Construction Contracts – 5 Key Provisions to Mitigate Risk

 While construction projects vary greatly from one to the next in terms of cost and scope, there are a handful of crucial terms that should always be included in every contract to protect all parties involved. Clearly defining roles and responsibilities, as well as what to do when things don’t go as planned, is the best way to ensure the project flows as smoothly as possible. 

Below we list the five key terms and provisions that should be included in every construction contract, regardless of project size.

Start with a detailed scope of work.

The scope of work (SOW) lists and explains the entirety of any and all work that is to be performed by the construction company or contractor and should be as thorough and detailed as possible. Schematics, drawings, special and general conditions, labor and equipment needs, materials and all services should be covered. Essentially, this includes who is providing materials, who is doing the work, and what the work is, down to the last nail. The SOW sets expectations for both parties and creates a solid footing for the project.

Next, establish the important deadlines and timeframes.

After defining the SOW, the next step is to establish an appropriate, reasonable timeframe for the project to be completed, as well as logical deadlines for each progressive milestone along the way. By outlining provisions for regular progress updates from the contractor between milestones, both parties can set reasonable expectations as well as have time to adjust the timetable for any needed adjustments. 

Define the project’s complete costs and establish payment terms.

The contractor should provide as complete of an estimate as possible for the full scope of the project, factoring in labor, materials and time. The contract should cover how and when payments will be made to keep the project moving along. Common payment terms range from a single fixed price (usually estimated to cover any potential minor overages), a cost-plus arrangement that allows for additional costs, a time and materials basis, or unit pricing. Fixed cost contracts should spell out how the sum was calculated, with an itemized list of the estimated time and materials, including allocations for the permitting process and inspections.

Create a process for change orders and modifications.

Regardless of a project’s size or scope, there are inevitably changes due to unforeseen events, material shortages or labor issues. Contracts should spell out how change orders will be submitted and handled, so that the expectations of both parties align. A thorough change order provision will lay out a step-by-step process for handling any modifications so that both parties can agree on the next steps. 

Make a plan for defective work claims and resolving disputes.

Simply put, contractors are human and humans make mistakes. Ensure that your contract has a thorough clause for handling any issues that might arise due to defective workmanship or disputes over either party’s handling of their responsibilities. Include parameters for how claims are submitted, timelines for resolution, and options for handling disputes (litigation, mediation or arbitration, for example). 

Including these five basic terms and provisions in construction contracts enables both parties to mitigate their risks and protect their interests. However, larger and more complex projects will likely need additional specific provisions to prevent either party from opening themselves up to any increased risks. That’s why it’s a good idea to have a knowledgeable attorney involved to ensure the contract adequately covers all possible outcomes. 

Hackstaff, Snow, Atkinson & Griess is here to help.

Our attorneys are experienced in contract matters and construction law, and can help individuals and companies ensure their interests are protected when it comes to construction contracts. Contact us today to learn more.