Water Equipment Contracts: Risky Business

Dawn Kristof Champney

Last week WWEMA held its annual Finance & Contract Administration Council event in Indianapolis, Indiana, hosting 45 industry professionals who gathered to discuss best practices in negotiating and executing contract terms and conditions related to water and wastewater equipment sales, installation, operation, and service.

Throughout the one-and-a-half-day session, participants shared their real-world experiences, including their biggest challenges and frustrations as well as their solutions and successes.

One theme came through loud and clear: In today’s litigious society, the overriding goal of contract negotiations is risk management. Each party wants to avoid risk, so typically the owner—through the consulting engineer—tries to push the risk down to the contractor, who subsequently tries to push the risk down to the manufacturer.

The ideal, of course, is for each party to accept a fair, equitable amount of risk. Unfortunately, in today’s highly competitive sales environment, manufacturers are oftentimes reluctant to negotiate for a fair and equitable risk equation. They want to close the deal, so they are tempted to accept harmful indemnity clauses, agree to unreasonable limitations on liability, or make performance guarantees that go above and beyond the capabilities of their equipment. Doing so is unwise at best and catastrophic for their businesses at worst.

One of our speakers, Todd Larson, an associate vice president for Black & Veatch, commented that he and his colleagues hold many of these same types of discussions. As design-build solution providers, they are “middle men” and sometimes face even tougher decisions when it comes to accepting risk.

Though I am sure the attorneys appreciate all of this wrangling and uncertainty when it comes to contract negotiations and execution, I would argue that we as an industry should be moving toward adopting standardized contracts and language that has been mutually agreed upon. The savings in time and money; the resulting fair, equitable contracts; and the potentially improved business relationships could mean a win-win, for the owner, the engineer, the contractor, the equipment manufacturer, and ultimately, the general public.

The good news is, much of the groundwork for such standardization is already done. Through ConsensusDocs, a coalition of 39 associations in the design and construction industries (including WWEMA) have worked together to develop and promote standard construction documents. WWEMA members who have participated in projects that used ConsensusDocs documents report that it was a positive experience. One owner stated that by using ConsensusDocs, his project was free of disputes.  I encourage owners, engineers, contractors and equipment manufacturers to take advantage of this resource. Visit www.consensusdocs.org for details.

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Dawn Kristof Champney is president of the Water and Wastewater Equipment Manufacturers Assn., a Washington, D.C.-based trade organization that has represented the interests of manufacturers serving the water supply and wastewater treatment industry since 1908. Kristof Champney can be reached at info@wwema.org.

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