In the construction industry, becoming an independent contractor can be an exciting and intimidating experience at first. Working through construction contracts is one of the most important tasks. These documents can be confusing since they are frequently filled with legalese. However, they are essential to protecting your rights.
This Blog, Brick & Bolt, aims to inform you about the essentials and a few more things that must be included in every building contract.
Important Elements of a Construction Contract
All contracts have to have certain things, no matter what kind or how they are put together. While standards such as AIA and ConsensusDocs offer basic contracts you can utilise, there are other situations where you may require a customised construction contract. A product or service must be provided in exchange for payment or another consideration with monetary worth in a contract. A construction contract’s other fundamental component is the deadline for finishing the service or goods.
Construction Contract Structure
Every construction contract begins with a section that specifies the parties involved: the buyer, the company or individual receiving the services, and the individual or corporation providing the services. Legal names and the dates when the agreement begins or ends must be included in these parts. The contract must also specify the party’s location and a description of the services. The following sections will discuss each contracting party’s responsibilities and the extent of their labour in purchasing specialised goods or services.
Legal and Associated Terminologies
The contract terms should also specify how any claims will be handled and the procedures that both parties must adhere to if any do. Arbitration is typically the preferred route to resolve conflicts before taking the matter to an AHJ or local law authority. The conditions under which disagreements can be brought before the opposing party must be clearly stated. Make sure you read and comprehend the section on indemnity agreements. The language in this part is suitable, so the contractor will cover the cost of defending and protecting the owner against bodily injury and property claims made by insurance companies.
Guarantees and Conditions
After the project is finished, you should provide a warranty, which may cover labour, materials, or both. This section clearly defines what material and workmanship warranties mean and when those warranties will begin to run. The duties specified in the scope of work will be those the owner wishes to carve out to hire a third party. Ensure your warranty begins on the day you receive the substantial completion and lasts for the specified time. Manufacturer’s warranties for systems, materials, and equipment must be included in the warranty package. Ensure that warranty items from punch lists are defined precisely for your advantage.
Reimbursement and Payment
Cost-related problems and conflicts can arise from construction contracts that need to specify which services or expenses are to be compensated. Verify if there is a list of the costs for which you qualify for reimbursement and information on how those charges are handled and invoiced. This section contains the payment recurrences, which tell you how often and quickly you will be paid. Suppose a T&E kind of contract is being used. In that case, including the description and all necessary information to process the invoice and any supporting documentation, such as timesheets and invoices, is crucial. Payment arrangements can be made during order placement once the material is delivered to the location. Allowing contractors to overhead and profit during change order requests is another frequent clause added to some building contracts.
Construction Area
The most important, and perhaps the most ambiguous and disregarded of all. There should be more in this section than what your estimator currently offers. To ensure no scope gaps, take advantage of the chance to inquire about and receive confirmation from the Owner regarding the accuracy of the drawings and documents supplied.
This section will specify the tasks to be carried out and how the contractor will do them. A project free from disputes must have a well-defined scope, making collecting payments and accepting services easier. This section will outline the construction contract document’s precedential order and the analysis that must be done if there are any differences.
Duration in Building Agreements
There is little time left. That expression is frequently used, but are you aware of how it affects your project or contract? It denotes that the project’s duration is specified from beginning to end and that any modifications or extensions that may result in additional time must be handled and recorded. The project must include its start and finish dates, calendar or work days, and the requirements to finish it on schedule. It is also necessary to add wording in this section describing possible justifications for asking for time extensions.
Unexpected Events
Items about force majeure and excusable incidents are crucial components in every construction contract. Here is where you safeguard your interests against uncontrollably occurring unforeseeable circumstances. Events outside your control, such as strikes, storms, fires, and legislative changes, can substantially impact how well you execute the project and cause serious delays from which you may be unable to recover.
At the very least, the following must be covered under the force majeure section:
- What must be completed following an incident
- Who is authorised to halt work or cease performance?
- What transpires over a longer length of time
- How to solve the issue
- Causes for contract termination
Schedule
While some believe this belongs under the time part, you will benefit from this area. Your payment terms depend on you explaining how long it will take to finish the project and major milestones. The timetable is a strong weapon to defend your project in case of a delay or impact on your completion date. The contract’s schedule section should contain precise wording regarding the process of obtaining delay damages. The timetable should indicate a contract violation and how the delays impacted the timeline.
Contract Negotiations For Construction
Construction contract negotiations can be difficult processes requiring close attention to detail. Before engaging in negotiations, it’s critical to have a complete grasp of the project’s scope of work, schedule, and budget. Before the contract is signed, all parties involved should agree with the project’s objectives and expectations, and any possible problems or risks should be recognised and resolved.
In summary, understanding construction contract’s many forms, typical terms, and legal ramifications is vital because they are a vital part of the construction business. A successful project can be ensured and risk reduced by carefully planning and drafting a construction contract, regardless of whether you are the owner, contractor, or subcontractor. You can better negotiate the intricacies of building contracts and safeguard your interests by adhering to the rules described in this article.
Don’t worry; Brick&Bolt has written a detailed blog about building contractors. To read more, click on the link below: