Key Contractual Risks on Construction Projects

By AIA Contract Documents

March 23, 2023

Construction projects are complex endeavors that involve many different parties, including owners, design professionals, contractors, subcontractors, and suppliers. With so many different parties involved, there are a variety of potential risks associated with construction contracts. Here are some of the key contract risks in construction that should be carefully considered before any work begins.

  1. Scope creep: Scope creep occurs when the scope of work defined in the contract expands beyond what was initially agreed upon. This can lead to delays, cost overruns, and disputes over payment.
  2. Delay and disruption: Construction projects are often subject to delays and disruptions, which can be caused by a wide range of factors, including weather, labor disputes, and changes in design. These delays and disruptions can have significant financial consequences for all parties involved.
  3. Payment disputes: Payment disputes are common in the construction industry, particularly when subcontractors are involved. Disputes can arise over issues such as work quality, delays, and changes to the scope of work.
  4. Design and specification issues: Design and specification issues can arise when there is a discrepancy between the design and the specifications outlined in the contract. This can lead to delays, disputes, and even legal action.
  5. Health and safety risks: Construction projects involve a variety of health and safety risks, including falls, electrical hazards, and exposure to hazardous materials. These risks can result in injuries or even fatalities, which can lead to legal action and financial liability.

To mitigate these risks, it is important for all parties to carefully review and negotiate the terms of the contract prior to signing the contract. This should include a detailed scope of work, a clear payment schedule, and provisions for handling delays, disputes, and changes to the scope of work. It is also important to ensure that the contract includes provisions for health and safety, such as requirements for protective equipment and procedures for handling hazardous materials. The parties should always be aware of their rights and remedies under the contract.

Ultimately, the success of a construction project depends on effective contract management and a commitment to open communication and collaboration between all parties. By taking steps to mitigate contract risks, construction projects can be completed on time, on budget, and with a minimum of disputes and legal issues.

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.