8 Things to Consider Before Signing a Construction Contract
Regardless of whether you’re going to be signing a contract with a contractor or a sub-contractor, the fact of the matter is that it is essential for you to put great thought into what you are signing. Here are a few considerations that you will need to make in this regard:
The “Other” Party
One of the primary things that you need to ensure before signing a construction contract is that you have a fair idea of the party on the other side of the table. What this means is that you need to, exactly, who you will be contracting with. This assurance is important, considering an employer would like to ensure that a constructor will be around long enough to finish the job. The contractor, similarly, would need this knowledge to gain access to the funds for the completion of the job.
Both parties need to also be as clear as possible in matters of the work required and the services that might need to be undertaken. Before the contract has been signed, you need to ensure that both of the parties are certain on the particular techniques, materials and standards that might be required for the successful completion of the job.
You can set rules and standards for the job as much as you might like, but the fact of the matter is that there are bound to be variations when the work actually begins. It is because the actual construction is, usually, beyond the wildest imaginations, meaning that the work required is bound to have variations to the standards set in the contract. This is the reason why it is important to address these variations, and how they will be dealt with, in the contract beforehand.
The construction contract needs to indicate a start and completion date for the project. This is imperative for reducing the miscommunication, over the timeline of the job, between the two parties. If you are a constructor, however, you will need to ensure that you will be able to comfortably complete the job with the timeline, before agreeing to a completion date. You might even consider ensuring that the contract permits the extension of time.
The Risk Bearer
While deciding on the contract, you need to ensure that an adequate mention has been given to the matter of risk. If the contract is for building, then you would be best served by getting together with the other party and deciding on the risk upfront. While you might be tempted to dump all of the risks onto the other party, you need to remember that the other party will just increase their price as a result of it. This is why it is important for you to only pay for relieving yourself of the risk that is really pressing so that you don’t have to pay an inflated cost.
It is important to determine the basis for the termination of the contract also. What this means is that the two parties need to agree upon the grounds on which the contract might be terminated. Would you like to give yourself the power to terminate the contract simply because you feel like it; or would you like to give both the parties to terminate the contract in the event of a material breach? Considering the investment that goes into construction jobs, clarity is essential.
When it comes to construction contracts, it might not always be practical to fix the price on the outset. Instead, construction contracts need to focus on the basic mechanism that would govern the price for the job, depending upon the work performed. While at it, the parties might even consider deciding upon the mode and duration of the payments. The matter of interest on late payments should also be discussed so that there is no ambiguity involved. When it comes to money, you’d be better off by making things as clear as possible.
Disputes arising as a result of well-drafted construction contracts are rare, but they can arise nonetheless. This is the reason why it is imperative for the construction contract to dictate exactly how disputes will be taken care of. It is recommended to take the route of mediation rather than the court, in this regard.
Contracts ensure that the working relationship between two parties is able to function as effectively as possible. So, make sure that you invest time into devising your construction contract!