By Lynn Pearcey, MBA, Copywriter, AIA Contract Documents
May 24, 2023
A lot goes into a construction project. First, you must hire the right people for the job. Foremen, project managers, electricians, and other essential members of the crew must be secured. Next, you’ll need to set realistic timelines for completion. You’ll probably use similar projects as your basis, but regardless of what you do to create them, timelines are a must.
The financials will then come into play, including material purchases, salaries, hourly rates, and various miscellaneous fees that vary from project to project. All of these things are important and necessary, but none of them matter without the presence of a construction contract. You can have the best of all the aforementioned worlds, but without a contract, you’re not going anywhere fast.
So, what goes into a construction contract? Glad you asked.
There are several things that a solid construction contract must have, including some of the following.
Names of the Parties
A construction contract must have the names of both parties involved in the project spelled out. Names are the legal names appearing on the filings when the entities initially began operations. The contract should also include updated contact information like email addresses, physical mailing addresses, and at least one good phone number for each party.
The construction contract must have a project scope. A good rule of thumb here is the more detail the better as it will save time and money should a breach or contract variation come into play. Different states require different licenses and permits and, in this section, both parties will need to show these things are in place. Regardless of which side of the table you find yourself sitting on, carefully review the project scope to make sure you and your team have a full understanding of the expectations before moving forward.
Timelines, while they often move, are a critical part of any construction contract, and before signing an agreement, make sure it contains one. Timelines are usually structured with milestones and provide a step-by-step path on who is responsible for a designated portion of a project and delivery dates. They’re tools of accountability that help monitor progress, highlight bottlenecks, and keep your project moving. With that said, before signing a contract, be sure your team has thoroughly discussed a plan of action and that you can adhere to it.
The Payment Schedule, sometimes called the Draw Schedule, sets dates for when payment is due to the contractor. This section will usually have the day that the contractor is to submit payment as well as the time period between submission and payment.
Honoring this portion of an agreement is critical, especially for the contractor. In most cases a contractor can’t finance the entire project, and this highlights the importance of Payment Schedule integrity. Once a contractor receives the funds, they use them to pay staff, purchase materials, and keep the project flowing efficiently. Funds are disbursed in stages with the number of disbursals depending on the scope of the project.
Establishment of Authority
Poor workmanship can ruin a project and leave both parties dissatisfied. Some contractors or subcontractors will trust a project to subpar professionals as they try to cut corners to fatten their profit margins. One of the ways you can avoid this is to demand the agreement establishes authority. Authority in an agreement means that the subcontractor or contractor is responsible for the final product. With this provision in your contract, it protects both sides and means only individuals with prior approval can work on your project.
Act of God Clause
Between the time a project begins and ends, several things can and more than likely will happen. This is especially true of the weather, a factor that neither you nor the other party has any control over. An Act of God clause protects you from damages and losses related to weather. Acts typically covered include:
Dispute Resolution Clause
Projects can be long and drawn out and over time, parties can begin to wear on one another. Issues such as the quality of work, subcontractors, or payment may arise. The last thing anyone wants is to have a breach of contract. This is why having a Dispute Resolution Clause in your agreement is a must.
A Dispute Resolution Clause spells out all the steps to take before a third party or the courts are brought in to preside over and settle the matter.
Sounds like a no-brainer, but it’s worth the mention because a contract can’t be fully executed unless both parties sign the document. When signing the document, authorized agents must use their legal names and sign in the appropriate areas.
There are several steps to building a construction contract and all of them are important. As you’re reviewing yours, take time to make sure you understand each component. If there’s something you’re unsure about, ask questions and get clarification. Make sure the document is balanced and one that you feel represents the best interests of both parties. Lastly, once you’re comfortable with everything contained in the document, be sure to execute it with your proper signature.
Remember a lot goes into a construction project. From people to pieces, parts, and everything in between. But in order for any of those things to move correctly, they must be guided by a well-written construction contract.
To learn more about how AIA Contract Documents can help you with your business, visit https://aiacontracts.com/.
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.