Important Things to Know About Drawing Up Construction Contracts

Important Things to Know About Drawing Up Construction Contracts

Taking on new projects, whether with new or past clients, can be an exciting prospect. However, while everyone may be eager to get started, as a preventative measure to avoid costly misunderstandings down the road, there are certain logistics that need to be settled before the actual work can begin.

One of the most important steps to accomplish before getting to work on a new construction project is drawing up a detailed construction contract.

What is a Construction Contract?

A construction contract is a legal document drafted by relevant parties involved in the project that lists each party’s obligations to one another and specifically outlines all of the work that needs to be done.

If you have never before drafted a contract for your construction projects, you may initially feel intimidated by the task, particularly if the economic stakes are high or if you are working with a big client that you are looking to impress.

Getting your contractor’s license is a proactive step you can take to ensure you feel fully confident throughout the process of drafting and presenting your contracts for important projects. Contractor Training Center of the Contractors Institute can serve as an invaluable resource for you as you work to achieve this goal, providing study tips and assistance to help you pass your examinations.

More important things you should consider when drawing up a construction contract include:

Put it in Writing

Having a written contract for a project is valuable in that it can clearly outline the needs and expectations of the project - both of which can be distorted by memory over time. In this way, having a written contract can serve a safeguard should any disputes arise that could prevent you from receiving due payment upon the job’s completion.

It is a good idea from a legal standpoint to have the terms written not only to ensure you receive payment, but also so that the document can be assessed by an attorney before the work begins to check that all terms satisfy legal criteria.

Multiple Contracts May Be Involved

If you are working on a particularly large or otherwise demanding project, there may be more than one contract involved. There will first and foremost be a contract between the general contractor and the developer. There may also be a subcontract drawn up with relevant suppliers, as well as other contracts between the developer and additional professionals who may be involved, such as design specialists.

It is also common on large projects for builders to reach out to subcontractors to help out on the job, whether to assist in performing the general construction work or to provide services that fall within a specialized area of expertise. In that case, additional subcontracts may be created between those first and/or second-tier subcontractors and the builder.

However, the fact that there may be more than one contract involved does not negate the importance of drawing up a clear document to represent your contributions to the project.

Contracts Should Include a Payment Schedule and Clear Cost Estimate

You may or may not have already discussed an initial cost estimate with your client, but before getting to work on the job, it is important to secure mutual agreement on a total cost breakdown and payment schedule.

Within your contract, you may also wish to include an initial deposit, final payment, late fees, and interest alongside the payment schedule that both you and the client have agreed upon.

General Conditions Should Be Included for All Parties

The general conditions stated within the contract extend to the expected obligations of each party in regards to labor and compensation - including overhead costs - as well as entitlements. The rights of each party should be also clearly stated in order to protect the integrity of all involved as well as help to cement a mutual reassurance of trust.

Special conditions may also be added - typically as addendums to the general conditions - as deemed relevant in accordance with the needs or scope of the project. These may include clauses requested by the client, as well as specific instructions regarding how the work is to be performed in a way that is deemed most efficient or otherwise necessary.

Change Order Clauses

Sometimes things do not always go as planned. Some parts of the project may be delayed, take longer than expected, or there may be other conditions that arise that require changes to the original stated obligations.

A change order clause can help to account for these changes and ensure that you still receive payment regardless of what conditions have skewed the original plan.

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