Understanding contract in construction is a skill that every builder should know inside and out, whether he or she is a solo owner-builder or the head of a large construction firm. Although various contractors use different checklists when creating a contract, there are commonalities that should be followed no matter what form the printed contract takes. In most good contracts, the builder starts with the most basic of line items, adapting the contract to the complexity of the project.
Aside from the construction work itself, creating the contract is one of the most important parts of the project. The more detailed the contract the better; even items considered common sense should not be overlooked. There are seven major areas to consider when developing your skills at creating successful contracts for your construction business.
Construction Contract Agreements
A construction contract agreement is a principal document that sets a date and specifies which parties are going to participate in the construction process. Usually, the contract agreement is executed between the owner of the project and the contractor (or supplier) that is providing the requested service. The contract generally contains several sections or clauses (or sometimes appended documents) that define the scope, terms, and conditions of the agreement. The legal writing can be heavy, and both parties often involve a lawyer when dealing with these specific documents.
Differing Site Conditions
Differing site conditions can increase construction costs and can delay breaking ground on the project. A contractor developing contracts needs to know how to handle this possibility and include language that protects against unforeseen circumstances. Normally, differing site conditions surface during the first weeks of the project, potentially affecting the schedule and causing unforeseen delays. Considering the repercussions of delays, it’s crucial to document how such impediments affect the general contract.
Construction Contracting Escalation Clause
Escalation clauses are often written into construction contracts. They are more typically included on large construction projects, where the job might require more than one year to complete and where it carries substantial financial backing and risk. For example, the potential for economic changes such as a gas shortage or oil glut may require contract escalation clauses, even on small and medium-size projects. If executed properly, escalation clauses protect the contractor from unpredicted charges.
Basic Elements or Structure of a Construction Contract
- Legal and Related Terms
- Warranties and Terms
- Payment and Reimbursements
- Construction Scope
- Time in Construction Contracts
- Unforeseen Events
Creating a solid construction contract is among the first steps of a successful project, and learning about the essential components of contracts is very important. Most of them start with a basic list of items that are adapted according to each project, and details are added according to the project’s complexity. As mentioned before, there is no such thing as a too detailed contract: some contracts include specifications for security, staffing requirements, excusable events, etc. Every contractor should consider adding documents that improve the clarity and scope of contracts. The goal of a contract is establishing the terms to solve any claims or issues that might arise during the project.