Attorney Fee Provisions in Construction Contracts

As promised, the next installment in my series about the construction contract involves the attorney fee provision.  Like most other provisions, a well crafted one can be a very powerful tool to resolve disputes; one drafted poorly, however, can be a frustrating experience.  At first glance, you’ll need to look out for provisions where one party, in this case you, bears the sole responsibility to pay for attorney fees.

But what if the contract is silent on the issue?  Virginia, like most states, follows the so-called “American Rule”.  In short, this “rule” states that all parties to a lawsuit will pay their own attorney fees unless a contractual provision or statute provides otherwise.  As such, you need to be very mindful of provisions that shift the entire responsibility to you.

A sample attorney fee clause may read as follows: “In any proceeding by which one party either seeks to enforce its rights under this Agreement or seeks a declaration of any rights or obligations under this Agreement, the prevailing party shall be awarded its reasonable attorneys’ fees, and costs and expenses incurred.”

These provisions can also take the form of an indemnity (you make the prevailing party whole for any loss caused by your negligence), straightforward fees provision (each party pays for their own attorney fees), or any combination.  These provisions can be one way (e. g. the general contractor can collect the fees if it prevails, but the subcontractor cannot) or “prevailing party” (e. g. whoever wins in court gets its fees).

I hope by now you have picked up on something that most don’t — who gets attorney fees when the parties settle out of court or before trial?  The answer is one that never brings a smile to my clients’ faces — no one.  Why not?  They ask.  Well, let’s go back to our sample clause above — the “prevailing party” is entitled to attorney fees.  If both parties negotiate and come to an amicable resolution, who is the “prevailing party”?  The answer is nobody.

Thus, unless you are going to take your breach of contract claim or construction defect claim to judgment, these clauses, many times, are legally impotent and without any practical application.  That’s not to say they should be ignored, because they shouldn’t.  A well written attorney fee clause can even be used to deter the trial itself.  They can be instrumental in settling the dispute or claim.  A party knowing there is a well-written attorney fee provision in place may be more inclined to settle, especially if they know they have a weak position, because they don’t want to pay for your attorney fees as well!

But should your opponent make that tactical error and proceed to trial, a properly drafted attorney fee clause in a construction contract, as I mentioned at the onset, can be a very powerful tool.  Imagine a day where, via a judgment, you collect your full damages and your attorney fees.  Glorious day, indeed!

I hope this gives you a better understanding of attorney fee provisions in construction contract.  If you have additional comments, concerns or questions, please consult a construction lawyer in your area.  Next time, I’ll address indemnification clauses.  They’re kind of like attorney fee provisions, but they’re not.  I’ll explain the details on my next post.  Stay tuned.