Interpreting and construing contracts and contract language differ in very important ways. Failure to fully understand interpret versus construe frequently results in a few common errors made by contract reviewers or individuals administering or enforcing a contract.

Interpreting a contract or portion of a contract deals with the language before the interpreter. With a little training, most anyone can read and interpret contract clauses, including all incorporated documents, addenda, amendments and attached terms and conditions. Construing a contract involves deciphering the legal effect of a contract as a whole.

Construing a contract requires significantly more training and requires an understanding of various contract law rules for interpreting, construing and enforcing contract rights and obligations.

While contract reviewers and administrators can be expected to understand and interpret a contract, an understanding of rules to address conflicting contract clauses and rules of construction is equally needed to avoid erroneous advice. Literal interpretation of a contract may result in the use of unenforceable, inconsistent or conflicting clauses.

Below are descriptions of common errors made in contract interpretation:

Intent of the parties. A contract should reflect a shared understanding and mutual intent of the contracting parties. Successful contractual relationships usually take time to reach this shared understanding, particularly if long-term relationships are important.

A contract viewed as a solid foundation upon which to build a clear business relationship is a common element of successful contract results. Viewing a contract as a mere formality or barrier to overcome to get to the performing of the technical substance of the agreement can lead to misunderstandings and disputes when events or conditions change from the expected.

The best contracts first require an agreement in concept and in substance on the subject matter, followed by terms, conditions and contract provisions that document the shared agreement. This process often takes time. Cutting short this part of the contracting process is a common error. Research indicates that early planning performed as part of the contract formation or negotiation process is one of the strongest indicators of successful contract performance and results.

The Contract as a Whole. Contract provisions are to be interpreted in the context of the entire agreement of the parties. A very common error is to read the literal content of a single provision, without interpreting the provision as a part of the entire contract. In some commercial relationships, prior conduct of the parties or statutory provisions (Uniform Commercial Code) also will be considered in interpreting a specific provision.

Construction industry contracts often include many different parts, such as commercial terms, scope of work or specifications, drawings, performance schedules and compensation. Another common error is failure to integrate and coordinate various parts of a contract into a single consistent document.

Because certain parts of a contract are often much easier to modify than other parts, the use of various parts of the contract to arrive at an acceptable agreement is a very successful contract negotiation technique. (see Lessons Learned)

Construing Contractual Rights and Obligations. Another common error is the assumption that all contract provisions are enforceable in accordance with literal interpretation. Numerous public policy, statutory and common law considerations may affect and control actual contract rights and obligations. For example, the provision "Contractor shall not be paid any delay damages or expenses" is not ambiguous but is subject to various results, depending on jurisdiction, contracting parties and other legal variables. Contract administrators and design professionals must possess a working knowledge of the basic rules of interpreting and construing contracts to provide a competent contract review service.

Contract Solutions Group provides contract review services, best practices standard clauses and contract negotiation services. CSG also offers training in contract review, including risk and liability, insurance, scope and pricing definition, change management, work product/copyright, dispute avoidance and performance and payment issues.