Commercial Construction and Builder Contracts

A friend of mine recently posed the following question to me in regard to commercial construction and the corresponding contract that he entered into with his builder:

My company contracted with a builder to construct a new commercial office building for my business. After we moved in, we had numerous problems that I believe the builder is responsible for. The builder told me that we have a contract, and that in the contract, agreed to limit itself as to the defects it could claim and the amounts it could recover against him. I told him that I heard on the news about a new case – Yacht Club II – where the Colorado Supreme Court said that there was a duty to perform construction in ‘a good and workmanlike manner’ no matter what the contract says – who’s right?

In answering his question, I explained the following:

“You both are – but I am afraid that you won’t be happy with what I have to say. Disputes about commercial construction are treated differently under the law from residential construction (your home).

The Colorado Supreme Court recently did decide a case (Yacht Club II) where it held that a builder owed tort duties ‘independent’ of the construction contract to a residential homeowner, and could be sued for failing to build the home without negligence and in ‘a good and workmanlike manner’ no matter what contractual rights or limitations exist in the contract. However, the Supreme Court has not made the same ruling for commercial construction. In fact, in another recent case, BRW, the Supreme Court held that (unlike homeowners and home construction) commercial construction usually involves sophisticated parties, in an equal bargaining position, who can ‘bargain for’ the risks under the contract. This applies even where the persons you contract with are professionals, such as architects and engineers. In other words – beware! – businesses negotiating with other businesses can allocate the risks by contract, and the Colorado courts are not going to be quick to interfere.

The moral of the story for both builders and businesses contracting with builders (and other business professionals – like architects, engineers, etc.) is to pay close attention to the construction contracts they enter into. They may end up being the only protection you’ve got!”