Construction contracts can be complicated documents and should be reviewed by legal counsel before signing. They are filled with clauses that attempt to protect the party creating the document. There are some specific construction contract clauses that contractors and subcontractors should pay attention to before signing, as they can lead to disputes down the road.
Scope and Price Definition
One of the primary purposes of writing a contract is to define the work to be done and set the price for that work. It is important to review the scope of work and price as listed in the contract. Often the contract will provide for a broader interpretation of the work involved, such as requiring work that may be implied or inferred from the drawings and/or specifications.
Also check the pricing, making sure that items such as taxes, bonds, insurance, permits, and other fees are included or not included as per the proposal. It is important to note that just attaching the proposal to the contract document does not incorporate it into the contract. It must be explicitly mentioned in the contract language to be considered as part of the terms of the agreement.
Owner Contract Clauses
Often the contract with a subcontractor will include a reference to the owner contract, tying the subcontractor to the terms of that agreement. Language like this is included in the AIA’s subcontractor/contractor contract, Form A401. Subcontractors should request to review the owner contract with the general contractor before signing such contracts. Clauses that can be subject to this flow-down language include termination clauses, claims procedures, indemnification clauses, and dispute resolution clauses. Subcontractors should be aware of the terms they are agreeing to.
Payment Clauses
Payment clauses should always be reviewed carefully so contractors are familiar with the requirements for payment. Pay-when-paid and pay-if-paid clauses can cause issues. Pay-when-paid clauses state that a subcontractor’s invoice becomes due when the general contractor receives payment from the owner. Pay-if-paid clauses state that subcontractors will be paid only if the owner pays the general contractor. This passes the risk for owner non-payment to the subcontractor. Either way, subcontractors need to review payment terms and know when payment will be made.
Delay Clauses
In reviewing delay clauses, watch for language that doesn’t allow for recovery of costs related to project delays. Most contracts will allow for a schedule extension, but not necessarily recovery of costs. Check state laws to see about the enforceability of these clauses in your state. Federal contracts allow for recovery of costs if the delay was caused by the federal agency.
Summing Up
Construction contracts are complicated, and it is important that the parties read them before signing to make sure there are no hidden risks. The construction contract clauses mentioned above can lead to issues down the road, so getting clarity on what they mean and how they apply to your company is critical. Always seek legal counsel, before signing, if you have any concerns.
Source: Supplementary Conditions
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