The first step toward having a successful construction project begins with creating a detailed contract. It ensures that there is an agreement binding each party, creating a legally enforceable obligation.
A solid construction contract protects not only the contractor, but also their clients. Here is a construction contract review checklist with common terms and clauses to help you stay on top of all the important details. Using contract review software, can help you stay on top of the important details, while also reducing risk and saving costs.
A Construction Contract: What Is It?
A construction contract is an agreement that is a binding contract entered into between a general contractor or developer and two or more people that have construction needs. It details what work the contractor will be executing, policies and conditions, each party’s legal rights, and the compensation they will receive from the client in document form.
Contracts in construction vary vastly from other industries due to their one-off nature and clearly defined methods and goals. The construction projects are complex and heavily resource intensive, each unique from every other. This means that each project’s external constraints and influences are different and yet, subject to change in the course of the project’s timeline.
Construction contracts are predominantly for civil engineering projects like building structures, digging canals, laying dams, making bunds, constructing dams, etc. Construction contracts vary widely, but these can be classified under five major categories, namely:
- Lump sum contracts
- Time and materials contracts
- Cost-plus contracts
- Unit price contracts
- Guaranteed maximum price contracts (GMP)
Construction Contract Terms You Should Know
Contractor: This refers to the individual or company responsible for overseeing the management of the construction process and any subcontracts that may be applicable.
Owner: The client, either an individual or company, has hired a contractor and entered into an agreement with them to do their construction work.
Job site: This specifies the physical location of the construction work in the form of an address or a location description.
License number: This is a number issued to the contractor by the state licensing board. It indicates the contractor’s legal status to work and provide services stated in the agreement as a general contractor.
Description of work: This outlines the scope of work planned for the construction project. It outlines the plans, the person responsible for each activity, the materials required, and the tasks to be completed. It also includes portions to be subcontracted, if any.
Price & payments: An outline of the construction cost and the contractor’s payment terms.
Contract documents refer to documents and components related to the construction work being done. It covers designs, blueprints, drawings, renderings, exhibits, etc.
Timeline: This outlines the project’s timeline from the start to the end and may include details of when specific tasks are planned to be completed.
Permits and licensing: An outline of the parties responsible for obtaining all the necessary licenses and permits required for the scope of work
Change requests: This clause outlines how changes to the construction project will be communicated. It also describes how any fees needed for the change in orders and timelines must be requested and handled.
Warranty and coverage: Details whether the contractor gives any warranty on the construction work and specifies periods when the work should be free from material defects.
There is much to read in contracts, and the language can sometimes be intimidating. However, signing a construction project without reading it through and understanding its elements can pose potential problems for you. Take your time to go through the contract or use construction contract review software like BlackBoiler to review contracts instantaneously and ensure that your rights in the construction project are protected.