Ten Things to Think About Before Signing a Construction Contract
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.
The Importance of a Construction Project Contract
At some point, you will probably find yourself wondering whether you should really sign the contract in front of you. These documents are a good thing that is (hopefully) designed to protect both you and the other party.
Ideally, contract documents allow the parties to:
- Define everything in specific terms
- List the extent of their obligations to each other
- List the delivery of products or services
- List payment terms
When the contract is signed, it generally cannot be changed unless both parties agree. Consequently, it is vital to protect yourself before signing a contract. You need to understand exactly what it is you are committing yourself to.
Identifying Construction Risks in a Contract
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.
Both parties should take the time to read and understand the lengthy (often dryly-worded) document. Failure to read a written agreement is not a valid defense in a contract dispute.
Considerations As You Create Your Contract
Use the following list as a general guide. Always make sure construction contract terms are workable for you. If they are not, attempt to negotiate terms that are more reasonable or have a lawyer on hand for dispute resolution.
1. Time Frame
The agreement should have a time frame if any aspect of your transaction occurs 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.
Both parties should carefully consider the scope of work before setting a completion date.
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. Additional work may be charged extra, so ask about how their prices may change.
3. Payment Method
Determine the terms of payment and whether it is appropriate for 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. If there is a final payment date, discuss the date in advance.
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 of the goods or services, make sure that the particular terms are in a written 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
The construction industry has rules for how transactions are governed. If you see something in a contract that does not make sense, ask. Some contracts make assumptions about following a particular industry procedure. If they assume you know, they won't explain the process in the contract. Always make sure you know what the industry procedure is before you sign.
7. Inability to Agree
Sometimes, you need to have work started immediately, but cannot come to an agreement on the final terms. 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. Still, if you sign the contract with the clause intact, you have probably waived your right to take the matter to court.
9. Anticipated Problems
Your contractor may have prior bad experiences. This often leads to adding 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. Most conflicts need court cases to enforce agreements, which can get spendy. 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.