Construction Contracts: Some Basics

Not all construction contracts are created equal. That’s because every construction project is different. There are however two underlying themes (which arguably are necessarily intertwined) from the attorney’s perspective and that is (a) proper risk allocation and of course, (b) getting paid.

However, before allocating risk one must first understand the specific risks in the given project. Risks become apparent when taking into account site conditions, accessibility, safety, scheduling, and other project specifications. These conditions all dictate how the contractor will perform its work which in turn effects the liabilities the contractor has assumed.

There are various provisions in a construction contract which specifically address risk and they include (without being an exhaustive list): (1) scope of work (2) scheduling (3) changes to the scope of work (4) delay and damage provisions (5) insurance (6)  standard of care, (7) storage of materials and risk of loss and (8) express warranties of the work performed.

An effectively negotiated contract protects the contractor, owner or subcontractor (depending on the client) from potentially devastating disputes by consistently ensuring the fairest and legally enforceable provisions when it comes to risk allocation. The same is true whether we are talking about a simple job or a complex project. Simple contracts quite frankly make me nervous. They make me nervous because they don’t address all of the different possible circumstances that may impose risk or liability on the contractor or business owner. As an attorney, simplicity can be frightening, if not frustrating, because  that means when the time comes for a dispute between the owner and contractor, matters of risk allocation are left for interpretation by the Court i.e. expensive litigation.

As mentioned before, attorneys (and their clients) are not only concerned with risk allocation but are (or should be) very concerned with getting the client paid if the client is the contractor or subcontractor. This is where it is important to review and understand (1) any conditions to getting paid, (2) procedures that need to be followed in order to get paid (3) strict procedures for any change orders or extra work and (4) the timelines that limit one’s right to bring a lawsuit to enforce a debt. Each of the foregoing can critically effect your ability to get paid and as such it is imperative that you have a properly drafted contract which sufficiently and fairly addresses the process of getting paid for your services, labor, and materials.  Although conditions to getting paid or enforcing a debt may be strict, that doesn’t necessarily make them enforceable. Therefore, if your attorney cannot assist you in negotiating more favorable terms, your attorney can at the very least assist you in understanding the critical payment-related provisions of the contract and help you structure an effective contract management process.

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