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When the liquefied natural gas company Venture Global LNG sued general contractor Kiewit in August, he drew attention to construction non-disclosure agreements, a common part of business between general contractors and property owners.
Venture Global LNG accused Omaha, Neb.-based Kiewit of sharing design and construction information for the $4.5 billion project with competitor Shell. while the case was quickly resolved Just over a month later, the dust highlights the challenges contractors face when they promise clients they’ll keep project details close to their vests.
Keith Noe
Courtesy of Lando and Anastasi
“Ninety-five percent of NDAs are fairly straightforward transactions because the parties enter into them with clean hands and in good faith, wanting to share confidential information for legitimate purposes,” said attorney Keith Noe, a partner in the firm of Lando attorneys, based in Boston. & Anastasi, specialized in intellectual property cases. “It’s only when one side deviates and works to the disadvantage of the other side that things go sideways.”
Explanation of NDAs
General contractors can protect themselves from the start by making sure everyone agrees on what the NDA covers, and that it’s more specific than “everything.”
For example, the Global Venture NDA was so strict that only the existence of the facility was supposed to be kept secret from its competitors, which can be difficult with so many people traveling to and from the site. work every day, said Noe, who was not involved in the lawsuit or the settlement but reviewed reports about the dispute.
Michael Baker
Courtesy of Snell & Wilmer
In addition to being precise about what is considered protected information, anything included in the NDA should be clearly labeled, said attorney Michael Baker, a partner in the Orange County, Calif., office of Snell & Wilmer, specializing in construction law.
“It’s very important to have a system in place … that identifies how a piece of proprietary information is going to be identified so that everyone knows what it is,” Baker said.
This approach helps ensure that everyone on the job, especially one with a myriad of subcontractors and tradesmen, is on the same page.
“Where I think most general contractors are tied down, or potentially, is that their NDAs are a little too loose or gray,” Baker added.
Taking advantage of the experience
NDAs can present a Catch-22 for contractors. Often, it’s a builder’s specific expertise that makes them marketable to new customers, but NDAs prevent them from sharing details about what they’ve done in the past.
For example, it is impossible for a contractor to discount what he learned on a previous job. Make a surprise crash with pipes that appear in Project A. The builder wouldn’t erase knowledge of his workaround if he later found a crash in Project B.
“You can’t forget what you’ve done in life,” Noe said. If the blueprints and specifications for Project A are subject to an NDA, the contractor would not be able to share them with the owner of Project B, he added. But using the same method to avoid surprise pipes? This is most likely fine, although if contractors are unsure, they should check with their legal teams.
General contractors should also ensure that subcontractors have copies of the NDA, said attorney Reed Hauptman, a partner at the Shumaker Law Firm in Toledo, Ohio, and that general contractors make reasonable efforts to align the subcontractors.
But as part of negotiating an NDA, general contractors should avoid putting themselves in a position where they are also responsible for that agreement. That way, if a sub breaks it, it goes back to the project owner to take action, while the general contractor avoids liability.
Reed Hauptman
Courtesy of Shumaker
NDAs must also have a time limit, he added, which is typically two to five years. That means “you don’t have to keep your records forever,” he said, and NDAs should “go off and end at some point.”
That two- to five-year period depends on what the NDA covers, he added. With an RFP, for example, it could expire earlier. For any public project, where everything is open to discovery and open records laws, the effect of any NDA may also be moot.
As a general rule, lawyers said, sharing your professional expertise is fine, but reusing specific items like blueprints and drawings under an NDA can be a red flag.
Expect more NDAs
Finally, making sure NDAs are addressed and followed through is important for more than just avoiding a lawsuit. Such disputes can also jeopardize deadlineswhich can cause further delays and cost overruns.
Baker has seen increased use of NDAs, especially in the alternative energy fields, but also for retail projects and sports arenas, because clients want to protect unique designs for high-end customers, especially when it comes to luxury facilities and accommodation.
Another reason for more NDAs: Contractors change jobs more frequently. “People are mobile,” he said, and customers are “trying to reduce people moving away from their processes and how they do things.“
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