Contractors often ask me about the seeming harshness of many court decisions. As an attorney, I do not look at these decisions so much as being harsh, but instead I assess whether they represent a reasonable interpretation of contract law principles. These distinctly different viewpoints both have merit. But, within their own environments, what seems harsh to a contractor can seem justified to an attorney.

Construction contracting occupies a unique position in commercial enterprises. Lawyers draft the rules governing the parties’ relationship—contract terms and conditions—and lawyers interpret them in the event of dispute. Yet, the projects are built by people who are not usually trained in the law, and the interpretation given to the contract’s terms during the jobs are those of construction professionals, not lawyers or judges. The result is that there are two different “reasonings” to understanding the agreement. It is important to recognize this cultural distinction, as litigation (or the threat of litigation) has become an integral part of construction contracting.

When a nonlawyer reads a force majeure clause or a waiver of consequential damages provision, for example, he or she may misunderstand the legal meaning. It is somewhat worse when the contractor gives up the effort of trying to comprehend these types of clauses.

It is not uncommon to have a contractor testify at trial that he or she did not read some clause of the agreement that had an important bearing on the claim or that the contractor read it but did not understand it. For example, some contractors incorrectly think that by placing a “reservation of rights” to impact costs language in a change order, they are actually reserving their rights. Others think that, by sending a “written notice” of an extra or claim, they have satisfied the contract requirements, even though the changes clause required estimated cost and time to be included in the notice. There are too many instances where the electrical subcontract will incorporate by reference the owner’s terms and conditions and the subcontractor will not even have a copy of that owner’s contract.

Courts will enforce unfair sounding clauses, and clauses that may be unfair in how they are applied, under a legal fiction that the parties are deemed to have understood the bargain they made. Judicial decisions often contain arguments that business people do not enter into million-dollar contracts with their eyes closed. Or a judge will rule that, had the contractor not wanted such a clause, he or she should have negotiated its removal or modification. In reality, the judge is saying that his or her job is to apply the contract as written from a legal perspective. The rest of the court’s argument is simply a justification for the judge not wanting to be influenced by what appears to be an inequitable result.

A contractor has greater flexibility in negotiation when disputes are kept at the field level. Owners, contractors and subcontractors can and do behave reasonably when they understand the facts of the dispute.

There are exceptional circumstances where courts will create exceptions to these harsh clauses—where equity (fairness) prevails over the predictability of law. From the perspective of this article, it should be kept in mind that these exceptions are argued in court where the contractor has little influence on the result. What a judge thinks is equitable may not be the same as your understanding of fairness. Again, the two cultures may be at odds with one another.

I received a piece of sage advice many years ago while assisting a contractor with claims on a federal government project: Don’t let the case go legal. What this person was saying was that a contractor has greater flexibility in negotiation when disputes are kept at the field level. Owners, contractors and subcontractors can and do behave reasonably when they understand the facts of the dispute. On the other hand, in a traditional contract setting, once the parties cause the matter to be referred to their attorneys, the nature of the disagreement changes from factual to legal. Lawyers have little choice when they get involved except to look at the written agreement, court decisions and statutes in their jurisdiction to analyze the claim. The same is true with the courts, since judges do not issue negotiated decisions.

It is not uncommon for an owner and contractor to negotiate time extension, payment for extras and relief from the strict application of specifications under circumstances where the contract might not have supported the negotiated result. Similarly, there is often a give-and-take in settling disputed change orders. At least a part of the reason for this flexibility is that neither side wants to end up in court. It is a given that once a party starts talking about “contract rights,” negotiations stop.

In a desire to avoid litigation and disputes about the interpretation of contract language, contracting parties have sought other means of dispute resolution once negotiations have reached an impasse. For many years, contracting parties regularly inserted arbitration clauses in their agreements. The idea was to keep disputes out of the courts and into a midway environment less restrained by legal precedent, rules of evidence and delays—midway in the sense that there is a hearing in front of a person with decision-making power, but within a procedure where the case would not be bogged down with motions, hearings and typical court delays.

Arbitrators who are drawn from the construction industry have been perceived as more inclined to rule on what was reasonable, in light of their experience, than what was strictly legal. Because the arbitrator knew how construction jobs are run, it was easier for a party to tell their story and be understood.

Under the arbitration statutes, a ruling in arbitration could not be overturned in court if the arbitrator made an error of law or fact. An arbitrator, seeking fairness, could ignore a written notice clause or not enforce a no-damages-for-delay clause. The idea is that if the parties decided not to use the courts, then the courts had no business interfering with that agreement and imposing legal restraints on the arbitration process. (There are some very limited exceptions in the event of corruption of the arbitrators or other singular events not pertinent to this discussion.)

Until recently, arbitrators were as likely to be contractors or consulting engineers as they were to be lawyers or retired judges, further reflecting and supporting this midway concept. This situation has changed. It is more common now for arbitrators to be attorneys or judges and, as a result, arbitrations are increasingly taking on aspects of court trials. In part, as a counter to this legalizing trend in arbitration, the use of mediation has been growing.

For mediations, good negotiation skills are paramount. The same is true with contract claims. So, the advice is still good: Don’t let the matter go legal. Keep the discussions within your construction culture.