Construction Contract Essentials: Key Elements and Considerations

Construction projects are complicated undertakings that require careful planning, coordination, and execution. Whether you are a homeowner embarking on a home renovation or a developer overseeing a large-scale construction project, a well-drafted construction contract is essential for protecting your interests and ensuring a successful outcome.

CLEAR PROJECT SCOPE

A construction contract should begin with a detailed description of the project scope. This section should outline the work, including specifications, materials, and specific requirements. Clarity in the project scope helps prevent disputes and misunderstandings down the road. It is essential to be as detailed as possible to avoid ambiguity.

PROJECT TIMELINE AND MILESTONES

Time is of the essence in construction projects. The contract should include a well-defined timeline that specifies start and completion dates and intermediate milestones. Delays can be costly, so setting realistic deadlines and establishing procedures for handling delays caused by unforeseen circumstances is crucial.

PAYMENT TERMS

Payment terms are critical for any construction contract. The contract should specify the total contract price, payment schedule, and payment method. Many construction contracts involve progress payments tied to specific project milestones. Clear payment terms help ensure that the contractor is compensated for completed work and that the owner is protected from overpayments.

CHANGE ORDERS

During a construction project, changes to the original plans are often necessary. A well-drafted contract should outline the process for handling change orders. This includes how changes are documented and approved and how they will affect the project timeline and budget.

INSURANCE AND LIABILITY

Construction projects involve inherent risks, and it’s essential to address insurance and liability in the contract. The contract should specify the types and amounts of insurance coverage required, including general liability, workers’ compensation, and property insurance. Additionally, it should outline how liability for accidents, damages, or defects are allocated among the parties involved.

DISPUTE RESOLUTION

Despite careful planning, disputes may still arise during construction projects. In order to minimize the risk of costly litigation, the contract should include a dispute resolution clause. This clause may require mediation, arbitration, or other dispute resolution options before resorting to litigation.

WARRANTIES AND GUARANTEES

Warranties and guarantees assure that the work meets specific standards and is free from defects for a specified period. The contract should clearly outline the warranties and guarantees provided by the contractor and set the duration of these warranties. This helps ensure the owner has recourse if any issues arise after the project’s completion.

PERMITS AND REGULATORY COMPLIANCE

Compliance with local building codes, permits, and regulations is essential for any construction project. The contract should stipulate that the contractor is responsible for obtaining the necessary permits and adhering to all applicable laws and regulations. This will help you navigate around costly delays and legal issues.

TERMINATION CLAUSE

In some cases, it may become necessary to terminate the construction contract due to unforeseen circumstances or breaches of contract. The contract should include a termination clause with the conditions under which either party can terminate the agreement and the consequences, including payment for work completed.

GOVERNING LAW

Lastly, the contract should specify the governing law and jurisdiction in legal disputes. This helps streamline the legal process and avoids confusion about which laws apply.

A well-structured construction contract is the cornerstone of a successful construction project. It protects the interests of all parties involved and provides a clear roadmap for the project’s execution. Before signing any construction contract, it’s advisable to consult with legal counsel or a construction lawyer to verify that the document meets your specific needs and complies with local laws and regulations. Writing a comprehensive and transparent contract can save you time, money, and headaches in the long run, making it an essential element of any construction project.

This blog was previously published on October 2, 2023 at ChrisBairdPortland.org