A solid contract is the foundation of any successful construction project. Every construction company, whether a general contractor, construction manager, owner, developer, or subcontractor, requires a legal and binding contract to protect their interests. The contract drafting process is important to any business, especially in the construction field. It is important to remember that a contract is a legally binding document, so a clear and concise contract enables both parties to be certain of the work they contracted for and provides increased protection of the parties’ interests.
A construction contract is usually made up of multiple documents, including drawings and specifications, the general conditions and special conditions, and insurance specifications, which must be incorporated by reference in the contract.
Although there are many intricacies to contract drafting, the following are a few important elements that should be included in your construction contract,
- Properly identify the parties to the contract. Although this may seem like common sense, parties are frequently listed incorrectly on the documents. Be sure to accurately name any business type (i.e. LLC, Corp.,) and include the correct business address.
- The scope of work typically defines the work that is being contracted to be performed. A well-defined scope of work is necessary for a strong contract. The level of detail in the scope of work is up to the drafter’s discretion and some projects may call for a broader scope due to the scale of the project. Many times, a more detailed scope of work, along with a construction schedule, is attached as a rider (an attachment) to the contract.
- As mentioned above, the contracts often contain multiple documents. The contract should include a list of all documents that are incorporated through reference. This can eliminate any discrepancy as to what documents are actually considered part of the contract.
- The contract price must also be listed in the contract. It is important to make sure this amount reflects the agreement of the parties. The contract price is sometimes incorporated through a rider if it is more detailed and lengthier, which may also include a payment schedule. This section of the contract is a good place to include language regarding late fees, if you plan on collecting such fees.
- It is also necessary to include the requisite insurance requirements in the contract. This includes the type of insurance needed and the insurance limit requirements. If the requirements are lengthy, an insurance rider may be a good idea. Make sure to review the insurance requirements carefully and comply with all requirements. The failure to do so could result in a breach of contract.
- An indemnification clause in a construction contract is an essential. This clause must be skillfully drafted to adequately reflect the intention of the parties with respect to indemnification. There is a tremendous amount of litigation surrounding indemnification clause so the wording in this clause is especially important as one word could alter the terms of the indemnification. Since the risk of injury is high in the construction field, this clause often plays a vital role in litigation.
- A stop work clause is also a standard on construction contracts. This clause should include language which gives the contractor the legal right to stop work on the project for nonpayment. Keep in mind however, that the client may want a reciprocal stop payment clause which would give the client the right to withhold an upcoming payment if the contractor is not meeting the project schedule goals.
These tips are helpful in getting you started on your construction contract, but they are in no way all inclusive. It is important to remember that no contract is impenetrable. There are many nuances of drafting construction contracts to ensure that it is not open to interpretation, which can lead to legal disputes. We recommend retaining counsel to assist you in your drafting needs to ensure that your business is adequately protected.Most importantly, make sure to read any contract carefully before signing.
Alison Drew is a Partner at Parlatore Law Group and a highly experienced attorney, focusing her practice on litigation and corporate law. Ms. Drew specializes in the areas of construction law, personal injury defense, arbitration, and contract negotiation, as well as business protection. With a strong understanding of her clients’ business operations, Ms. Drew is prepared to handle a variety of legal issues.
She can be contacted at: Alison.Drew@parlatorelawgroup.com and 646-809-2619
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