Begin every project with the Construction Contract, which the wise person will negotiate and sign before any construction begins.
Previously, I outlined the importance of having a signed construction contract and detailed construction paperwork for each of the three phases of a construction project. By including signed agreements for each stage, you can anticipate and resolve any complications in the building process without ever derailing the actual construction.
To review, there are three essential stages that have corresponding paperwork: the contract phase, construction phase, and post-construction phase. Today, I would like to concentrate on the contract phase, which is negotiated and signed before any construction begins.
The construction contract’s purpose is to create legal rights by agreement between the owner of the property and the Contractor. Also, it’s important to remember that the contract must always be created in good faith so that neither party later discovers unrevealed facts that would have changed the deal if they had been known by all parties. The Contract should clearly define the rights, responsibilities and remedies of the parties and should include specific provisions regarding a variety of standard topics, including:
- Scope of Work (including architectural drawings and specifications);
- Commencement and Substantial Completion Dates;
- Contract Sum;
- Progress Payout procedure (including sworn statement and lien waiver submission process);
- Changes in the Work;
- Indemnity; and
- General Conditions.
Keep in mind that contracts are not a one-size-fits-all endeavor. These agreements are meant to be revised according to the needs of the parties involved. Therefore, when initially negotiating the contract, changes can be communicated by use of drafts that contain strikeouts and/or inserts, or by the use of free-standing riders. In short, the objective is to create a contract that’s specific to the particular project while also representing each party fairly.
And now you understand why a contract is so crucial prior to construction. Next time, I’ll discuss the nuts and bolts of the Scope of Work, Progress Payments, Changes in the Work and Warranty provisions of the Contract, along with an identification of the related construction management paperwork.