Missed contract clauses can cause a host of headaches in the long run, particularly if you don’t have the right idea of what specific aspects mean.
By David Vayro, Head of Built Environment Projects
Contracts in the construction industry are legally binding documents that, once signed, hold their weight through the entire project – so it’s incredibly important to get them right from the beginning.
Missed contract clauses can cause a host of headaches in the long run, particularly if you don’t have the right idea of what specific aspects mean. It might result in you facing issues such as delays, disputes and spending more time and money to resolve them.
There are many forms a project contract can take. Some companies use a standardized form from an association and others have their own custom versions but either way, here are some of the most important clauses you’ll need to ensure are accurate before signing on the dotted line.
- Expectation on scope of work
This is the first thing you’ll need to check when coming to sign your contract as sometimes it’s not always defined in the document itself. Double check that expectation of what you’ll deliver is in tandem with the scope of work you offered at the tender or proposal stage.
During the conversation stage, expectations of work can change so it’s important to keep a record of this when it comes to creating and/or signing the final contract.
- Contract sum
Some might argue that this is the most important step, for obvious reasons, but it’s vital there are no mistakes when agreeing the project sum in the contract. It’s where the price, or guaranteed maximum price, is spelled out and agreed.
As part of this, it’s important to consider other terms such as alternates, allowances and unit prices as these can potentially add more money to the value of the contract and should be considered as part of the overall budget.
For some construction contracts too, there are several rounds of negotiations, and therefore it’s important to track all conversations and any arranged discounts to keep the final agreed sum updated.
- Payment terms
Once you’re happy with the agreed sum for the work, you’ll need to double check the payment process in which it’ll be paid. This includes the payment timings, approvals and terms of the final payment.
Consider things like how often payments will be made, any advance payments and milestone dates such as invoice due date, as all parties involved will need be well aware of these. Details such as this are important for you to deliver the project without facing any cash flow issues.
- Project duration and changes in work
As part of your checks, you’ll need to confirm the anticipated project completion date – and the project start date – as these form the basis for time extension claims.
I’d also recommend ensuring you’re covered for any changes in the work. There are changes in any construction project but whether they’re expected or not can be a different matter. Make sure how any changes will be handled are spelled out within the contract and how long the contractor has to notify the owner of these changes.
- Dispute resolution
A clause that no one wants to have to consider but one that’s as equally important as the rest. The dispute resolution clause will effectively determine how conflicts will be settled if the situation arises.
The three main types of dispute resolution are arbitration (like a court hearing), mediation (generally not binding and less formal) and litigation (the most formal dispute resolution process and involves a formal hearing with a judge). It’s important to consider how any potential issues will be resolved and both parties must agree on this when signing.
While I’ve listed some of the most important areas of a contract to consider before signing, there are also a host of other important clauses to double check such as termination, warranties and indemnity. If you’d like professional support in auditing your construction contract before signing, please contact me directly on: email@example.com.