Construction contracts are legal agreements created by two or more parties that govern some type of construction project. These types of contracts that are typically entered into between three main parties, including:
- A property owner;
- A general contractor; and
- An architecture or engineering design firm.
Construction contracts are necessary for any construction project because they outline what is expected of all of the parties involved as well as what will occur if a construction dispute arises between the parties.
Contractors are typically hired to perform projects or complete services for a property owner. Once the parties involved enter into the construction contract, they each have legal obligations to do as outlined in the agreement.
There are four main categories of construction contracts, including:
- Lump sum or fixed price: This type of contract is for a specific amount of money to complete an entire construction project. Any costs that are related to the construction project are included in the price;
- Cost plus: This is a contract in which a property owner is responsible for paying the contractor for certain expenses;
- Time and materials: This is a contract where an agreement is made for payment to be made daily or hourly. Often the property owner also agrees to pay for certain costs; and
- Unit pricing: This type of contract is commonly used by government agencies. An agreement is made to pay a specific amount of money for certain construction supplies.
Generally, construction contracts serve three main purposes, including:
- To list the responsibilities of each party;
- To determine who is responsible for any possible risk in different situations; and
- To make items under the contract more certain as well as to allow the parties to plan for the future.
In certain cases, construction contract disputes can occur between the parties. This is why it is important to have the agreement put into a clearly written construction contract.
One way a dispute may arise is if one of the parties does not follow the terms of the agreement. If there is a breach of contract by either party, the non-breaching party can file a lawsuit to collect damages.
What Is a Breach of Construction Contract?
Breach of contract means that one of the parties did not do what they promised to do in the agreement. The party who breaches a contract may be held legally responsible, or liable, for damages.
Typically, in construction contract cases, damages may include money for the party who suffered a loss or who was injured by the breach. Under construction laws, there are four required elements to prove breach of construction contract, including:
- A legal construction contract actually exists;
- The party performed their responsibilities required in the construction contract;
- The other party did not perform their legal responsibilities as outlined in the construction contract; and
- The party suffered a loss or was injured because the other party breached the contract.
Prior to suing for a breach of a construction contract, an individual should collect any important and relevant information. They should also reach their contract over again.
There are many contracts that have sections providing what will occur if one of the parties breaches the contract. In certain contracts, the parties will be required to engage in alternative dispute resolution before being able to file a lawsuit.
Alternative dispute resolution is a way of resolving disagreements between the parties without going to court. It is often a negotiation style process, for example, mediation or arbitration.
If an individual believes that the other party to their construction contract breached the contract, they should inform them. There may be a clause in the contract which provides them with a time period in which to fix the breach.
If an individual is able to prove the four elements listed above, suing a builder for a breach of contract may be an option. In order to sue for a breach of construction contract, an individual will be required to file a lawsuit in court.
This means they will have to fill out specific paperwork and provide it to the court. If an individual is considering suing a contractor for breach of contract, they should consult with a lawyer.
A lawyer will know the process to initiate a lawsuit and can represent the party in court in order to get them the best possible outcome in their case.
What Is a Limitation of Liability Clause?
Under contract laws, a limitation of liability clause may be used by a party seeking to shield themselves from either civil or criminal liability. If an individual has entered into a contract that contains a limitation of liability clause, they should exercise caution.
A limitation of liability clause releases a party from liability and prevents them from holding the other party responsible should something go wrong. If an individual has to accept the limitation of liability clause, they should ensure they obtain something of value from the other party in return.
Are There Any Legal Issues Involving the Limitation of Liability Clauses?
The main legal issue with limitation of liability clauses is whether or not the clause is enforceable. In general, an architect owes a duty to the property owner to draft plans that are defect-free.
Contract laws do not look favorably upon indemnity agreements, especially those where an owner releases a designer from all liability. However, there are some states that allow reasonably drafted limitation of liability clauses.
There are other states, however, that do not permit limitation of liability clauses to be enforced at all.
Should Courts Always Uphold Limitation of Liability Clauses?
In general, limitation of liability clauses will be upheld by a court of law if the parties involved agreed to the terms. However, as noted above, some states do not allow their enforcement.
What Makes a Limitation of Liability Clause Enforceable?
There are certain states that allow limitations of liability up to an amount of $50,000, the cost of the contract, or whichever amount is greater. In addition, in order for the limitation of liability clause to be enforceable, there are some states that require both of the parties to the contract to clearly state that they intend to enter into the current contract that contains the limitation of liability clause.
If a dispute arises, a court will typically examine whether or not the limitation of liability clause was located in a conspicuous place in the contract with a clear and noticeable heading. The court will also examine whether or not the parties involved in the contract had equal bargaining power and were both equally legally savvy when entering into the contract.
A court will be more likely to enforce a clause if both of the parties were free to negotiate the contract and if both of the parties were represented by legal counsel.
Do I Need an Attorney?
In order to best ensure the success of your business operations, it is important for you to consult with a contract lawyer prior to entering into any major contract or agreement. Your lawyer will review the document and ensure that it does not include any clauses that are against your best interests.
If your construction contract has been breached, your lawyer will help you recover money damages. If you have been sued for breach of a construction contract, your lawyer can review your case and will advise you of any possible defenses.
