Avoiding Common Construction Contract Issues
In any construction project, it's safest to start out by assuming that everything that can go wrong, will. While many projects may finish on time and under budget with zero problems along the way, the odds are good that weather, changing supply costs, shipping delays, job site accidents, or other setbacks will come up. When they do, there needs to be a plan in place for how the work will continue and if and how payments will be adjusted. Failing to prepare for these common setbacks by agreeing how they will be handled in a construction contract is preparing for the job to fail.
What Happens if There Are Delays?
Delays are bad for all parties involved from the owner who won't have their facility available when they expected to contractors and subcontractors who may be left idle during the delay and then face conflicts with other projects that they had expected to start immediately after the original completion date of the delayed project. In any delay, all parties involved will almost always take the position that the delay is not their fault and that they should not have to pay because of the delay or that they should be paid anyway.
Only in rare cases will delays be clearly attributable to a single party, and even then, it may be difficult to get them to agree to appropriately compensate everyone else involved. In many cases, the delays will be due to acts of God or poor estimates about how long each step of the project will take. In any construction contract, it's vital to spell out what, if any, financial penalties are incurred for delays within a party's control and in what circumstances as well as when each contractor or subcontractor is expected to be available if everything doesn't go perfectly according to the timeline.
What Happens if Material Costs Change?
Another frequent source of construction disputes is material price increases that cut or eliminate a contractor's profits. While the law might typically say the contract price should say the same, it's best to avoid this dispute in the first place. Either tie the final price to materials (e.g., cost + X), or create clear language in the contract itself that cost changes do not affect the contract.
Ensure Risk-Management Provisions Are Backed Up
Many construction contracts contain indemnity provisions, but are these really worth more than the paper they're printed on? To have actual effect, a party indemnifying another must have sufficient assets or insurance coverage to follow through with their promise. Do good due diligence to ensure that this is the case, that assets backing the agreement can't be used for other purposes while the agreement is in effect, and that insurance won't lapse due to missed premiums or hitting the limits from a claim on another project.
Use Surety Bonds to Ensure All Parties Are Paid
Any time an indemnity agreement is in place or a contractual payment is due, consider having each party that will or may owe money to another post a bond in that amount. In addition to backing indemnity agreements, this will avoid situations where a subcontractor is not paid and then tries to levy a claim against a higher contractor or the owner even though that party paid the contractor who hired the subcontractor.
Have Every Contract Reviewed By an Attorney
This was just a basic overview of a few things that could go wrong, and except for the most basic projects, each job is different. To ensure all parties are fully protected, have each contract you use reviewed by an attorney like the ones at Miller & Law.
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