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As credit markets return, new projects are finally breaking through the entitlement and financing stages. They are accompanied by fresh optimism and the promise of a profitable 鈥� and defect-free 鈥� job.

But with recent lawsuits and the recession still visible in the rearview mirror, owners, designers and contractors 鈥� more sophisticated but also more tentative than ever 鈥� are attempting to redefine what is 鈥渇air鈥� in contract negotiations and future lawsuits. Here are the key battlegrounds.

Should liability be limited?

Other than statutes of limitation, the law does not impose any limitation on the liability of an owner, design professional, contractor or consultant. In fact, more recent legislation in Oregon prevents parties from limiting their liability in certain contexts (such as Oregon鈥檚 anti-indemnity and no-waiver-of-subrogation statutes).

Any party wishing to limit its liability must do so by written contract, and must use carefully drafted language to make it enforceable in court. The typical limitation of liability clause provides: 鈥淭he liability of the engineer for breach of contract or negligence shall be limited to the fee charged on the project.鈥�

Another example is the AIA standard clause waiving consequential damages, which include lost revenues in the case of a facility being shut down or evacuated to remedy a defective condition.

Some design professionals and contractors believe it is fair to limit their liability because their potential for a small profit on the job is outweighed by the potential for enormous liability. Some companies will even turn down an otherwise attractive project if they cannot secure the limitations they believe are fair.

Owners fall generally into two camps: 1, those who have been stung (or can envision being stung) by the inability to hold service providers liable for damages they cause; and 2, those who have never been in litigation and believe they never will be.

The former group rarely agrees to limit liability and disputes the 鈥渇airness鈥� of a party escaping liability for damages it caused. The latter group either agrees that some limitations are fair or, if they do not agree, are simply not motivated enough to oppose the concept.

Should indemnity be limited only to negligence or insured losses?

A typical indemnity claim arises when a developer is sued by a purchaser because of a construction or design flaw in the building. The developer seeks indemnity from the contractor or design professional to protect the developer from the purchaser鈥檚 claim.

Contractors and design professionals believe their indemnity obligation should only arise if they were negligent, because their insurance may not cover a breach of contract (or so they argue).

The developer sees no distinction between a dollar of damage caused by breach versus a dollar of damage caused by negligence, and because neither was the fault of the developer, the party at fault should indemnify the developer regardless of insurance coverage.

Should design professionals be liable for inspection obligations?

Geotechnical engineers sample very small portions of a parcel, and inspecting architects and engineers perform only monthly (or weekly, at best) inspections of contractors鈥� work. Through a variety of contract clauses, these professionals seek to avoid liability for failing to catch and report problems not revealed during their inspections.

Many owners who pay for the inspection services believe that, while not every hidden defect is discoverable, those that should have been caught in the exercise of reasonable care should give rise to liability.

Should contractors sign lien waivers and claim releases?

A common practice in private construction is for an owner to require a contractor and its subcontractors to submit a signed release of liens and claims with every invoice for work performed. The release is meant to assure the owner that, if it pays the amount invoiced, the contractor will not later lien the property or file some other claim for more money covering the same work already invoiced by the contractor and paid by the owner.

Contractors argue that delays, overlooked costs or other damages are sometimes realized later, justifying an additional bill. Owners want protection against large, unexpected and possibly unfinanced claims late in the project. As a result, the parties tussle over the language of lien and claim releases to head off risk down the road.

The aforementioned risk-shifting clauses must be assessed on a project-by-project basis. Rigid company policies are rarely the correct path. If only one contractor in town can perform the specialized work at issue and it demands a waiver of consequential damages, the owner may be forced to accept it.

On the other hand, if a large and otherwise lucrative project is available for several contractors to bid on, the winning contractor will likely live without the waiver or risk losing the project (and future projects from that client) to a competitor.

While debates over 鈥渇airness鈥� are often used in negotiations, rarely are they the deciding factor in the final contract language.

Eric Grasberger is an attorney in the construction and design practice group of Stoel Rives LLP. Contact him at 503-294-9439 or [email protected].