Reducing risk starts before the ground is broken on a construction project. Construction contracts are unique in that they anticipate change will occur during the project for a multitude of reasons. However, not even the built-in change clause can anticipate every problem. That is why good communication and clear expectations of the parties upfront are essential to minimizing or avoiding risk.
Since most construction projects require performance and payment bonds, signing a contract represents a point of no return: signees are now locked into the terms of that contract, with their business and personal assets at risk. That’s why understanding the owner’s requirements, from budgets to scheduling to quality considerations, is essential to project success.
That’s not to say the contract process is a burden; on the contrary, when executed correctly, contracts should make it easier to process change requests and result in fewer legal worries, not to mention better harmony with the client. Some good online resources for the contract due diligence include the AGC Contract Documents Forum and the AIA library of contract documents.
According to experts, here are 5 best practices for ensuring success with the project:
- Eliminate ambiguity around the scope of work and hire an experienced construction attorney to review documents.
- Project teams should be on the look-out for indemnity clauses, and in general, attempt to limit such obligations to personal injury and property damage, for which you can secure insurance.
- Set aside time to meet with the project manager and superintendent so they understand where a construction company’s exposure hides and what they need to do to protect the company.
- Subcontractors need to be mindful of the terms they’re agreeing to, especially as it relates to specific language in a contract. Certain terminology can assign subcontractors more obligations than they’re aware of, particularly when referring to the work performed and materials. Be aware of “termination for convenience” stipulations that can affect a subcontractor’s ability to get paid for work performed if terminated by the GC. Finally, a “time is of the essence” provision gives the contractor the freedom to fire subs if work isn’t performed on-schedule, even if forces beyond the subcontractor’s control were at play.
- Provide the necessary protections to keep every team member honest and excited at the prospect of working together.
Being smart about construction contracts can mean the difference between repeat business with a new client or endangering a construction company’s profitability and even solvency.