Construction contracts are often lengthy and intimidating. There is so much to read – who has the time? Although it may be tempting to just skim over a new contract instead of looking it over properly, it’s likely not in your best interest.
A construction contract checklist allows you to quickly read over the key elements in a contract that are most crucial for not only protecting your company’s interests and minimizing contractual risk, but also preserving your customer relationships. Using checklists gives you an easy way to identify which clauses you need to watch out for and an opportunity to find ways to benefit your company.
Construction contract review checklists are useful for a variety of reasons, including:
- Keeping your company’s best interests in mind – The details of the contract may include provisions that are not in your favor. By addressing those details upfront and negotiating, you can prevent future conflicts.
- Preserve customer relationships – A thorough contract review ensures that you and the other parties involved are not surprised by terms or conditions, allowing you to maintain a positive rapport.
- Possibility to negotiate – By reviewing the contract, it leaves room for negotiations should you feel the need to adjust any of the contract conditions. After the contract is signed, changes typically cannot be made.
- Early identification of Issues – You will be able to deal with issues more easily when you are at the beginning of the project rather than when you are in the middle of it.
If you want to review contracts even quicker, AI contract review software can review and edit your construction contracts in minutes, according to your legal playbook. No checklist needed!
Construction contracts: Essential Sections to Review
When reviewing a construction contract, there are certain terms to keep an eye out for. Here are a few to keep in mind:
Scope of Work
The first section to review is the scope of work. Check to ensure it’s what you’re qualified and willing to offer. A well-defined and detailed scope of work description details exactly what type of work is expected so all parties are on the same page.
Review the contract to make your your compensation is the amount of your proposal, including any changes or modifications agreed upon. Keep in mind, if you’ve made changes to the scope of work, you’ll want to ensure those are reflected in the contract as well.
This one is particularly important since it’s a common cause of dispute. Construction contracts commonly include a project schedule or completion date. It can include specific dates at which you’re expected to have parts of the project complete. If a schedule is included, review it carefully. You’ll need to make sure it allows sufficient time for you to submit necessary documents for approval, order materials, rent equipment, etc, before you start working. The timeline impacts everyone else working on the project and can have a domino effect, therefore this one is important to review and make changes to if it seems unreasonable.
Contract Documents – Drawing and Specifications
Drawings and specifications for the project are commonly referenced in construction contracts as the basis for the scope of work. They’re either listed in the contract or incorporated into the document. Review dates on all drawings and specifications to ensure that you have the correct and most current versions of these documents. These sometimes get revised several times, so it can make a difference in determining the scope of the work.
Method of Compensation
Knowing ahead of time when and where you’re going to be paid is crucial if you want to avoid unnecessary conflict on a project. Check the contract to see if all the details are provided. Are you responsible for sending invoices monthly? Is payment made at the time of service? Or is it paid at the end of completion? Outlining these details helps protect the business relationship.
Dispute Resolution Method
Note the method of dispute resolution required by the contract. The contract may stipulate that parties must go to mediation or arbitration if there’s a dispute. Other options may include a lawsuit. Check to see who is responsible for attorney’s fees if a claim does go to court.
Most standard contracts address insurance. Review the insurance section of a contract to establish coverage in the case of negligence or an accident.
Clauses To Watch Out For
‘Pay-When-Paid’ or ‘Pay-if-Paid’
Check for a pay-when-paid or pay-if-paid clause in the contract. This clause can delay your payment. “Pay-when-paid” clauses state that payments will be made to a subcontractor only after the owner pays the general contractor. There’s typically a deadline for when payment will be made, subject to federal and state prompt payment laws. “Pay-if-paid” clauses mean you will not get paid if the general contractor or subcontractor are not paid. You should ask for a pay-if-paid clause to be removed. If this clause sticks, proceed with caution.
Termination for Convenience
This is a type of clause that stipulates exactly what happens if the owner terminates the project. These clauses commonly state that contractors are only paid for work that has been performed prior to the date of termination. In that case, any materials or equipment purchased by the contractor but not yet installed, wouldn’t be the owner’s responsibility. To protect yourself, this clause should be changed to include reimbursement for materials and equipment purchased – even if it hasn’t been installed prior to terminating the project.
No Damage for Delay
A “no damage for delay” clause stipulates owners are not responsible for reimbursing costs incurred by a delay caused by upper-tier contractors. Basically, if the project is delayed through no fault of your own, you won’t be entitled to any damages.
Liquidated damages are penalties assessed for completing a project after the scheduled completion date. They are included to provide compensation for the owner’s lost revenue if the project is delayed. Make sure you’re only liable if you were directly responsible for the delay.
A no-lien clause in a contract waives the contractors right to seek a mechanics lien if payment isn’t made. If you sign a contract with this clause, you agree to perform the work without the protection of a potential mechanics lien. You have a legal right to a mechanic’s lien when doing contract work and should avoid signing any contracts that ask you to waive that right.
How AI Helps in Construction Contract Negotiations
Contract review technology using artificial intelligence (AI) can review and negotiate construction contracts without human involvement. These contract technologies can review and redline clauses in contracts and other documents, such as insurance policies, according to your company’s playbook. For instance, if you wanted to always review the contract for “termination of convenience,” AI contract technology can review and redline the clause exactly the way your company does. This allows you to save time and reducing contractual risk by ensuring the key clauses are being negotiated. By using AI contract review software such as BlackBoiler, you can review construction contracts efficiently, on-time and on-budget, with as much risk-mitigation as possible.