Understanding Preconstruction Agreements
Setting the stage is the best way to a great beginning, and the same can be said of comprehensive preconstruction agreements between builders and developers. A preconstruction agreement is a construction contract that precedes the actual construction of a project. Similar to the opening tracks of an album, this initial step of any music score or composition sets the stage for everything that follows.
The following are items often included within any preconstruction agreement: What each of these items does is set the groundwork, similar to placing the initial notes of an opening track in a musical piece, which all future happenings in the project will build upon. The communication that must occur to form a preconstruction agreement is similar to the rhythm section of a band or musical composition that keeps the song progressing along a unified cadence. Within the parameters of the preconstruction agreement are obligations on both the builder and the developer to clearly communicate their roles and expectations, to include any costs they are liable for, and to keep each other informed of any expected changes. In order for this to happen, any songwriters or musicians all involved in the composition must play their parts in a coherent fashion. Like any arrangement of a song, the preconstruction agreement assists in mitigating damages that could arise for the builder and developer if something unexpected were to occur. The preconstruction agreement is often similar to a sound check that is performed before the actual performance begins. Specifically in the instance of a preconstruction agreement, it is similar to clarifying if those involved in the composition are performing their respective duties correctly. In doing so, this early agreement allows adjustments to be made if something is not proceeding as originally planned.
If the preconstruction agreement is not thoughtfully constructed and prepared, then there could be significant legal or monetary implications. Similar to a musician’s performance that is off-key and disjointed, the developer and builder could miss out on certain opportunities that the law provides. This could occur by the developer or builder coming to find out later that something was originally agreed to within the preconstruction agreement that was not followed, which hurts their respective bottom line because they are now unable to receive any compensation for their efforts. For these reasons and others, articulating each party’s rights and responsibilities through a preconstruction agreement is critical for a project’s success.
In keeping with the music analogy, the developer of a project often acts similar to the composer of a song, who writes the musical score and arranges the music that will be performed. The composer is in charge of writing the song, putting details into place, including the tempo, key, time signature, and so forth. In the same way, a developer dictates what the builder will be expected to perform, provides specifications, and anticipates how the project will proceed. In other words, the developer is who creates the music, and the builder is the one who is playing it. If the composer does not let the musician what he should be playing, or does not provide the details, then it follows that issues will occur. For this reason, conveying all aspects of the project through a preconstruction agreement is a vital aspect of the process.
Once a preconstruction agreement is prepared, it must be thoroughly reviewed and revised if needed before the builder begins to perform any work. It is important to note in reviewing this agreement beforehand that the developer and the builder, akin to the songwriters and musicians of a song, have a choice of whether they want to permit changes in the future. To this end, they should specify whether they will permit any alterations within an existing agreement, whether with the financial amounts spent or the scope of the work to be done, for example, or if they would rather go through a formal amendment process. Either way of wording the preconstruction agreement is permissible, and they should choose which option fits best for their needs. This will dictate what occurs should any problems arise when the project is under construction.
There are several types of preconstruction agreements that could be utilized, depending on how the builder and developer want to best proceed. For instance, a preconstruction advisory agreement is typically utilized when the builder is being asked to provide their assistance during the planning stages of the project but will not actually be performing any work. In addition, preconstruction agreements are sometimes formed where there is a guaranteed price, Guaranteed Maximum Price (GMP), or construction management contract form that will be entered into with the builder later on in the process.
In the live music industry, there are several well-known occurrences of musicians being on tours and not performing songs the same way every night, and instead allowing changes or variations to happen to the music when it is performed. In a similar way, the builder and developer should default to the preconstruction agreement to see what occurred if something isn’t going right or something unexpected happened. This helps to alleviate any confusion between the parties and to keep everyone on the same page moving forward. For these reasons, including without limitation, these preconstruction agreements are necessary to keep the parties cohesive when something outside of the ordinary is occurring.
In conclusion, to use this music metaphor throughout the article, having a preconstruction firm as the builder normally leads to a harmonious song for the developer. In other words, there is a successful resolution when a preconstruction agreement is employed because all of the parties involved were able to anticipate and plan for the future based on the information that they were provided, if any, and what they signed. Having a well-conceived preconstruction agreement is similar to a well-practiced song that goes off without any hitches.
