The Role of Supplemental Conditions in Construction Contracts

For many owners and contractors, standard form contracts such as the CCDC 2 stipulated price contract and the CCA 1 stipulated price subcontract provide a well-known and understood starting point for a project’s contractual relationships. The use of standard form contracts is frequently an attractive cost saving option for owners because they eliminate the need to draft a complicated contract from the ground up. Additionally, the construction industry’s familiarity with the basic content of such contracts tends to give the parties confidence that they understand and appreciate the risks being assumed without the need for further review by legal advisers.

The drawback of using such contracts is that they are project delivery models for a theoretical “standard” construction project which likely differs in some way from the actual project in question.

Fortunately, most standard form contracts recognize this and contemplate that the parties will tailor the contract to their specific project requirements through the use of supplemental conditions.

For example, the basic priority of documents provisions found in GC of the CCDC 2 – 2008 stipulated price contract sets out that the supplemental conditions shall have the third highest priority, taking precedence over the “General Conditions,” “Specifications and Drawings,” but falling behind the “Agreement” and the “Definitions.”

What, then, is the role of the supplemental conditions? Supplemental conditions have two separate but related roles as outlined below:

1. To fill in project-specific gaps in the standard terms

A standard form contract may not adequately address all of the intentions of the parties to the contract because most projects differ in some way from the theoretical “standard” construction project. When used properly, supplemental conditions can fill in these project specific gaps by elaborating on the rights and obligations that the parties have agreed to assume. Typically this will be done by way of language indicating that the parties are adding entirely new provisions.

For example, the supplemental conditions may:

  • set out a requirement that specific additional documents are to be included in progress application payments in order for those applications to be considered;
  • establish a time period within which the general contractor is to remove any claims for lien filed by subtrades and suppliers, failing which the owner will take action; or
  • establish a framework for the assessment of liquidated damages.

2. To record agreed upon changes to the standard terms

Any changes to a standard form contract that have been agreed to by the parties, whether expressly or impliedly, should be reflected in the content of the supplemental conditions.  This will typically be accomplished by way of language indicating that an existing portion of the contract is being replaced by specific language. For example, the supplemental conditions may:

  • adjust the priority of certain contract documents;
  • adjust the amount of time that a party has to make payment on a certified progress application; or
  • adjust the insurance requirements to address project specific risks and allocations of those risks.

The supplemental conditions to a contract must be carefully drafted so that they do not inadvertently contradict the other contract terms or otherwise introduce uncertainty into the contract through duplicative provisions. These conditions are important for providing a record of the parties’ intentions regarding adjustments to the default allocation of construction risks, rights and responsibilities.

Examples of common problems with supplemental conditions include:

  • the introduction of new or changed terms that were not previously disclosed in the tender or RFP materials and have not been agreed to by both parties;
  • the introduction of additional rights and obligations without adequate details as to how those rights and obligations are to be enforced;
  • the deletion of terms without regard for how other provisions relied upon the deleted terms; and
  • the inclusion of specifications details in the supplemental conditions rather than in the specifications materials.

What can owners and contractors do to avoid these common issues?  In most instances issues with supplemental conditions result from the use of drafting “shortcuts” such as simply adopting language found in other contracts without proper consideration of whether that language requires other adjustments, or failing to perform a comprehensive review of the resulting contract document. When it comes to the use of supplemental conditions there is no substitute for a careful and deliberate review of both the contract and the supplemental conditions. If done correctly, such a review should quickly flag any co-ordination, internal conflicts, and other procedural issues before they become problems.

When used properly, supplemental conditions enable the parties to use standard form contracts to provide cost savings and certainty on common terms. It is in the best interests of all parties to the contract that the supplemental conditions have been carefully reviewed to ensure that those conditions do not introduce uncertainty or unnecessary complexity into the project.

This article first appeared in Build Manitoba, a publication of the Winnipeg Construction Association.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.