Legal Education Digest
Legal Education Review, Vol 20 (1&2), 2010, pp 59-84
The overwhelming majority of major law firms in the United States and Australia promote construction law as one of their areas of expertise. However, the overwhelming majority of law schools in these two jurisdictions do not offer construction law as a subject in their JD or LLB programs. How can it be that an area of law, that is so widely practised, is not widely taught?
Construction law is an umbrella term that covers all the legal principles relating to the construction of structures on land. It is an extremely broad expression, encompassing the law relating to demolition as well as to building. The one common feature of the disparate aspects of construction is that the end product is ultimately fixed to or becomes part of the land so that owner of the land is the owner of the structure by operation of law.
Although a significant component of any construction law course is contract law, construction law is much more than this and involves the contextual understanding of a variety of legal principles, including torts, equity and statutory/regulatory laws. For this reason, it is preferable that any student wishing to enrol in a construction law subject should first have successfully completed courses in contract law and torts.
Construction is extremely diverse, as is construction law, and many lawyers have sub-specialities within construction law. For example, ‘front end’ construction lawyers are involved at the commencement of the project, with tasks such as advising on the most appropriate procurement method and the drafting of the multitude of contracts involved in any construction project, while ‘back end’ construction lawyers specialise in the resolution of disputes outstanding at the completion of the project. A construction law course for law students therefore needs to cover both the front end and back end of construction law, as well as aspects of construction law that span both sub-specialities; for example, insurance and the regulatory environment (licensing laws, safety regulation, permits and building codes).
The United States has 233 law schools of which 26 offer an elective on construction law. This translates to a paltry 11 per cent. Australia is not much better; there are 32 law schools, of which 4 offer a subject on construction law. This amounts to just over 12 per cent.
While there has been no attempt to record the offering of construction law electives in law degrees around the world, there has been an effort to report the extent to which construction law forms part of masters programs. However, they do not redress the problem of law schools failing to offer their undergraduate students an introductory construction law subject as part of their legal education.
Overwhelmingly, the construction law offerings that are available within law schools are taught by practising lawyers, rather than full-time academic staff. Although lawyers who practise in this area of law will know a lot about the subject matter, they may have given little thought to how to teach the subject effectively. Knowing how to teach is as important to the success of a subject as knowing the substantive content. It is therefore necessary for law schools to ‘nurture academic careers built upon a construction law focus’.
While there is a plethora of literature about teaching construction law to non-law students, there is a dearth of literature about teaching construction law to law students. This is no doubt reflective of the fact that construction law has, for some time, been a firm feature of most architecture, building and engineering courses, whereas it is still a rarity in university law programs.
It is regrettable that the only recent scholarship on the teaching of construction law has come from practitioners rather than academics, and appears in journals whose target audience is construction lawyers, rather than legal scholars. This article is an attempt to engage legal scholars with the idea that construction law is a legitimate and worthwhile area of legal scholarship, and a subject that can enrich and invigorate a law school curriculum.
Like many complex areas of human endeavour, the construction process has spawned its own unique customs, practices and technical vocabulary. As a result, a lawyer wanting to practise in the area needs to understand how the industry operates, be familiar with the language used, and have an appreciation of the issues that frequently arise (and how they can best be avoided, managed or resolved).
In addition, it is obviously vital that construction lawyers understand and can apply the law set out in court decisions. These include terms that courts have implied into construction contacts, based on principles of torts, equity and industry practice. Thus, students should learn about key construction cases that have influenced the development of construction law.
Not only do construction lawyers need to understand the construction industry and its processes, and be familiar with construction law jurisprudence, but they also need to know and be able to advise clients about the legislation regulating construction. All of these laws affect the way parties to a construction project conduct themselves and manage their relationships. It is therefore essential that a construction lawyer be able to advise clients about the impact of the regulatory framework on their project.
The construction industry ‘enjoys’ a reputation of being highly adversarial and litigious. Indeed, there are instances where a construction dispute has lasted longer than the construction project itself. For these reasons, there is a focus on developing techniques and practices that reduce the risk of a dispute arising during a construction project, and resolving any disputes that do arise in an efficient and timely manner.
Any construction law course offered within a university law school should be designed to cover the above for components; that is, to teach students about (1) the way the construction industry operates; (2) construction law jurisprudence; (3) the regulatory framework governing construction; and (4) techniques to avoid, manage and resolve construction disputes.
Introduction to construction law and the construction industry: The learning objective of the first class is that students develop an understanding of the variety of projects, people and skills that make up the construction industry. This is important, because to understand the construction industry, students need to understand not only the different types of construction, but also the roles and responsibilities of the people who work on construction projects.
There are an array of different procurement methods utilised by the construction industry, ranging from traditional approaches, where the owner engages a professional to do the design, and then gets contractors to bid on that design, to alternative methods where the parties engage in a form of relationship contracting where there might be no fixed price and no fixed date for completion. The aim of this class is that students learn about the pros and cons of these varied procurement methods, and the legal ramification of the different arrangements, so that they are in a position to advise future clients about project delivery methods.
