Contracts are the starting point of every successful construction project and can have a profound impact on the bottom line, making it important to avoid any construction contract blind spots.
However, many subcontractors don’t review their contracts as thoroughly as they should for any number of reasons. They’ve been working with the client for a long time, or their “tried and true” contract template has worked out well for them in the past. Regardless of the reason, they simply don’t have a process in place for them to closely review contract terms.
In the construction industry, this can be a recipe for disaster. One contract going poorly can create more issues in the long term. Contracts can help mitigate risks and protect you from when things don’t go as planned.
In this post, we’ll cover construction contract blind spots to look for to ensure your company is protected.
In the construction industry, prices for materials such as lumber, steel and copper are constantly changing. Supply chain issues have also impacted the availability and pricing of materials, such as concrete, which has seen more shortages over the past couple of years. While price fluctuations could mean larger profits, they can also eat into your revenue and make your estimations completely obsolete.
To combat this, general contractors commonly have a clause that dictates what happens when the prices of raw materials or other market factors change. For example, the clause could guarantee a price change of up to 5%. However, if market conditions cause it to rise any higher, then the contractor has the right to adjust the total price of the project.
Other considerations include additional costs for the tools needed to complete the job, overhead costs for maintenance of the tools, and the costs of any replacement tools. Any parts concerning tools and other related costs needs to be explicitly stated in the contract to avoid any confusion between you and the client. It’s good business practice and helps cover any unforeseen issues that might pop up while trying to complete the job.
When drafting your contract, using the most specific language helps eliminate ambiguity in your terms and conditions. We can interpret the contract in different ways when there is vague language. Sometimes vague language can be difficult to spot when it is smartly worded, which is why it is important to carefully review each contract.
Some conditional waivers are required for mechanics liens laws. However, look out for deceitful clients or general contractors who’ll slide in language that causes you to waive your right to file mechanics liens whenever there’s a problem with payments. Keep an eye out for clauses that mention unconditional waivers or stop payments. If they are present in the contract, ensure that it’s not going to prevent you from acting in the event the client stops paying.
Yes, you’re sending out bids to clients, but make sure to prioritize visiting and inspecting each site. Many contracts have clauses that assume you’ve already done this before accepting the job and do not allow you to adjust the price after you’ve signed the contract. However, there could be a surprise on the site that completely changes how much the job will cost. During the bidding stage, it is important to go to the site and document what you see. That way, you can present any issues to the client and ensure you’re charging the correct price for the job.
AI contract review software can help you draft and review contracts to ensure the coverage and profit margins you are looking for. With our proprietary AI-driven solution, BlackBoiler reviews contracts in a fraction of the time with far more accuracy. Our Automated Contract Markup technology helps subcontractors close deals faster, lower overhead costs, and free up resources for more important tasks.
These are just a few tips to help subcontractors avoid contract blind spots that could be detrimental to their business. In order to not take on all the risk, you should carefully review each new edition of the contract. BlackBoiler’s patented AI contract review software can help you identify inconsistencies and ensure you’re getting the best end of the bargain. Want to learn more? Contact us today and request a demo.