Many owner-developers are receiving new contract language from their contractors to address possible cost increases, delays and shortages in labor and materials for their construction projects. Are owner-developers' hands tied or are there guardrails to prevent them from bearing the full burden of these risks?

The Baseline

A well-crafted construction contract will provide certainty over the cost and schedule of a construction project. For cost, contracts typically provide that contractors are compensated in either a fixed, lump sum or as a pass through of actual project construction costs plus a fee, often subject to a cap, called a guaranteed maximum price or GMP.

Regarding schedule, protective contracts include required deadlines for project milestones through completion. A contractor is usually not entitled to claim more money or time, except under limited circumstances, such as unforeseeable and unusual delays or site conditions, and even then, those claims are subject to substantive requirements (e.g., delays must affect the critical path) and procedural obligations (e.g., notice of the claim must be given within a short time frame). If these requirements are not satisfied, any claim for more time and/or fees are waived by the contractor.