Order of Precedence Clauses in Construction Contracts

By Joseph M. Leone

An order of precedence clause is a term which identifies the order in which the various contract documents are prioritized when resolving a conflict or ambiguity within said contract documents.  Not all construction contracts contain such a clause. However, many participants in the industry prefer to include an order of precedence clause in their contracts to create certainty in the resolution of a conflict or ambiguity in the contract documents.  The theory is that they will always know that there is a clause in the contract which will “break the tie,” so to speak, thus, never leaving the matter unsettled.  Of course, sometimes that certainty comes at the cost of the equitable resolution.  One of the challenges in deciding whether to include an order of precedence clause and how to prioritize the contract documents within the clause is that one is not entirely certain how that priority will affect the outcome of a dispute.

Imagine a set of drawings which depict the design of a distribution center.  The civil drawings identify 50 engine block heaters installed throughout the site to warm truck engines during the winter months.  The electrical site drawings identify 40 engine block heaters.  The electrical site drawings are much more specific regarding the number and location of the engine block heaters even identifying each circuit within the electrical panels which serve the 40 engine block heaters.  The project owner, a developer, demands the general contractor install an additional 10 engine block heaters as shown on the civil drawings.  The owner points to the order of precedence clause in the contract which gives precedence to larger scale drawings over smaller scale drawings. It just so happens, the civil drawings are drawn on a larger scale than the electrical site drawings.  So, who wins?  It is clear using simple deductive reasoning that the intent of the design is for 40 engine block heaters to be installed, but should the order of precedence clause be applied anyway?  After all, the order of precedence clause typically does not require any analysis or interpretation. Therefore, eliminates any subjectivity in determining the outcome.

The question for judges, arbitrators, and even initial decision makers is  when the order of precedence clause should be invoked.  Should it be the first authority consulted any time there is a difference between or among the contract documents?  Or is there a preliminary analysis which must take place using rules of contract interpretation which have developed over decades of case law?  While many construction professionals, such as the developer in the example above, will immediately look to the order of precedence clause as the determining authority, courts typically will attempt to interpret the terms of the contract prior to applying the order of precedence clause.

The first rule of contract interpretation is that in interpreting a contract, the court attempts to determine the intent of the parties.[1]    If the joint intent of the parties can be ascertained then that is determinative.[2]  Therefore, if the contract can be interpreted to avoid inconsistencies between clauses, there is no need to refer to the “Order of Precedence” clause.[3]  As a result, when attempting to determine the intent of the contracting parties, courts will try to find interpretations which harmonize provisions, rather than those which cause terms to be in conflict.[4]

A common term in construction contracts reinforces this process.  Most sophisticated construction contracts contain a term which requires the contract documents be read together in conjunction with one another in order to determine the extent of the contractor’s obligations.  “The drawings and specifications are complementary.  If work is shown only on one but not on the other, constructor shall perform the work as though fully described on both.”  § 14.2.1, ConsensusDocs 200 © 2011, Revised June 2019.   “The Contract Documents are complementary, and what is required by one shall be as binding as if required by all; performance by the Contractor shall be required only to the extent consistent with the Contract Documents and reasonably inferable from them as being necessary to produce the indicated results.”  § 1.2.1, AIA A201 – 2017.  Given these clauses and the applicable case law, the decision maker (whether a court, arbitrator, architect, or other initial decision maker) should attempt to resolve any internal conflicts using traditional contract interpretation rules first before invoking the order of precedence clause.

Interestingly, of the two primary standard form contracts used in building construction, ConsensusDocs and AIA, only ConsensusDocs contains an order of precedence clause.  AIA, quite famously, recommends against incorporating an order of precedence clause in the contract documents.[5]  Their reasoning is that it is the architect’s responsibility to interpret the contract documents and an artificial hierarchy would interfere with the proper criteria for the architect’s interpretation.  ConsensusDocs, on the other hand, desires the certainty created by the inclusion of an order of precedence clause.  In § 14.2.2 of ConsensusDocs 200,[6] the specifications are specifically given priority over drawings.

Additionally, § 14.3 provides:

In case of any inconsistency, conflict, or ambiguity among the Contract Documents, the documents shall govern in the following order: (a) Change Orders and written amendments to this Agreement; (b) this Agreement; (c) subject to § 14.2.2 the drawings (large scale governing over small scale), specifications, and addenda issued and acknowledged before Agreement execution or signed by both Parties; (d) information furnished by Owner pursuant to § 3.13.4 or designed as a Contract Document in § 14.1; (e) other Contract Documents listed in this Agreement.  Among categories of documents having the same order of precedence, the term or provision that includes the latest date shall control.[7]

The two approaches are quite different and are both good examples of how one may choose to address order of precedence clauses in construction contracts.  If you choose to include an order of precedence clause or have to negotiate the specific language of an order of precedence clause, I recommend that the language of the clause be clear that the decision maker must undertake an analysis using traditional contract interpretation techniques in an effort to determine the intent of the parties as a precursor to invoking the order of precedence clause.  Order of precedence clauses are a useful method of creating certainty in contract interpretation where it may not exist otherwise.  However, be wary of relying on it exclusively because you may not end up with the most equitable result.

For questions about construction contracts, contact Joseph M. Leone at jleone@dsvlaw.com or your DSV attorney.

[1] Allied Structural Steel Co. v. State, 148 Ind. App. 283, 265 N.E.2d 49 (1970).

[2] United States v. Bethlehem Steel Co., 205 U.S. 105, 119, 27 S.Ct. 450, 455, 51 L.Ed. 731 (1907).

[3] Gen. Eng’g & Mach. Works v. O’Keefe, 991 F.2d 775, 781 (Fed. Cir. 1993).

[4] General Motors Corp. v. Northrop Corp., 685 N.E.2d 127, 133 (Ind. Ct. App. 1997).

[5] AIA does include a sample order of precedence clause which may be added into supplementary conditions for those who desire to have an order of precedence clause in the contract.

[6] § 14.2.2, ConsensusDocs 200 – Standard Agreement and General Conditions Between Owner and Constructor – © 2011, Revised June 2019.

[7] § 14.3, ConsensusDocs 200 – Standard Agreement and General Conditions Between Owner and Constructor – © 2011, Revised June 2019.

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