Proactive Protection of Construction Business Interests During an Economic Downturn: Colorado Contract Considerations

Miller and Law, P.C.
3 days ago
3 min read

Introduction

typewriter with a paper showing the word contract

As the economic landscape softens, construction firms in Colorado face unique legal and financial risks. Projects may be delayed or cancelled, payments may be delayed, and working relationships that were historically smooth sailing may become strained. But with thoughtful planning now, construction companies (and all companies) can better position themselves to weather a potential downturn. Here are key strategies and considerations:

Strengthen Your Contract Language

1. Risk Allocation & Detailed Obligations

Clearly define the obligations of each party in your construction contracts (owner, GC, subs). When expectations are explicit, parties are less likely to dispute them later.
Include detailed performance standards (quality of work, material specifications, inspection rights, change-order processes).

2.Force-Majeure / Economic Downturn Provisions

Add (or revisit) force-majeure clauses: ensure they cover economic disruptions, not just “acts of God.”
Make sure you clearly understand the termination provisions (with or without cause) and consider a provision where renegotiation is triggered if a project slows or funding dries up.

3.Payment Protections

Use mechanisms to secure payments: retainage clauses, partial payment schedules tied to milestones, progress billing, and strict invoicing procedures.
Include interest or late-fee provisions for overdue payments.
Consider payment bonds or performance bonds (especially on public or larger private projects), which can give subcontractors or suppliers recourse if prime fails.
Keep a close eye on mechanic’s lien timelines and make sure your rights are secured if payments are late.
MAKE SURE YOUR CONTRACT CONTAINS AN ATTORNEY FEE PROVISION in the event of default or litigation.

4.Indemnity & Insurance

Make sure indemnity clauses allocate risks appropriately and are not overly broad.
Confirm adequate insurance coverage (liability, builder’s risk, etc.) and verify policy limits.

Contract Implications for downturn planning: Ensure that your contracts clearly specify duties, performance metrics, and remedies. That way, in a dispute, you are more likely to be confined to contractual remedies rather than open the door to broader negligence claims.

Monitor and Mitigate Contract Risk Early

Contract Review & Audit: Before entering into new contracts, especially in uncertain economic times, have them reviewed: identify unclear terms, unrealistic milestones, or vague payment triggers.
Change-order Discipline: Enforce rigorous change-order protocols. Changes to scope are common in downturns — make sure all changes are documented, priced, and approved in writing.
Performance Monitoring: Actively monitor job progress. Early detection of issues (cost overruns, subcontractor performance, schedule delays) gives you options: renegotiate, pause, or exit.

Strengthen Dispute Resolution Mechanisms

Be aware of alternative dispute resolution (ADR) provisions: while mediation or arbitration clauses are intended to provide a faster and cheaper path to resolving conflicts, that is not always the case and you should be aware of how this can impact your options.
Be aware of termination for convenience clauses: this can give general contractors, owners, and upstream subcontractors the flexibility to walk away (with notice) if economic conditions deteriorate sharply. Contact an attorney to discuss your exposure and options.

Foster Positive Working Relationships & Reputation Management

Good faith negotiation: In downturns, maintaining positive working relationships with owners, lenders, general contractors, and subcontractors is often critical. Open communication and renegotiation in good faith can preserve future opportunities.
Reputation: Pay attention to contractual performance, communication, and creditworthiness. A strong reputation can help you win work even when competition is tough.

Consult Legal Counsel Early

Work with counsel now — not just when trouble hits.
A proactive review can uncover legal vulnerabilities in your contracts, risk exposure, and financial structure, and help you put in place legal protections before things worsen.

Conclusion

An economic downturn can put major stress on construction businesses and all businesses — but it's also a moment to double down on rigorous risk management. By strengthening your contracts, funding strategies, dispute resolution tools, and relationships now, you’ll be far better positioned to protect your business — and even to emerge stronger. Contact Miller & Law, P.C., today to discuss how to best protect your business from economic uncertainties.

THANK YOU FOR READING!

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