Working with architects and designers to finalize plans, finishes, furnishings, and more brings a sense of anticipation when building or renovating a facility. Going through a construction contract with a fine-tooth comb, on the other hand, doesn’t necessarily conjure up the same feelings.
But this necessary agreement identifies legally binding obligations on the part of the contractor and the client and helps ensure that both sides are on the same page. Construction contract language can be complex, and mistakes can sometimes fall through the cracks. That’s why it’s critically important to seek legal counsel to review any agreements before signing on the dotted line.
What types of pitfalls might they help you avoid?
1. Not Clearly Defining Scope of Work
Outlining the scope of work is the foundation of any good contract. The scope of work clearly defines the technical details of the work to be performed including project timelines and milestones, costs, payment schedules, and expectations for both parties. Missed details in the scope of work increase the potential for payment disputes, project delays, and costly litigation.
Detailed project costs and payment terms are often the most scrutinized portion of a construction contract. Some contracts list a fixed price outlining the total cost. Others might include a guaranteed maximum price (GMP) cost structure. GMP sets limits on the maximum price a project owner will pay, barring any change orders.
2. Ignoring Change Orders
Speaking of which, an extensive construction project rarely is completed exactly according to specifications. This does not necessarily mean there’s been a breach of contract. Project owners sometimes have second thoughts about certain elements of a build, such as wanting a different flooring option or additional restrooms. Or maybe an item gets discontinued before a phase of a project begins and the contractor needs to find an alternative.
Changes to a project plan after it’s been approved and the contract has been signed will likely result in scope creep and incur additional costs. Including language in a contract about limits on additional charges due to scope creep helps protect both parties. An experienced construction team often includes contingencies in the contract for a certain percentage in overages due to change orders to help cover these types of unexpected expenses.
3. Not Including Stop Payment and Stop Work Clauses
Stop payment clauses allow a project owner to withhold payment for work that clearly does not meet the established benchmarks and parameters outlined in the contract. Similar protections are offered to the construction firm by way of stop work clauses, which offer the right to cease work when a client fails to make scheduled payments or meet other obligations. Not including these critical clauses increases liabilities for all involved parties.
4. Overlooking Unexpected Circumstances
Another clause that needs to be included in every construction contract is a force majeure clause. This is sometimes referred to as an act of God, outlining extraordinary events that could prevent either party from fulfilling their contractual obligations.
Examples of force majeure might include natural disasters like flooding, hurricanes, tornadoes, earthquakes, or wildfires. The recent pandemic outlined a type of unexpected event that left some organizations questioning whether it qualified as force majeure. Some contract wording is open-ended, merely defining a force majeure event as “circumstances beyond reasonable control.” Work with a construction legal expert to ensure clear and well-defined clauses.
5. Choosing the Wrong Construction Partner
In an ideal situation, the legal ramifications of a failure to perform the work outlined in a construction contract never have to enter the picture. Even the most perfectly crafted contract between parties may not prevent problems on the job site; it will only provide protections in the event you want to pursue legal action.
That’s why working with a reputable construction manager and general contractor is so critical. No project owner wants to go through the hassle and expense of holding a construction company accountable for poor workmanship, delays or other issues. While numerous clauses and obligations must be outlined in a contract, it’s often the name on the signature line that determines how well a project will go.
Working with a reputable contractor and construction manager is truly the key to a project’s success. When vetting which construction firm you will work with, ask about their approach to project planning, the bidding process, and how they work up contracts. For additional questions to ask a prospective contractor, download our helpful guide below. Then contact our team of commercial construction experts to explore next steps. We’re happy to help.