Danger zones in a contractor’s contract documents
Being a construction contractor can feel like studying to pass the bar exam. It doesn’t take long for you to realize you’re in the legal profession.
Construction contracts are complex, high-stakes agreements where a lot of money, time, pride and maybe life and limb are in play. Part of the contracting business is understanding them and having them prepared and reviewed by experienced and skilled attorneys before you, or the people you do business with, sign them.
Parts of a contract
Construction contracts come in all shapes and sizes. Their organization can vary but they all essentially do, or should do, a consistent set of tasks. Every sentence of every paragraph has at least some potential to wreak havoc, so here are a few sections of standard contacts illustrating why a legal eagle eye is essential.
The general conditions
These spell out the relationships between everyone involved, including their rights and responsibilities. When signed, they commit everyone to resolving disputes according to a plan. This requires close attention to think through what’s being agreed to.
For example, the jurisdiction where disputed would be decided can mean the difference between night and day. And commitments to alternative dispute resolution like mediation and arbitration need careful scrutiny.
Cost estimate and construction schedule
These two sections often occupy everyone’s mind more than any others in the contract, at least during construction.
They’re intimately entwined because hours of work translate wages paid, but also because the cost of labor and materials fluctuate, rendering initial estimates moot. Conceivably, other contracts with third parties, like tenant agreements, might also balloon your client’s costs after a while.
Well considered clauses may provide built-in flexibility and provisions for mitigating and fairly compensating for delays in reasonable, realistic ways.
Coverage by construction insurance
Also intertwined with costs and schedule, this section commits everyone to their parts in insuring the project. This mitigates costs of any unexpected injuries, delays, cost increases, etc., but it’s also a critical guarantee to the owner that the contractor will have access to the funds needed to complete the project.
The standard-sounding but impenetrable legalese insurance provisions can contain hazards. It’s tempting to sign waivers that, in the end, relieve others of any consequences for their negligence. The project coverage also sometimes winds up being too meager, which can obviously lead to fresh headaches and major problems.