Defined terms are a key component of most contracts. Yet, both design professionals and attorneys often misuse them. A defined term is simply a shorthand reference to a particular subject. For instance, in the RFP the project with which you may be involved is called, “A new 250,000 square foot high school with associate parking facilities located in Spartanburg, South Carolina.” It does not make sense to repeat that phrase every place in the contract where reference to the project is needed. You need a defined term.
There are a couple of ways create a defined term. First, where the term is first identified in the contract, create a parenthetical. For example, you could write, “A new 250,000 square foot high school with associate parking facilities located in Spartanburg, South Carolina. (“Project”). Now, Project always means the same thing.
If the contract includes a section of definitions, a definition can be added as follows:
Project shall mean a new 250,000 square foot high school with associate parking facilities located in Spartanburg, South Carolina.
While some attorneys and design professionals think that words like “hereinafter the Project” need to be included, legalese is largely unnecessary and simply makes the contract difficult to read. If the defined term includes multiple parties or items – “Engineer and its consultants” – it is appropriate to include a word that combines them, (collectively “Engineer”). Use quotations or a different font to identify the defined term throughout the contract: For example, “Engineer and its consultants (collectively Engineer)”.
The biggest mistake that we see is when terms are defined, but then never used or used inconsistently in the contract. If a term is defined in the contract, it must be used throughout the entire document. Generally, defined terms are capitalized (or sometimes underlined or typed in bold font) to show the reader that there is a definition of the word in the contract. If the word is not capitalized (or underlined or in bold font), it leads to a question whether the drafter intended to refer to the defined term or to something else. For instance, assume that “Agreement” is defined as a particular contract. What happens if a provision of the contract mentions “agreement”? A question will arise whether the provision refers to the contract that was defined as the “Agreement” or to some other contract. While this may seem like legal nonsense, when there is a dispute, the devil is in the details and hours will be expended arguing what the terms mean.
While careful use of defined terms can make your contracts easier to read and provide the clarity that you desire, care is needed to make sure that they are employed properly.
If you need legal advice concerning a design or construction issue, please contact the attorneys of Gibbes Burton, LLC at (864) 327-5000. We want to help make your projects a success.