Five Key Terms for Private Construction Contracts
Posted Friday, August 9, 2019 by Kim Sandher
Although there are many pieces to the construction contract, contractors should pay attention to the below five provisions during the negotiation and drafting stages of the contract. Even if not in the negotiation phase, every contractor should have their construction project contract templates reviewed at least annually by an attorney to protect themselves in avoiding the risks of not being compensated or having to pay damages.
Construction projects often end up having delays caused by things like weather, permitting, or shortage of material supplies. For this reason, it is important your construction contract outline the types of delays that are and are not acceptable and which types of delays would require compensation and by whom.
To help manage the level of liability associated with delays, it is important to have damage provisions in the contract. To limit the amount of recovery an injured party may receive, it is common to have a liquidated damages clause that provides a reasonable estimate of damages in case something does go wrong.
Time of Performance
The contract should lay out when the work will begin, when the work should be completed, what circumstances will allow for an extension, and consequences of construction not being completed timely.
A crucial part of the contract is not only the completion date, but also scheduling other construction trades to work on the project. It is important to ensure these dates complement financing and lending requirements and take weather into consideration as the construction season in Seattle and the surrounding areas can be short.
It is also important to ensure various trades are scheduled in the correct order because many times some work may only begin when the other trade has completed its portion of the job. The general contractor will typically prepare and provide this schedule.
Modification of Terms
Changes to scope of work are common in construction, whether it is because of change of the owner’s desire or because of matters discovered during the construction process. Having a change order provision allows flexibility to make changes to the scope of work, without causing the contract to be invalid.
To avoid the risk of not being compensated for work that is outside the original scope, the contract should lay out the method to modify terms in the contract in case changes need to be made.
Use of Subcontractors and Suppliers
To eliminate ambiguity with respect to anticipated work and cost associated with using subcontractors, the contract should layout the power of the contractor to hire subcontractors to complete various portions of the project.
The project owner should consider whether, after the project has begun, it wants to give the contactor full authority to select subcontractors or whether the owner has to agree and authorize each subcontractor.
Indemnification and Insurance
Although the indemnity and insurance provisions of a construction contract are often given little to no attention during contract negotiation and drafting, these provisions place financial responsibility for inherent risks on contractors. When claims arise these are generally hotly contested and can have disastrous ramifications if not properly drafted or followed. Thus, it is necessary to pay attention to these in the early stages of the contract negotiation.
For questions or assistance with your legal commercial real estate and construction needs, please contact senior associate Kim Sandher at (206) 805-1490 or KSandher@PivotalLawGroup.com.