islature. For example, the contractor, subcontractor, supplier, and laborer have always had a risk of not being paid, but the legislature has minimized and shifted much of that risk to the owner, by providing for mechanics’liens.
However, can the owner limit his or her liability to the contractor for not paying its subcontractors and override the legislative grant of mechanics’liens?
§ 26.1 • INTRODUCTION
Contract Clauses Managing, Allocating, Transferring Construction Risks