Let’s admit it, construction contracts are long, boring documents. So, why spend the time to read those papers page by page, right? This article is for those currently searching the key elements, terms and provisions that must be included or reviewed in any contract entered into with a general contractor, homeowners, and/or a subcontractor.
When you are given the contract, assume that the property owners have already gone through with due diligence.Due diligence is a process of checking the information about contractors or builders. It means that owners are checking if you are trustworthy enough to transact with. It also helps them ensure that you are compliant and they are dealing with law-abiding builders, who would most likely pay you right and on time. This action includes inspecting your licences, previous works and project performances.
After conducting due diligence, the property owners will start drafting a contract for availing your services. In this time frame, you should take note that if the party who drafted the contract fails to specifically set forth a term in the contract and a dispute with builders arises in the future, such ambiguity may be found in favour to you.
The homeowner will give you a copy of the contract with their special conditions, the overall project terms, duties and obligations. By this time, you are not obliged to sign it right away. You can either ask questions about the important aspects of your side or scan the most important provisions in a construction contract. You should know that this is part of your legal right so don’t be shy to ask if needed.
Key provisions in a contract
1. Scope of Work
Often times, you will be working for a person that you have met recently — a client to be exact. But that doesn’t mean you will do everything he says. A contract must set forth the job description of what the contractors have agreed to perform. This must be written very specifically to prevent any misunderstanding and confusion.
A contract also states that you must comply with all existing project plans, specifications and building codes. By specifically setting forth within the contract the scope and non-scope of the work of the contractor, discrepancies in the future as to the duties and obligations of the contractor will be greatly minimized.
2. “Time is of the Essence” Clause
Time is gold- this applies to contracts too. To prevent any costly delays, a contract must specify the time frame when you are expected to work. This includes the commencement date and target completion date. By adding the “time is of the essence” clause, you are advised to provide an ample crew to perform the task at the exact time. This is usually instructed at the start of your work.
3. Termination Clause
This details the situations under which the parties may end their legal relationship and discontinue their obligations under the agreement. The law allows the parties to terminate the agreement by mutual consent if one has breached the contract.
Adding termination clauses in your construction contract is necessary. This can let you escape from a homeowner who is not paying you at the right time and in the exact amount.
The clause may expand or limit the common law right to terminate and may contain the following termination events, which may be mutual or unilateral, and optionally include a right to cure.
4. Payment Terms
This one surely is the best part for builder’s perspective but crucial too. The payment terms and schedule can be a bit sensitive issue for the contractual parties. Most building disputes are caused by disagreements with payment so better make sure that the progress payment method is clearly stated.
However, the Security of Payment Act can always help contractors, builders, and subcontractors by protecting their legal rights to payment.
The payment clauses are the first thing to take consider of. So you better add a payment term section in your contract if you want to prevent any conflicts to happen.
5. Dispute resolution clause
The dispute resolution methods are needed whenever each party found themselves stuck in a conflict or issue. We have many methods to resolve a dispute such as meditation, arbitration, adjudication, and litigation.
Incorporating dispute resolution clauses are essential parts of your construction contract so it should be well-drafted and clear. There is a 90% chance of you getting into a dispute within a project so you should better be prepared when this happens.
6. No damage for delay clause
Each builder must always carefully examine the contract documents to know if there is a no damage delay clause within the contract terms. This provision implies that whilst the contractor or subbie is not entitled to a claim for delay damages, it will be entitled to an extension of time. And the risks that may be encountered during the building process should be included in the contract.
7. Contractors review of documents
Homeowners often seek to add exculpatory clause (freed from blame) in contracts to put the blame onto contractors or subcontractors when defects in the plan occur.
8. Indemnity Clause
This is a common element of contracts. It is used to shift potential costs from one party to another. An indemnity clause states that one party agrees to “indemnify” (and often also to “hold harmless” and “defend”) the other party.
Why do builders need to use a construction contract?
By reading and studying the above common terms, conditions and provisions, you can be confident that you are on the right path. The contract gives you security and protection in regards to your construction work that’s why it is important. And you can provide the services that property owners deserve to have too.
We also recommend you to make each transaction and request of homeowners documented. Memories have a possibility to fade and be blurred over time whilst oral promises tend to be not a piece of valid evidence. Documentation is an important practice for both homeowners and contractors. Especially when there is a potential building dispute coming.
So don’t ever settle for a simple handshake even if you are an independent contractor or not. When you do, there are no corresponding assurances for your work. You can just walk away and abandon the work without any payment. But be careful because this can affect your work history and can make an impact on your business.
If a construction contract is your concern, you should consult the specialists. Contracts Specialist can help you with drafting, reviewing and terminating your construction contracts.
It is a construction law firm that only works on Sydney construction law matters. Contracts Specialist has over 10 years of experience and has worked on various types of cases. You can be confident that your legal rights will be enforced.
You can always contact them to get a free consultation through a phone call. Their principal lawyer,John Dela Cruz, will guide you all the way to help you understand certain aspects that affect your legal rights. With a law expert, you will be in good hands.