Sometimes, construction contracts are peppered with confusing terms and long-winding legalese. Sometimes, they’re just too laborious to read. It nevertheless pays to go over your contract thoroughly, to make sure you don’t unwittingly sign into hidden contractual traps. Specific clauses can be particularly tricky and might work against you if not understood correctly.
Essential Terms in a Construction Contract
An essential term is one which must be agreed to, without which no contract comes into existence.
For example, completing the works by a particular date, or working to a particular programme. If you and your contractor fail to agree upon a date for completion, or a programme for the works, you have no valid construction contract.
Aside from making sure that there is privity in terms of consideration and subject matter, you must also make sure that your contract contains clauses that relate to its execution.
One of the most important provisions are with regard to the payment schedule, which could be any of the following: lump sum, measurement/re-measurement, cost plus, contractual quantum meruit, variations, loss and/or expense, etcetera. Make sure that the specific basis for remuneration is in contract, and that it’s clear.
Your contract must also have provisions on repudiation, termination, and breach. Additionally, always be on the lookout for clauses that might limit your rights or impose undue obligations.
Specifically, those are embodied in the following:
Dispute Resolution Clause
Scope of Work: This is the heart of the construction contract. It should clearly define what work will be done, how it will be done, and what won’t be included. Ensure that the scope is detailed enough to avoid future disputes. For instance, if you’re building a house, the scope should specify the type of materials, finishes, and even the brands, where necessary.
Progress Payment Schedule: One of the most important provisions is the progress payment schedule. This could be lump sum or fixed-price, cost-plus, and more. It’s crucial to ensure that the payment terms are clear, specifying milestones or dates, the amount due, and the method of payment. Also, be wary of any clauses that allow the contractor to demand upfront payment or deposits without the necessary insurance (if applicable), and clear deliverables.
Project Schedule: This should outline the start and end dates of the project, including milestones. Ensure that there are clear terms regarding delays, especially who is responsible for them and any penalties or incentives associated with meeting or missing deadlines.
How We Can Help
Planning a construction project? Ensure your building contract is fair, clear, and protects your interests. Understand your contract, identify risks, and make informed decisions. Don’t sign until you’ve checked it twice. For more insights on construction contract review checklists, feel free to contact us.