Well-drafted construction contracts help facilitate a smooth and successful build while fostering good relations between all of the parties involved in the project. Flawed contracts open the door to delays, disputes and other costly problems. If you are establishing a contract in relation to a construction project, here are a few common pitfalls to avoid.
It’s possible to be too optimistic when establishing a construction contract. Things often go wrong, and without having each party’s rights and obligations down in writing, the entire project could become mired in uncertainty and dispute. Important clauses to consider when creating a construction contract include:
- Stop work clause: Allows a contractor to suspend working on a project due to nonpayment.
- Stop payment clause: Allows the owner to cease payment due to circumstances such as the contractor not meeting project benchmarks or delivering poor quality of work.
Careful use of these types of clauses incentivizes both sides of a payment agreement to fulfill their end of the bargain. Remember, the language must be carefully crafted. Those who stop work or payment without clear and precise language in the contract backing them up are only inviting lawsuits.
Good contracts include specific benchmarks and precise timelines by which contractors and subcontractors reach those benchmarks. Change provisions may account for weather and other factors out of the service provider’s control. Those provisions must also be precisely drawn up so that each party knows where they stand when certain contingencies arise.
Flawed payment schedules
Owners must be wary of paying too much upfront. By making payment contingent on specific benchmarks, parties can mitigate their risk in the event a delay or other problem arises. A fair payment schedule will incentivize prompt completion of work while still protecting contractors from nonpayment.
With sound contracts in place, each party can play their role with the confidence their rights and interests are protected, whether the project runs according to design or if unforeseen circumstances intervene.