Construction Contracts: 5 Things You Need to Know

For construction workers, contracts are a regular part of their business process. A well-written contract can preserve your rights to payment and creates clear expectations for both parties on what will happen. A poorly written contract can cause problems for you in unexpected ways. Here are five key things you should pay attention to in your construction contracts.

1. Scope of Work: This is perhaps the most important part of the contract as it lays out what you're going to do. This should be fairly detailed and clear enough that it's obvious what work you're supposed to perform. Make sure to be specific about what items the scope of work includes as well as what items it excludes. You also want a section for handling changes to the scope of work. These changes are inevitable and you want to make sure, if it's anything more than a minor change, you are paid accordingly.
2. Payments: For anyone in business, it's important to know when you can expect to be paid and how much. Construction contracts often pay when certain milestones are met, as a lump sum once the work is complete, or on a cost plus percentage basis. The contract should be clear about when you're expected to send an invoice and when you can expect to be paid. This section may also cover a lien waiver stating that once appropriate payment is received, you waive your right to file a mechanics lien for that portion of the project. Make sure this section of the contract takes into consideration local mechanics lien laws so you're not sending your first invoice at the same time that you're having to serve a mechanics lien.
3. Schedule of Work: Often with construction projects, one party's work is dependent on another's, so a clear schedule sets out the expectations on when you'll begin and end different phases of the project. This section will also include your start date, which may be useful down the road for lien filings. You should make sure that there is a provision that excuses you from completion if you're faced with unforeseen delays caused by bad weather or delays caused by the property owner not obtaining proper permits.
4. Warranty: As a professional, you want to stand behind you work and provide a top quality product to your clients. If something breaks a week after you installed it, for example, you want to be able to go back into the home and fix it. However, you want to limit your liability because you can't provide a warranty on your work that's indefinite, so be sure to include a clause that reasonably limits the warranty you provide on work performed.
5. Dispute Resolutions: In the event there is a dispute about your contract, it helps to have a plan in place to handle the issues. You can choose where you handle the dispute (for example, in your home state) in the contact. Some companies prefer arbitration as the mechanism for dispute resolution, especially when dealing with multi-jurisdiction contracts.

If you need help drafting or updating your company's construction contract, or if you just need help understanding what a clause in a contract means to you, the expert construction lawyers at National Lien & Bond are here to help. We have over 30 years' experience handling construction issues and insight into construction laws from across the country. Whatever your concerns, we can make sure you have a contract that is right for your construction business.