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What Are the Essential Elements of a Construction Contract?

If you are planning a construction, one of your first priorities will be making sure that your contract is watertight. Your contract basically forms the blueprint for the whole project, defining who is involved, who is responsible for the work, how long it’s going to take and how much it’s going to cost. A great contract is written clearly and fairly and agreed with all parties before they sign on the dotted line.

Whether it’s a commercial building or residential homes, a restaurant kitchen or a school laboratory, everyone involved will have a great deal of time and money invested in the project. Although claims and litigation are always a potential risk in a construction project, a comprehensive contract can help to keep people and budgets firmly on track, minimizing the impact on your bottom line.

While every construction contract is different, there are some core points that they should all contain. Here’s what you need to know about the essential elements that should be incorporated into every construction contact.

The legal names and addresses of both parties

It’s an easy oversight to make, but unless all parties are listed with their legal names and addresses, the contract won’t be legally binding, even if it’s signed. In some states, it’s also essential for builders to include their license number in the contract. Be sure to check any specific requirements for your location, and once it’s signed, make sure that everyone involved has a copy too.

The time frame for the project

Every project has a deadline, and this should be clearly outlined in the construction contract you create. Clear time frames are important for managing the different elements of the project, including applying for permits, ordering supplies and fitting them. They should also account for issues such as delays for inclement weather or issues with the supply of goods. At the present time, delays caused by isolation and Covid-19 should also be included. You should insist that your contract includes set milestones including:

• Notice to proceed
• Start of construction
• Project completion

The cost of services

Unsurprisingly, money and payment for services is a major element of any construction contract. Owners need to know what
their project is going to cost so that they can budget accordingly and fulfil their responsibility for payment. The contract should also outline how payments will be made – monthly? At pre-determined intervals such as quarterly? The precise dates and amounts, along with the terms and conditions of payment, should be stated in plain English. If you agree on any penalties for late payments, these should also be placed in writing.

Materials

The nature of construction projects mean that a wide variety of different materials may be used. If the project owner has any preferences relating to the materials used or where they are sourced from, these should be outlined in the contract.

Change orders

There’s no getting away from the fact that plenty of construction projects experience issues that lead to change orders being submitted. This isn’t a problem, but how change orders will be dealt with should be clearly outlined in your contract, including who can submit them, who can approve them and how any changes to the cost of the project will be paid for.

Dispute resolution clause

In the event that a construction project ends in dispute, it’s important to have a dispute resolution clause present in the contract. This will outline what will happen if parties cannot resolve any issues on their own, and usually involves an arbitration clause, since this option is usually less expensive than going to court.

Contracts may seem daunting but having a comprehensive and robust contract in place can increase the likelihood of a successful construction project. Call CORE Consulting Group Inc. today for more information about construction contracts at 858-358-6400.