Development projects involve multiple contracts. Larger projects often involve over a dozen design, consultant, and construction contracts. To avoid problems all project-related contracts must be coordinated to work well together.
For starters, the "Owner" entity must be consistently identified in every contract. Because design, engineering, and consultant contracts are often signed before construction contracts, a special purpose entity (SPE) may not have been created at the time those contracts are executed. To move the project along, a holding company may execute certain contracts instead of the SPE. Once the SPE is created that holding company will transfer ownership of the real property that is being developed to the SPE. If the holding company forgets to assign the SPE all the contracts that were executed before the SPE was created, then the SPE will be unable to enforce the terms of those contracts.
Developers must also coordinate the legal concepts within each contract. For example, it is imperative that dispute resolution procedures be coordinated across all project-related contracts. If all project-related disputes cannot be resolved via a consolidated dispute resolution process, then the "Owner" entity is exposed to the risk of defending related claims in widely different proceedings and locations. The contract with the architect may call for disputes to be resolved via arbitration, while the civil engineer's contract requires disputes to be resolved through litigation in California courts and the contract with the contractor calls for litigation of disputes in Florida. If the "Owner" entity is unable to consolidate these claims into a single proceeding, there is a risk of multiple inconsistent judgments between the separate proceedings and venues.
These are just a few examples that help illustrate why drafting and negotiating contracts to work together is vital to the health of a project.
