Construction contracts. This is a short, non-exhaustive list of what should be in most construction contracts. This article is for the aspiring or beginning construction contractor, and the smaller contractor looking to become a larger business and more professional. In future articles I’ll flesh out the various topics, but just to get you started on what we need to discuss when you ask me to draft, or review, a construction contract, here we go:
A Signature Binding the Parties to Construction Contracts
Duh. Sounds obvious, right? Well, often what I see is the contractor and subcontractor, or contractor and owner, trading text messages with various attachments. Changes to the scope, the price, the start date, specifications. But no one ever says, “let’s go” and the other party says “I agree” on one final set of documents. Lawyers love the “trading email contract” because we make a lot of money off a failure of the parties to sign a construction contract.
Always bottom line your construction contracts with a signature. It signifies (see how those words are related?) that the person or entity has read all the documents attached to the signature page, and agrees to be bound by them. One set of documents to rule them all.
It’s an actual thing that if a bidder on a public construction contract fails to sign its bid, the bid is discarded, thrown out, ignored. At its most basic, the bidder has failed to indicate that it understands the bid documents and intends to be bound by them if awarded the contract via affixing an authorized signature.
Scope of Work
Another construction contract element that sounds obvious, but is often missed, is a clear scope of work to be performed by the contractor. The window supplier needs to know how many windows and of what type of windows. Is he installing them, or just supplying them? Big difference that you don’t really want to discover when the windows are sitting on the job site, uninstalled, and you need them installed.
Scope of work gets even more critical in larger construction contracts. There will be multiple overlapping subcontractors and we don’t want two subs either bidding on the work, fighting to do the work, or alternatively, not doing the work because neither included portions of the scope in its bid. Are the painters taping the drywall joints, or the drywall installer? Is the finish carpenter purchasing the doors, or is the general contractor buying them and supplying them for installation?
Gaps and misunderstandings in the scope of work lead to unassigned work, breaks in the construction schedule, a contractor possibly having to supply work or materials without being paid for them, and unfinished or rushed work.
Another “Duh” right? It’s actually not so simple. Just to start, what is the fee going to be for the project? Are there variables like an allowance for finishes, or “extras” that the building owner is not sure it wants just right now? Were there alternative bid items that increased or decreased the project cost?
On a basic home renovation, the payment can be half up front, half on completion; or one-third up front for the purchase of materials, one-third on the start of construction, and one-third on completion. Or just payment on completion. Then we have to define what is “completion”. All of a sudden that simple home renovation construction contract is not so simple.
On larger commercial projects, at minimum a subcontractor will have to submit a pay application to the project manager detailing the work done in the selected period of time.
Conclusion About Construction Contracts
More to come in my next construction contracts article. These will give you an insight into the decisions I’ll be asking you to make when we meet to discuss drafting your firm’s construction contract. Of course, every contract is unique and we can modify a base contract as circumstances require.
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