Publications: Settling the dust with settlement agreements

It’s no secret that the very nature of the construction industry frequently presents a litigious environment. From general contractor to subcontractor, architect to supplier, owner to purchaser, and most any combination thereof, the differing interests and sheer number of parties involved in a construction project set a stage that is ripe for confrontation and legal disputes.

Notwithstanding the many threats of litigation that are often used to fortify each party’s position in the dispute at hand, pure economics often compel a settlement, which, if properly prepared, can be an effective tool to terminate or entirely avoid the cost of litigation and any delay in the project’s completion that might occur as a consequence.

When negotiating a settlement agreement, there are many things that the parties to a dispute should keep in mind. A settlement agreement, like any contract, should include the identity of the parties to the agreement, the background and subject of the agreement, the consideration (also known as bargained-for benefit and detriment) given by each party, and general provisions regarding amendments, choice of laws and an integration clause.

However, unlike just any contract, a settlement agreement involves unique components that are critical provisions of the agreement.

The first, and perhaps most important, component of a settlement agreement is full release of the parties from any liability. The agreement should clearly state that the release applies to all known and unknown injuries, damages or losses regarding the dispute so as to eliminate any possibility of a later suit based on claims that were not contemplated at the time the agreement was negotiated and executed. The agreement should make this release without any admission of liability by the parties, which could potentially be used against either party in a separate or related matter.

Sole resolution source
If the settlement agreement is made after litigation between the parties has commenced, it is important to include a clear statement as to whether any such litigation is to be stayed or halted pursuant to any action or inaction required by the agreement. If the agreement is instead resolving pending litigation, it should clearly state that the parties to the dispute shall cause the litigation to be voluntarily dismissed with prejudice pursuant to the agreement. In doing so, the parties make the settlement agreement the only source of a resolution in the matter.

Finally, a settlement agreement should set forth any action (e.g., payment of monetary sums) or inaction required by all parties and the circumstances under which such action or inaction must or must not occur. After all, there is no benefit to setting forth each parties’ affirmative duties if the agreement fails to identify the circumstances under which their compliance with the applicable portions of the agreement is triggered.

Although a well-drafted settlement agreement can effectively help settle the dust when disagreement arises from a construction transaction, remember that proactive avoidance can prevent the stir up from even occurring. Clear communication and use of change orders will go a long way in this regard.


Reprinted with permission from The Daily Reporter.

To contact the author, please click .