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Ten Things to Think About Before Signing a Construction Contract

Created by FindLaw's team of legal writers and editors.

A well-drafted construction contract clearly sets out the work to be done, the price to be paid for the work, and the terms and conditions of payment. The contract should also allocate various foreseeable risks between the parties. When the parties allocate a list of potential risks, the contract becomes longer, but it reduces the potential for disagreements in "gray areas" that are not addressed at all - assuming that both parties take the time to read and understand the lengthy, dryly-worded document. Of course, failure to read a written agreement is not a valid defense.

At some point you will probably find yourself wondering whether you should really sign the contract in front of you. If you order items from a-door-to door salesman, hire a contractor for a home improvement project, or go to work for someone as a consultant, you will be faced with a document, hopefully, designed to protect both you and the other party. Ideally, a contract allows the parties to define, in specific terms, the extent of their obligations to each other relative to the delivery of products or services and payment terms. When the contract is signed, it generally cannot be changed unless both parties agree. Consequently, it is important to protect yourself prior to signing a contract by understanding exactly what it is you are committing yourself to. Use the following list as a general guide. Make sure construction contract terms are workable for you. If they are not, attempt to negotiate terms that are more reasonable.

Ten Things to Think About Before Signing a Contract

1. Time Frame

The agreement should have a time frame if any aspect of your transaction will occur in the future. If you are the party delivering the services or goods, make sure that you are allowing yourself enough time to complete the job. If you are the party receiving the goods or services, make sure that the delivery schedule conforms to your needs. If you want to contract for month-to-month services, make sure that you are not signing an agreement that obligates you for a longer period.

2. Prices

The agreement should clearly state prices. Be wary of additional charges that you have not discussed with the other party. For example, when you contract with a professional, you will often be quoted an hourly rate that will not include additional charges for things like photocopying and postage. Make sure you know what the additional fees are and ask for an estimate.

3. Payment Method

Determine the terms of payment and whether it is appropriate to your financial situation. For example, the contract may call for payments at the end of the month when the majority of your bills are due. You may also be able to negotiate installment payments if you cannot afford a lump sum.

4. Payment Penalties

Determine whether there are late payment penalties and if they are reasonable.

5. Material Terms

If you and the other party have an understanding about the goods or services, make sure that the particular terms are in the contract. For example, if you have agreed to make a collection of dresses out of silk-like polyester, then it should be in the contract. This will help you make your point should the buyer demand that the dresses were supposed to be made of silk.

6. Transaction Rules for Particular Industries

Particular industries have rules by which transactions are governed. If you see something in a contract that makes an assumption of following a particular industry procedure, but doesn't set out the procedure in the contract, make sure you know what the industry procedure is before you sign.

7. Inability to Agree

If you need to have work started immediately, but cannot come to an agreement on the final terms of an agreement, you need to make sure that you are signing a construction contract that is not going to be enforceable as a permanent agreement. You can accomplish this by adding language like, "This interim agreement is in effect only until a more permanent agreement can be negotiated by both parties."

8. Resolution of Anticipated Disputes

No matter how careful you are or how good your relationship with the other party, a dispute may arise. Many contracts include an arbitration clause, which means that a dispute must be settled in arbitration as opposed to in court. Arbitration is generally less costly and less formal than court, but if you sign the contract with the clause intact, you have probably waived your right to take the matter to court.

9. Anticipated Problems

The party with whom you are contracting may have had prior experiences that have led it to add particular methods of resolution to the contract. Those ideas may be perfectly agreeable, but they could also be unfairly beneficial to the other party. Analyze whether these terms will benefit you.

10. Attorney's Fees

Determine whether you will be charged for the other party's attorney's fees if you breach the contract and lose the case that will probably arise to enforce it. If you are prone to breaching contracts, this is the kind of clause you should avoid.

Get Legal Advice Before You Sign a Construction Contract

Construction contracts require careful consideration. Problems frequently arise in the construction process and the construction contract determines how these issues are resolved. A local construction law attorney can give you peace of mind and help you make the right decisions.

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