We all have heard of terrifying stories of how bills double up after renovation contract or construction work is done, or how the builder runs away in the middle of the project process; endless arguments are quite commonly heard too. After reviewing and negotiating hundreds of construction contracts, we would like to remind all project owners and services providers to include terms that cover the following concerns:
This section of the contract agreement contains a blurb or extract of what the project is about. The most important idea or description of the problem is addressed here. It can be a summary of items or just a paragraph defining what needs to be solved.
Construction Schedule or Calendar
The total sum of days or how the project schedule will be divided. It should describe either calendar days or business days and can be presented either through a CPM, Gantt Chart, or just a bar chart.
Contract Document List
A list of all contract documents that form part of the contract agreement. Drawings, exhibits, specs, and supplemental conditions can be part of this list.
Construction Conditions & Responsibilities
The section of conditions and responsibilities is the one that sets the responsibilities of the owner and the builder, and the extent of who is responsible for providing documents and information. It contains specific terms for liens, penalties, withholding, arbitration rules, and specific instructions on how to process claims and proceed with disputes.
Contracts should identify the contract manager on both sides, by name and duty position. If there should be personnel turnover, including duty position can help clear up confusion in larger organizations, though ideally any personnel changes should be addressed in writing, to avoid questions about who is authorized to approve payments and change orders.
Governing laws, liens requirements, claims procedures, arbitration procedures, insurance, substantial completion requirements, final completion, and liquidated damages. It can also provide procedures on how to terminate or suspend the work and the agreement with the builder.
Pricing and Allocation
What expenses are reimbursable? (eg. Any top up service fee? Payment at what schedule? Are receipts needed as invoice?)
What kinds of costs are to be included? (eg. Material? Transportation? Storage? Installation? Maintenance? Warranties?)
Run away immediately if you see a lump sum price construction quotation that builder is just not trustworthy, and there will be a lot of arguments and issues later. Always ask for a quotation breakdown as there will be changes and you want to know how that will be reflected on final fee to pay. The scope normally can be measured or quantifiable.
Any construction contract should spell out exactly when payment is due to the builder. This frequently means a series of milestone payments to the builder. The less frequent the milestone payments, and the later the payments are made, the greater the risk to the builder.
The contract should also specify how payment is to be made. Credit card payments are expensive and who to pay the intermediate processing fees should be clarified at start.
It will also define when the payment is due, the penalty for late payments, interest being accrued and other applicable situations related to the payment and invoicing terms.
On top of the Scope of Work/Performance Duties, don’t neglect the securing of permits and licenses as a deliverable. Everybody misses them, but they aren’t free, and are a showstopper if you miss this step.
Change order procedures
There is always a significant chance that contracts for construction projects have to be altered mid-stream to account for changes on the ground. Material availability, labor disputes, weather, changes in regulations or zoning, unexpected complications on the job site, and human error combine to lead contracting entities, builders and sub-builders to alter the contract. Contracts should be clear about setting forth the project and terms while still allowing for flexibility in addressing real-world issues that come up.
Also, material, labor and permit costs can fluctuate. A thorough contract will take this into account, and provide a mechanism for pricing to increase to compensate for this.
Where contracts are less flexible, builders will have to charge more, to compensate for the risk.
Even among well-intentioned, competent builders, there is occasionally a mismatch that arises between the project and the core competencies of the builder. Contracts should specify how and under what circumstances a contract can be terminated, and if a new construction company is to take over the project, what kind of ‘handover’ a contracting company can expect.
It would be nice if everything could be done with a gentlemen’s agreement. But it’s important to get things down on paper in a written contract. That’s especially vital for high-dollar, complex items like construction projects – which require big investments up front, large commitments of capital and labor.
Furthermore, we all hope that all our projects are built to completion without any unforeseen obstacles, delays, hitches or confusion. But we all know that they don’t, and complications can arise that are beyond the ability of any party to a construction contract to foresee.
Need more help? Be sure to contact us NOW. Find out more from the home renovation checklist here.