This feature is a part of “The Dotted Line” series, which takes an in-depth look at the complex legal landscape of the construction industry. To view the entire series, click here.
When liquefied natural gas company Venture Global LNG sued general contractor Kiewit in August, it brought attention to non-disclosure agreements in construction, a routine part of business between general contractors and owners.
Venture Global LNG accused Omaha, Nebraska-based Kiewit of sharing information about the $4.5 billion project’s design and construction with competitor Shell. While the case was quickly settled just over a month later, the dust up highlights the challenges contractors face when promising clients they’ll keep project details close to the vest.
“Ninety-five percent of NDAs are pretty straightforward transactions because the parties come into it with clean hands on a good faith basis, wanting to share confidential information for legitimate purposes,” said attorney Keith Noe, a partner at Boston-based law firm Lando & Anastasi, which specializes in intellectual property cases. “It’s only when one party strays and operates at a disadvantage of the other party that things go sideways.”
Spelling out NDAs
General contractors can protect themselves from the start by making sure everyone agrees on what’s covered by the NDA — and that it’s more specific than “everything.”
For example, the Global Venture NDA was so strict that just 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 jobsite every day, said Noe, who was not involved in the suit or settlement, but reviewed reports about the dispute.
In addition to being precise about what is considered protected information, anything that falls under the NDA should be clearly labeled, said attorney Michael Baker, a partner in the Orange County, California, office of Snell & Wilmer, who specializes in construction law.
“It’s really important that there’s a system in place … that IDs how a piece of proprietary information is going to be identified so everybody knows what it is,” Baker said.
That approach helps ensure that everyone on the job, especially one with myriad subcontractors and tradespeople, is on the same page.
“Where I think most general contractors get tied up or potentially is their NDAs are a little too loosey-goosey or gray,” Baker added.
Tapping into experience
NDAs can present a Catch-22 for contractors. Often, it’s a builder’s specific experience that makes them marketable to new clients, but NDAs prevent them from sharing details about what they’ve done in the past.
For example, it’s impossible for a contractor to discount what they’ve learned on a previous job. Take a surprise clash with pipes showing up on Project A. The builder wouldn’t then scratch the knowledge of their previous workaround if they later found a clash in Project B.
“You can’t just forget what you’ve done in life,” said Noe. If the blueprints and specs of Project A are subject to an NDA, the contractor wouldn’t be able to share them with the owner of Project B, he added. But using the same method to get around the surprise pipes? That's most likely OK, though if contractors are unsure, they should check with their legal teams.
General contractors should also make sure that subcontractors have copies of the NDA, said attorney Reed Hauptman, a partner in the Toledo, Ohio, office of law firm Shumaker, and that general contractors use reasonable efforts to bring subs in line.
But as part of negotiations over an NDA, general contractors should avoid putting themselves in a position where they are also the enforcer of 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.
NDAs also need to have a time limit, he added, which is typically two to five years. That means “you don’t have to maintain your records forever,” he said, and that NDAs should “roll off and terminate at some point in time.”
That two- to five-year period depends on what the NDA covers, he added. With an RFP, for example, it might lapse sooner. 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 experience is fine, but reusing specifics like blueprints and drawings under an NDA can be a red flag.
Expect more NDAs
Finally, making sure NDAs are ironed out and followed is important for more than just avoiding a lawsuit. Such disputes can also put timelines at risk, which can lead to more delays and cost overruns.
Baker has seen the use of NDAs increase, especially in the fields of alternate energy, but also for retail projects and sports arenas, because clients want to protect unique designs for high-end clients, especially when it comes to luxury amenities and accommodations.
Another reason behind more NDAs: contractors are switching jobs more often. “People are mobile,” he said, and clients are “trying to cut down on people walking away with their processes and how they do things.”
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