Construction contract participants can generally rely on a certain amount of standardization, as most major projects use structured forms (e.g., AIA Contract Documents or ConsensusDocs) supported by years of practical knowledge and case law.
Because of this, parties drafting construction contracts don’t typically spend much time determining what needs to be included.
Instead, efforts seem to focus on using the contract as a positioning tool.1
In other words, instead of a mutually beneficial agreement, a construction contract is considered a weapon. When a dispute arises, which party is going to have the leverage to avoid the associated risks and potential consequences?
While CFMs are only sometimes involved in contract negotiation, they are almost always involved in contract administration and disputes. They must interpret complex language and balance the company’s underlying financial positions, the industry relationships on the line, and the project’s ultimate success. In many situations, this boils down to which party has leverage and how it is being used.
This article will expose some of the areas where leverage can create problems and help guide CFMs on how to identify these potential areas, protect against dangerous leverage situations, and find a collaborative, long-term solution.
What Is Leverage?
Leverage is defined as “influence or power used to achieve a desired result.”2 Although leverage is often associated with contracts, there is no true requirement as to how it is obtained; it is essentially in the hands of those with influence and power, regardless of how that influence or power is acquired.
Generally, a party can acquire influence or power during a dispute rightfully, opportunistically, or maliciously.
