Things to Consider Before Signing a Construction Contract

A construction contract is a legally binding agreement between two or more parties detailing the specifics of a construction project. It encompasses various elements, from the scope of work to be done, materials used, and the timeframe for completion.

While many believe oral agreements can suffice, written contracts are preferred due to the complexity of construction projects and the need for clarity on responsibilities and terms.

What Are Some Things to Consider Before Signing a Construction Contract?

Before finalizing any agreement, it’s vital to ensure the following. Let’s delve deeper into each of these essential elements of a construction contract:

Drafting the Contract

When drafting the contract, precision and clarity are of utmost importance. The contract acts as a roadmap for the project, outlining all aspects in detail.

• Language: Avoid jargon or ambiguous terms that can lead to misunderstandings—the simpler and clearer the language, the better for all involved parties.
• Tasks: Every task, no matter how minor, should be documented. This includes preliminary work, required inspections, clean-up duties, and post-construction assessments.
• Timelines: Establish clear start and end dates for each project phase. It’s also wise to account for potential delays, weather conditions, or unforeseen construction challenges and specify any penalties or rewards for early or late completion.

Indemnity Clause

The indemnity clause is a safety net, guarding against potential financial losses due to mistakes or negligence.

• Types of Indemnity: Different forms of indemnity clauses range from broad form (where one party agrees to indemnify the other for all liability, irrespective of fault) to limited or comparative fault-based indemnities.
• Scope: Ensure the kinds of incidents or oversights covered are clear. For example, is the contractor indemnifying the project owner only against third-party claims or also against direct losses?

Attorney’s Fees

This provision determines who shoulders the legal costs in a dispute.

• Prevailing Party: Some clauses stipulate that the “prevailing party” in any dispute will have their attorney’s fees paid by the other party. It incentivizes both parties to negotiate in good faith and avoid frivolous litigation.
• Caps or Limits: Some contracts might cap the amount recoverable as attorney’s fees, ensuring that potential litigation risks are somewhat contained.

Breach of Construction Contract

Clearly defined consequences for failing to uphold terms can prevent minor disagreements from ballooning into significant disputes.

• Types of Breaches: From material breaches, which are major violations that destroy the essence of the contract, to minor or anticipatory breaches, it’s crucial to define what constitutes a breach of construction contract.
• Remedies: Solutions might range from monetary penalties and rectifications to contract termination. Parties might also include provisions for mediation or arbitration before resorting to litigation.

Contract Laws

Different jurisdictions have distinct regulations and mandatory stipulations related to construction contract laws.

• Mandatory Provisions: Some jurisdictions require specific clauses to be present, such as mechanics’ lien clauses or payment bond details. Ignoring these can render a contract void.
• Rights and Restrictions: The right to terminate a contract under certain conditions might be implied by law even if not expressly mentioned in the contract. Similarly, certain unfair or one-sided provisions might be unenforceable due to local laws, even if both parties agree.

A construction contract is a multi-faceted document. Engaging in its drafting without a clear understanding or legal assistance can expose parties to unnecessary risks and complications.

What Is the Most Important Part of a Construction Agreement?

While every part of a construction agreement holds significance, the scope of work is arguably the most crucial. This section details what exactly is expected in the project, ensuring both parties clearly understand their responsibilities. Ambiguities here can lead to disputes. Similarly, payment terms and the indemnity clause are also vitally important, as they dictate financial responsibilities and potential liabilities.

Scope of Work Ambiguities Leading to Disputes

The scope of work in a construction agreement details the specific work to be done, the material to be used, the quality of the work, and the desired outcome. Ambiguities in this section can easily lead to misunderstandings and disputes.

Here are a few examples:

• Undefined Quality or Material Standards: If the contract states hardwood flooring should be installed but doesn’t specify the type or quality of hardwood, disputes could arise. One party might be thinking of high-end oak, while the other might provide a cheaper pine, which is technically hardwood.
• Vague Work Descriptions: A contract might stipulate the construction of a “large deck,” but what constitutes “large” can be subjective. One party might envision a 500 square-foot space, while the other might think 200 square feet.
• Unspecified Exclusions: Conflicts could arise when the project nears completion if the scope of work states that a contractor will handle all plumbing but doesn’t specify whether this includes connecting to the city sewage line or just the internal plumbing.
• Significance of the Scope of Work: The scope of work sets the expectations for the entire project. When clearly defined:
• It Serves as a Guideline: Both parties can constantly refer back to the scope of work to ensure they are on track, minimizing deviations and surprises.
• Helps in Progress Monitoring: A well-defined scope allows for the creation of milestones or benchmarks, assisting in tracking the project’s progress and ensuring it stays on schedule.
• Financial Implications: Payment is often tied to the completion of certain parts of the scope. Clearly delineating what constitutes completion can prevent disputes about payment timelines and amounts.
• Minimizes Change Orders: A vague scope of work often results in numerous change orders, which can increase costs and push out timelines. A detailed scope minimizes this risk.
• Defines Limits: The scope of work ensures that contractors know what’s expected and prevents them from either doing too little or going beyond the project’s requirements (unless such extra work is agreed upon and compensated).
• Risk Management: Specifying what work is to be done and how it can help identify potential risks early on. For instance, if the scope involves digging in a certain area, knowing this in advance allows for utility checks to prevent accidents.
• Budgeting and Resource Allocation: When the tasks and their specifics are outlined, it becomes easier to estimate costs accurately and allocate resources efficiently. This can help in avoiding unexpected expenditures.

Given the pivotal role of the scope of work, ensuring it’s unambiguous is paramount. This clarity can save time and money by preventing misunderstandings, rework, and legal disputes.

What If the Parties Cannot Reach an Agreement?

If the parties cannot agree on contract terms, they might consider alternative dispute resolution mechanisms like mediation or arbitration. These methods can be less aggressive and more cost-effective than litigation. If disagreements persist, it might be best to reassess the project’s feasibility or consider different partners.

Do I Need a Lawyer?

Absolutely. Given the intricacies of construction contracts and the significant investments often at stake, having legal representation is wise. A lawyer can help draft, review, and negotiate terms, protecting your interests.

Don’t leave anything to chance. Connect with an experienced contract lawyer through LegalMatch and ensure your construction project starts on the right foundation.