All construction work involves risk, and a fundamental principle that underpins all aspects of construction law is risk identification, allocation and management.
If students understand the principles of risk allocation, it makes it easier for them to understand that a construction contract is a tool for allocating risks and a framework for how the parties should respond to a risk that eventuates.
Traditional construction contracts: Traditionally, the construction process begins with an architect or engineer preparing the design, contractors bidding for the work, and finally the construction being undertaken.
This traditional process of ‘design, bid, build’ does not allow for fast-tracking of work, because construction cannot begin until the design is fully complete and documented. Furthermore, there is no opportunity for contractors to contribute their experience and skills into the design, since they only become involved once the design is fully complete. For these reasons, an alternate system of design and build (D & B) was developed. As the name suggests, D & B involves a single entity taking responsibility for both the design and construction. This method of procurement appeals to owners, not only because it allows for construction to begin earlier, but also because there is a single point of responsibility; that is, if any problems arise, it does not matter whether they are caused by defective design or poor construction, the same entity is responsible.
Alternative construction contracts: The traditional forms of construction contracts, examined in the previous topic, have a poor track record when it comes to minimising conflicts and disputes about construction projects. They are perceived as facilitating an adversarial culture of ‘us versus them’, whereby a ‘win’ for the owner is a ‘loss’ for the contractor, and vice versa. It is for this reason that the construction industry has spearheaded alternative forms of construction contracts, designed to facilitate better relationships between the parties to a construction project and therefore better project outcomes.
These alternative forms of contracting are collectively referred to as ‘relationship contracting’ and generally cover different arrangements, such as partnering, alliances and managing contractor.
The learning objective of this topic is that students, as potential future construction lawyers, became familiar with these contracts and how they differ from traditional construction contracts, so that they can advise clients about their use in appropriate circumstances.
Time issues: This lecture represents the beginning of the coverage of the second topic area – ‘issues that can arise during the course of construction’. The majority of construction disputes arise in three key areas; namely, time, money and quality. The generally accepted wisdom is that an owner can only ever have two of the three elements. Owners invariably want all three, and it is perhaps for this reason that the majority of construction disputes relate to time, cost and quality.
The learning objective of this topic is to introduce students to the way time is managed and regulated on a construction project so that they are in a position to assist their clients to manage issues relating to time and delay within the contractual framework.
Payment issues: At peak periods of construction, contractors can expend huge sums of money on labour and material in a very short period of time. If reimbursement of these outlays does not occur in a timely manner, contractors can quickly become insolvent. It is for this reason that all construction contracts contain provisions that govern payments to the contractor, and most jurisdictions have legislative regimes to provide contractors (and subcontractors) with some level of security for payment.
Thus, students should not only learn about the contractual framework for payments during construction, but also the legislative security of payment regime applicable to the students’ jurisdiction.
Quality of work issues: Allegations of defective work provide another fertile ground for disputes. Issues that students should learn about regarding quality of work include the following. What warranties (express and implied) does the contractor provide to the owner regarding the end product? What obligations (and rights) does the contractor have to remedy allegedly defective work – both during construction and after completion? What remedies can an owner pursue under the contract, and elsewhere? What is the measure of damages for defective work: rectification costs or diminution in value?
In order to answer these questions, students will need to have a comprehensive understanding of the way defective work is commonly dealt with in construction contracts, as well as potential extra-contractual causes of action, such as negligence or breach of any statutory duties. The learning objective for this class is therefore that students can effectively analyse and apply the contractual clauses governing the quality of work on a project as well as relevant common law and statutory provisions.
Variations/changes: It is extremely rare for a construction project to be completed strictly in accordance with the contract drawings. Construction contracts anticipate that changes will be required as the building progresses and include clauses allowing for variations. Notwithstanding that all parties anticipate that there will be variations during a construction project, they are still a frequent cause of disputes.
The purpose of this class is therefore to ensure that students understand what a variation is – including how the term has been defined in various standard form contracts and by the relevant jurisprudence – so that they can advise clients about the drafting and implementation of contract clauses relating to variations, and effectively assist in resolving disputes about changes to the scope of works.
Construction site visit: There is an ancient proverb that says ‘[t]heory without practice is as lifeless as practice without theory is thoughtless’. In order to ensure that construction law students are neither lifeless nor thoughtless, a visit to a construction site mid-way through the course is highly recommended. The tour of the site generally begins with students receiving an induction which emphasises the importance of safety on site and the need for students to follow all directions of the site workers.
A visit to a construction site is a core component of the construction law syllabus, and a key tool in educating law students about the complexities of construction projects and the inter-relationship between the construction industry and construction law.
