Contract documents

October 20, 2024

Introduction

A Construction Master Service Agreement (MSA) is an essential piece of any construction project. This document governs the entire project, gives all parties their marching orders, and establishes clear protocols that must be adhered to. Contracts and the construction projects attached to them can become complicated and as such, disagreements are bound to arise. With an MSA in place, disagreements are in theory minimized due to the language within that dictates what each party can expect. MSA’s are complex documents with several layers that require understanding and adherence, including the following.

General Conditions

 Every Construction MSA begins with the General Conditions section which sets the tone and lays the foundation for the entire project. In short, General conditions are comprised of any indirect expenses and overhead costs aligned with the project. The important part to remember is that not every expense will be directly related to the project itself. It won’t always be a hammer, cement, or a bin of nails. Expenses could be the costs of renting or purchasing equipment, hiring temporary workers, or an assortment of administrative costs.

Scope of Work

 Construction sites are often chaotic, at least from the outside looking in. But, for a trained professional, schooled in the discipline of the craft, it’s a thing of beauty. Yes, a construction site is a thing of beauty and the Scope of Work (SOW), something every construction MSA must have, is where it all begins. The SOW is the site playbook and encompasses several items including:

1. Objectives of the project: Detailed accounts of the objectives of the project are listed for all parties to review and digest.
2. Milestone chart: A milestone chart is typically part of the SOW and allows each party to see progress and projections.
3. Construction deliverables: Construction deliverables meaning a description of what the teams are building are always a part of the SOW.
4. Task breakdown: Construction sites can look chaotic, but when tasks are broken down and everyone understands where and what’s expected, it all flows together.
5. Specifications: Knowing what needs to be done is only half the battle; knowing which materials to use is the other which is where the specifications piece of the SOW puzzle comes into play.
6. Project Management: Everyone has a role on a project and the Project Manager is the one who manages them, ensuring everyone is where they’re needed at the appointed time, thereby positioning the project for success.

Payment Terms

 Payment Terms are a critical piece of any MSA and establishing them before work commences is a must. Payment terms cover how, when, and the amount a client pays a contractor for the work they’ve been assigned to complete. Payment terms can vary from requiring a prepayment to Net 10, 30, or 60 with some contracts even containing what’s known as a Pay-when-paid clause for subcontractors. Under a pay-when-paid arrangement subcontractors enter the project with the understanding that they won’t be paid until the general contractor receives payment. Last but certainly not least is retainage where a percentage of the payment is withheld from the subcontractor until the project is delivered.

Termination Protocols

Termination protocols determine how parties can end the contractual relationship. The hope is that the contract ends with a completed project that both sides are proud of, but there are instances where this isn’t the case, and the termination clause must be activated. The Termination Clause determines which party pays for the damages resulting from the broken contract. Termination for convenience, when one side leaves without specifics or termination for cause or when a party fails to fulfill their stated obligations, are the primary termination types that result in a fracture in the relationship.

Conclusion

These are a handful of the items that should be part of an MSA. Other areas include:

• A Confidentiality Clause that protects parties by prohibiting the sharing of confidential information.
• Indemnification where losses through third-party claims are outlined.
• Warranties are important and also part of the MSA as they guarantee work meets certain criteria.
• Intellectual property rights that determine ownership of the deliverables associated with the project.

Remember, the MSA is a critical component of any construction project. Having this document in place and properly executed is the first and most important step leading to a successful delivery that all parties, owners, subcontractors, and general contractors, can claim as a victory.

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AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.