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What to know when drafting your construction contract

On Behalf of | Dec 7, 2022 | Construction Defects

The construction contract is an extremely important part of any building project. Having a complete contract that serves your best interests can help prevent future disputes regarding costs, defects or other issues and help you avoid costly litigation.

When you begin negotiating your construction contract, it is best to have professional guidance and advice throughout the process. As a contractor, there are some things that you want to make sure to include in your construction contract to protect yourself.

Avoid a construction change directive

Changes to a construction project are common. The owner may want you to include something called a “construction change directive” in the contract.

This is a clause that states that the owner can order a change to the work you perform without an agreement as to the cost.

The problems with this directive should be obvious. The owner may order you to perform new or changed work at a much lower cost than you think you should receive.

It is best to avoid having this clause in your contract. As a compromise, suggest including language that any changes and their cost must be approved by both of you first.

Be careful with what type of damages you agree to pay

Damages are likely to be one of the biggest topics that you negotiate. You should include a provision for liquidated damages but avoid language saying you will be responsible for consequential damages.

Many construction projects are hindered by delays at some point, and the reason for the delays are often out of the contractor’s control.

A liquidated damage clause states that you pay one specific amount for each day of a delay that you caused. Once the project is underway, document everything related to any delays, so you can prove which ones you didn’t cause.

Minor provisions in your liquidated damage clause can help you save on liability. Request a grace period before any damages are assessed and consider putting a cap on the number of total damages.

Consequential damages can cost you. These are damages that the owner experiences because of the delay, and they can quickly add up. The owner may have a huge list of expenses they incurred, many of which could have nothing to do with you, that you should not be stuck paying for.

You can ask for your own damages

Remember that in some cases, you are entitled to damages as well. The owner may request that your only remedy for a delay that is not your fault is an extension of time to complete the project.

You will certainly want an extension of time if you find yourself in this situation. However, try to also negotiate an increase in the total contract amount.

Negotiating and drafting contracts are rarely fun, but it is something that needs to be done to ensure that you receive the best possible deal. It is extremely difficult to get out of a contract once you are in one, so taking the time up front to carefully examine the details can save you time, money and stress in the future.