Construction contracts are one of the most critical aspects of a project. They define the parties involved, the work to be performed, how the work will be done and when it will be done, what materials will be used, and how much the project will cost, among many other things.
Following is a list of what is included in a typical construction contract along with some tips to ensure there are no surprises that could negatively impact your business.
- Client information, including legal name, phone number, email, and address, and where the construction work will be taking place.
- Contractor’s information, including legal name, phone number, email, and address, relevant license numbers and insurance information (General Liability, Professional Liability, Workers’ Compensation).
- Title and description of the project, including a clear outline of the scope of the project.
- Will you be providing materials only? Materials and labor? Or just labor?
- Will you be providing specification plans and is this part of the costs involved?
- Projected timeline and completion date, including the date the contract takes effect, the project start date and estimated completion date.
- Clear verbiage regarding any project delays.
- Cost estimates and payment schedule and terms.
- Change order agreement. Things may change throughout the course of your project so be sure the agreement explains the change order process. Document and require sign-off on every change order and specify this as part of the process in the contract. This applies to changes in the project scope, project timeline, or in price or payment terms.
- Stop-work clause and stop-payment clause. A stop-work clause gives you the legal right to stop the project if you have not been paid. A stop-payment clause gives the client the right to withhold payment if the work is not completed as outlined.
- Act of God clause. Occasionally, circumstances beyond your control may prevent you from completing a project on time. It is critical to include provisions for these circumstances in the construction contract. An Act of God clause specifies how you and the client will proceed if one of these unforeseeable events occurs, such as a hurricane, earthquake, or widespread material shortage due to supply-chain disruption. Make sure the contract accounts for any and all potential issues.
- List of all exclusions so each party understands what is and isn’t being provided as part of the project scope.
- Define the dispute resolution procedure. You may want to require in the contract that in the event of a disagreement, each party must meet within a week or two to attempt resolution. If that doesn't work, consider going to mediation.
- Indemnification agreements and hold harmless agreements. It’s important for an attorney to review these agreements to ensure you are clear as to your liability as well as that of the other party’s.
All contracts should be reviewed by an attorney and an insurance professional to ensure the appropriate insurance program is in place and, when possible, transfers your liability to a third party. It’s important to make sure you are well protected if there are claims made against you. Review both your own policies and those on which you be named as an “additional insured,” including your subcontractors’ policies.