Seven construction contract tips you should know about before any building project

Seven construction contract tips you should know about before any building project

 

The construction industry usually involves heavy (read expensive) machinery, tons and tons of (expensive) materials, and work on properties that will end up being worth hundreds of thousands or millions of dollars. In other words, in terms of the sheer value of the project, we’re talking about an insane value for both the contractors and the investors. This is why you need to have a contract. With that in mind and without further ado, here are the top seven contract tips you need to be aware of before any building project.

Get everything in writing

The first thing you need to do when making a contract is to ensure that everything is written down. Nothing is implied; if something is left ambiguous, it’s a potential source for subsequent misunderstanding. There’s a reason why a written agreement is a norm in the business world. Take your time to think of everything, seeing how it might be relevant later on.

Make sure that it’s simple

You’re not just writing a contract for the court. One of the reasons behind having the contract made is to create a legal document that the other party (or you) may review when you have any doubts. It will be challenging to interpret if it’s too convoluted, thus being quite inadequate. The wording is incredibly important, so make sure to hire someone who knows how to do it.

Contract information

The basic construction information consists of basic info that includes factors like:

  • Time and materials
  • Lump-sum
  • Unit-price
  • Cost-plus
  • Guaranteed maximum price

The thing is that you need to include as many details as possible in order to create a strong reference point regarding any outcome that involves mistakes, conflicts, and delays. While the total price is sometimes hard to get an estimate of, the thing is that the investor needs to have a safeguard in terms of guaranteed maximum price. This serves as their last line of defense in some of the most extreme cases.

It’s also important to mention general and special conditions just to stay on the safe side. If there are any unique features, they need to be included in the contract.

Projected timeline and completion date

Contract tips for construction

Aside from the cost, the biggest concern of any investor is the completion date. Now, seeing as how the construction happens in stages, having the project’s deliverables laid out on a timeline allows the investor to keep a closer track of the project. This is important because, once again, it helps keep everyone in check. Waiting for the completion date in order to recognize that they haven’t done their job is too much of a risk.

By having a projected timeline, you’ll be able to notice that things are not moving at the desired pace and even have some legal foundation for a complaint. While skillful building dispute lawyers can intervene even without it, it’s always best to give them some liability-based background in order to facilitate the process.

Cost estimate and payment schedule

When it comes to the cost estimate, there are several efficient methods worth considering. These are the:

  • Expert judgment method: This method implies that you hire an expert with experience in the field and have them set the anticipated price for the project.
  • Analogous estimating method: Such a method involves you finding a similar project (to the one you plan) and using them as a reference point.
  • Parametric estimating method: This is the most mathematical of all approaches, seeing as how it brings the cost down to the number of working hours and square footage of the project.
  • Three-point estimating method: The best thing about this method is that it makes three estimates, the most likely, the optimistic, and the pessimistic estimate. The majority of clients find this method to be the most flexible and the most indicative.

Just keep in mind that neither of these methods is 100% accurate. However, even if they were accurate, they’re just the tip of the iceberg, and you also want to have a payment schedule in place. This, too, needs to be specified in the contract.

Construction warranty

While some defects can be revealed only later (after the construction is over), the truth is that you want a legally binding commitment that will assure you that the product is defect-free. A warranty usually has a time constraint, and it specifies the obligation of the contractor in the case of a given defect. They may be forced to fix the flaw-free of charge, pay the penalty fee, etc. Keep in mind that this bears significance in more cases than you would expect.

Act of God clause

Construction project tips

What happens if a powerful earthquake happens amidst the construction, tearing down parts of the structure and setting construction back by quite a while? Sure, it’s not the fault of the construction crew, but even this scenario needs to be thought of while making a contract. Needless to say, this all goes under the “Act of God” clause. This is an event that:

  • It can’t be realistically prevented.
  • It is brought about as a direct result of a natural cause.
  • It can’t be blamed on a single person/party.

In 2020, for instance, due to the COVID-19 pandemic, a lot of construction crews paused their work or were left short-handed due to the majority of their staff falling ill. This is just one of the examples of how this works.

Conclusion

Contracts are just as important for the investors as they are for the contractors. In order to make a valid contract, you need to make sure that it’s drafted by professionals. The content and the wording are essential if you want it to perform its purpose and be valid in court. So, take your time to both draft and study it.