Creating a perfect construction contract is the key to minimizing risks and being paid for your work. Even large construction companies often become victims of improperly structured contracts.
Construction-related work is complex and has many nuances. Sometimes, it seems impossible to put all of them on paper. However, with an expert’s assistance, you can draft a high-quality contract.
Both parties are interested in creating a detailed agreement that covers all the problems they may face during collaboration. Let’s take a look at things to consider when creating such a contract for your next project.
While all construction contracts may appear similar to each other, several key differences exist. The most important ones are local and state requirements. Some states may require certain clauses to be included in each construction contract. By failing to put them in, you may be facing several problems, from lost money to invoked contracting license.
When contacting your local state licensing authority to find out about the requirements, you can also ask for templates. There is no need to draft contracts from scratch. You can save yourself plenty of time by tweaking the template rather than writing the entire contract on your own.
Consider choosing which contract type you need and go from there.
The clarity of the contract is something that can’t be stressed enough. The job description must be as highly detailed as possible. Include the following information:
Specific work to be done
Work to be done at every stage of the project
Tools to be used to complete each task
Materials to be used for the project
Equipment needed to complete the project
You can also list the approximate amount of each material as well as its color and the name of the supplier. A client may be interested in a particular brand, size, and shape of some of the materials. All of that should be mentioned in the contract in detail.
Remember that the scope of work may change as the project progresses. You should mention that in the contract and say that changes will be reflected in the addenda, which will be signed by both parties.
A simple example of the detailed work description is as follows:
“The contractor will repaint the walls. The work includes:
Wash the wall and prepare it for painting
Make repairs to the wall if necessary
Sand and prime walls
Apply two coats of paint
According to the leading construction lawyer at grzymalalaw.com, conciseness and construction contracts are incompatible. Be ready to create a 10-page contract. Trying to be concise is the key to problems with clients in the future.
It’s vital to give clients a clear picture of how much they’ll be paying for the construction project. The cost estimation should be based on the outline you provided before the client agreed to work with you. The contract should include the following payment details:
Non-refundable deposit – to protect yourself from bounced projects
Payment schedule – to ensure timely payments according to each stage of the project
Final payment date – to be on the same page with the client
Interest terms – to protect yourself in case payments are late.
An example is “Client (Owner) agrees to be Contractor $2,000, including (or plus) the cost of the materials for completing the wall painting project. After signing the contract, Owner will pay Contractor $500 as a non-refundable deposit.”
You can set up milestone payments for each of the project stages: “Owner will pay Contractor $500 upon completion of stage 1”. If you have a clear understanding of when each stage will be completed, you can also enter dates. However, it’s not always a good idea since many unexpected events can occur between contract signing and project completion.
Make sure to include a paragraph about late payments: “If Owner fails to pay according to the payment schedule, the interest will accrue at a rate of N percent on a monthly basis.”
Dedicate a part of your contract to the materials to be used in the project. Who will purchase the materials? It may seem to be a good idea to delegate the work to the client. However, such delegation comes with nuances since clients usually have little understanding of what’s needed.
If you decide to be responsible for the purchase, you need to give an estimated cost of the items. Materials should go into the cost estimation part of the contract.
Paint - estimated $ - will be purchased by Contractor/Owner
Primer – estimated $ - will be purchased by Contractor/Owner
This part of the contract must contain a disclaimer. It should say that more materials may be necessary throughout the project. The cost is estimated, not actual.
Even though it’s not necessary to include information about insurance coverage in the contract, it may reassure the client. Consider entering details as a separate paragraph. You can do the same for your credentials.
Force majeure situations and uncontrollable events require a special clause in your contract. Make sure you decide how to handle such occurrences. For example, state how unfavorable weather can affect the project timeline and other schedules.
Mention which delay is excusable if extreme weather conditions occur. Remember that bad weather conditions may reflect on traffic and material delivery dates.
Also, don’t forget to add the name of the authority, which will deal with disputes and claims related to the contract in case you and the client can’t resolve them on your own.
As a respectable construction company, you should give a warranty on your work. The standard warranty extends for one year upon project completion. Make sure to mention it in the contract.
While it’s possible to draft a construction contract on your own, it’s always better to consult a lawyer. A legally correct contract is the key to a worry-free construction project and timely payments.