Latent conditions: One of the great unknowns when undertaking construction is what lies beneath the ground. Soil test and geotechnical reports can be procured, but they only ever indicate what the ground conditions are likely to be, and it is not until excavation begins that the actual ground conditions can be known. When the actual ground conditions differ from the anticipated ground conditions, it is known as a ‘latent condition’ or ‘differing site condition’. Latent conditions can be a significant issue on a construction project, because they invariably involve delays while the condition is dealt with, with time and money implications.
This class should therefore consider the definition of a latent condition; which party should carry the risk for latent conditions; and the standard contractual framework for dealing with latent conditions.
Insurance: Construction is a risky business. It is therefore not surprising that insurance plays an important role in construction projects and, therefore, construction law. The purpose of this topic is to educate students about the different types of insurance that are used by the construction industry; how to analyse insurance and indemnity clauses in construction contracts; how to read and understand insurance contracts; and the duties and responsibilities of both the insured and insurer.
The different types of insurance that students should learn about include professional indemnity insurance, public liability insurance, contractors’ works insurance and statutorily required insurances, such as for workers’ health and safety. In analysing these different types of insurance, students should become familiar with insurance terminology, such as claims-made policies and occurrence-based policies, subrogation, indemnification, and the duty of utmost good faith.
Security for performance: Construction projects often span many years and, because of this, parties to a construction contract often require a degree of comfort that the other party has the capacity to complete their end of the bargain, and/or that there will be resources available to compensate an innocent party in the event of default by the other party.
It is most common for owners to request that the contractor provide security for performance. This usually takes the form of a bank guarantee, insurance bond, cash retention, or letter of credit. Construction lawyers tend to become involved in security of payment issues concerning the circumstances when an owner can make a call on the security.
The learning objective for this topic is that students should be able to advise clients on the myriad of issues surrounding security of performance issues. This means that they should be able to interpret and apply the provisions of standard form contracts relating to security for performance, as well as jurisprudence from the relevant jurisdiction.
Dispute avoidance processes: This class signals the commencement of the final topic of construction law; namely, disputes and how they can be avoided, managed and resolved. As already noted, the construction industry is prone to disputes. However, the industry has recently begun to take proactive steps to avoid disputes, and has been the driving force behind Dispute Avoidance Processes (DAPs), which are designed to stop conflicts escalating into disputes. Like alternative/appropriate dispute resolution (ADR), DAPs are intended to act as a circuit-breaker that keeps parties out of litigation and/or arbitration. However, unlike ADR, DAPs are in place before a dispute has even arisen, in order to minimise the risk of disputes.
There are three primary models of DAPs available, namely: Dispute Review Boards, Dispute Adjudication Boards and Dispute Resolution Advisors. Students should learn about the advantages and disadvantages of each of these early intervention models; what kind of projects they are suitable for; how they can be incorporated into the construction contract; and the legal ramifications of each – for example, do the rules of natural justice apply to hearings conducted by DAPs?
DAPs are to the legal profession what preventative medicine is to the medical profession; that is, a means of assisting ‘patients’ to stay well and avoid serious health problems. Students studying construction law therefore need to be conversant with DAPs and to develop the knowledge and skills to advise clients on their effective use.
Dispute resolution: This class is designed to enable students to become construction lawyers who have the skills to be healers of their clients’ conflicts. It introduces students to the plethora of ADR techniques available for resolving construction disputes, including negotiation, mediation, expert determination and mini-trials (also known as ‘senior executive appraisal’).
If ADR is unsuccessful in resolving a construction dispute, the parties are likely to end up in litigation or arbitration. Construction litigation is in many ways unique, and often conducted within specialist courts or lists. The second part of this topic should therefore focus on the aspects of construction litigation that distinguish it from other forms of litigation or arbitration.
The final class should be devoted to unifying the disparate topics that have been covered in the course. Students should not look at the different topics in isolation, but recognise the impact that each topic may have on other aspects. For example, a dispute regarding the quality of work may: (1) involve analysis of relevant contract provisions and risk allocation; (2) trigger an insurance claim; (3) lead to a call on security; and (4) ultimately end up in some form of dispute resolution. It is thus important that students perceive the disparate topics in a holistic way.
Legal education has recently been criticised for separating theory from practice and for failing to prepare law students for the practice of law. A course on construction law would address these concerns. It would ensure that students who have completed such a subject would be familiar with the actual landscape of their construction clients, their projects and their problems and thus be well-placed to assist them with practical, commercial advice.
Law schools are doing a disservice to their students, their academics and the legal profession if they continue to fail to offer construction law as an elective subject. By providing a complex, challenging and practical subject such as construction law, law schools will be enriching their curriculum and fulfilling their role of producing law graduates who have the knowledge and skills to work in diverse areas of legal practice, including advising clients involved in construction, engineering and infrastructure projects.
Construction law has become a mainstream part of the legal profession, and it is time it became a mainstream part of the legal academy. It is a development that would be welcomed by those practising in the area of construction law who currently shoulder almost sole responsibility for educating young lawyers wanting to specialise in this area of law.