What the Construction Industry Can Learn from the Healthcare Reform Debate

It has been impossible lately to turn on the television or radio, much less the news, without getting an earful about the healthcare reform debate. Regardless of how you personally feel about the reform, there are two important lessons that can be learned from this debate–and neither have anything to do with healthcare!

One of the initial complaints about the proposed healthcare legislation was that members of Congress had not even read the 1000+ page bill and did not know its provisions. What does this have to do with construction? Unfortunately, quite a bit. Just like many Congressmen were not initially very informed of many of the intricacies of the healthcare bill, many contractors and builders are not fully aware of all the terms of the contracts they enter.

Throughout my practice, I have seen numerous instances where I have asked parties whether certain clauses were in their contracts and they simply did not know. I can tell you from experience that it is very difficult for a contractor to manage liabilities and risk on their projects–not to mention payments–if they do not have a thorough understanding of the binding contracts they sign.

Sometimes construction contracts can be fairly lengthy, and often they contain quite a bit of boilerplate language. They may even "look" similar to the hundred other contracts you have signed. But contractors should read every contract thoroughly before entering into it, because that document will govern any disputes that arise later.

Another lesson to be learned from the healthcare debate–misinformation can be costly. For every accurate report on the healthcare bill and the discussions surrounding it, there is probably at least one inaccurate report. Similarly, contractors often have misunderstandings about their contracts. In addition to being familiar with the terms of their contracts, every contractor should know whether all the clauses in their contracts are actually enforceable before signing. For example, Texas law has some very specific requirements about indemnity clauses, and if those requirements are not met, the indemnity clause will not be enforceable. The contract language itself may be clear enough, but if it does not meet these technical requirements, it is worthless. The same goes for liquidated damage provisions; poor contract drafting that does not meet certain criteria could void these provisions as well. Being accurately informed about the validity of your contractual obligations is key.

Regardless of one’s feelings on healthcare reform, it is unquestioned that the proposed bills would bind the country’s healthcare industry to certain standards and requirements and it would involve substantial amounts of money. That sounds a lot like construction contracts. This may sound like basic common sense, but it is very true in this industry–an ounce of prevention beats a pound of cure. Familiarity with your contracts and knowing their enforceability before signing is the best way to position your company to minimize its liability, shift risk, and ensure prompt payments.