A Brief Introduction About the Construction Contract
Construction agreements are one of the most frequent contracts entered into the 21st century, where so many infrastructural developments are taking place. A construction contract agreement is an exhaustive outline of the scope of rights and obligations of a property owner and a contractor. A contract is drafted depending upon the type of construction contract. The four common types of contracts are:
- Lump-sum or fixed-price contract: It mentions the total costs for all construction-related activities.
- Cost-plus contracts: Cost-plus contract mentions the direct and indirect costs for different activities and the profit amount of the contractor.
- Time and material contracts: Time and material contract mentions the hourly cost for the contractor’s activities and the detailed costs.
- Unit pricing contracts: Used by federal agencies and builders, a predetermined scope of work is given, and bidding takes place for the same work.
There are other less common types of construction agreements as well, including special contracts, subcontract agreements, etc.
Who Takes the Construction Contract?
The construction contract is entered into by a person or entity who owns a property or their representative to carry out certain construction-related activities on the said property for its development and by a contractor who can carry out the construction for certain compensation and a period of time. The parties to the contract have to adhere to its terms, and both parties have the right to sue for non-performance of the contract.
Purpose of the Construction Contract
The contract has multi-fold purposes. Its primary purpose is to make the management of the construction of a project easier and more efficient. Here’s why a construction agreement is needed:
- It clearly lists down the compensation, time period, scope of work, duties, rights, etc. about the construction that is to commence.
- It determines how the risks will be shared for the project.
- It is a clear road map for the project.
- It provides protection to both parties to the contract.
Contents of the Construction Contract
A construction agreement must have the following inclusions:
- The names, addresses, contact numbers, and email addresses of the owner and the contractor.
- The work that is to be carried out in detail and the project description.
- A list of the materials, tools, and other equipment that will be used for construction-related activities.
- The costs that are to be paid to the contractor, the mode of payment, additional costs, and the payment schedule.
- A project construction schedule.
- Insurance provision.
- How notices between parties will be handled.
- Dispute resolution procedure that is to be followed for any claims arising as a result of the contract.
- Provisions regarding the waste disposal system.
How to Draft the Construction Contract?
Keeping the following tips in mind while drafting a construction contract will prove to be helpful:
- Define any complex legal terms.
- Be clear while spelling out the duties and rights of the parties.
- Determine the kind of construction contract and draft it accordingly.
- Study the applicable state laws before beginning to draft the agreement.
- While mentioning the payment provision, write the words ‘non-refundable’ and ‘final price.’ In the same provision, the rate of interest (late fees) should also be mentioned.
- If there is any change in the work order that is unexpected, outline the process.
- Mention what happens when the project is not completed on time, in case of faulty design or construction, or other contingencies.
- Include the indemnity, entire agreement, successors and assignors, and severability clauses.
- Use a construction contract sample to refer to.
- In the end, create a signature line.
Negotiation Strategy
A large scale negotiation takes place before the signing of a construction agreement about the compensation and time period of construction. The owner tries to seek the best price from the contractor, and the contractor does the same for his/her services. A good negotiation strategy shall ensure that both parties get a fair deal, creating a win-win situation.
Benefits and Drawbacks of the Construction Contract
Different kinds of contracts of construction have different kinds of advantages and disadvantages. In general, the benefits and drawbacks of the construction agreements are as follows:
Benefits:
- It provides protection to the contractor and the owner in case the other party breaches the terms of the contract.
- It serves as a proof and record of what was agreed upon.
- It clearly lays down the time period for the completion of the project.
- It foresees several contingencies.
- It serves as a good reference for a dispute in the future.
- It facilitates easy management.
Drawbacks:
- It can be time-consuming.
- It generally requires the help of a legal professional and may incur additional expenses.
- It can be confusing to choose the right kind of construction agreement.
- Changing the construction contract is difficult and expensive.
What Happens in Case of Violation?
When the contractor violates the contract by not completing the project on time, etc., the owner can follow the dispute resolution method, as stated in the contract and claim damages. The contractor can also claim damages from the owner when there is a breach of terms as per the contract.
Although there are only two parties to the contract of construction, construction-related activities usually involve a large number of people, including those who are present in the neighborhood of the project. This is why timely completion of construction must be a priority. The presence of written contracts ensures the projects are well-managed, executed as per the schedule, and create minimum inconvenience. One must insist on a written contract and not rely on an oral agreement, be it a small project or a complex one.
Sample construction contract
A sample of the construction contract can be downloaded from below.
Download this USA Attorney made Original Agreement for only $9.99
By clicking the button below, I agree with the Terms & Conditions.This agreement is made between the Owner and Contractor on the effective date of 18th November 2011.
Owner represented by
Mr. David Gilmour
Address: 78-6980 Kaluna Street #136, Kailua Kona HI 96740
Contact number: (808) 326-9540
Contractor represented by:
Mr. Roger Waters
Address: 75-6040 Alii Drive #314, Kailua Kona HI 96740
Contact number: (808) 840-2789
Terms and Conditions:
- The Owner, “Mr. Gilmour” under this Construction Contract, will employ the services of the Contractor “Mr. Waters” to do the necessary construction work. The contractor in question will provide all the tools, materials, and machinery required to complete the construction work. The Contractor will be responsible for the construction of a 2-bedroom independent house <description of work> at “73-4469 Hane Street” <site> in Kailua Kona in the state of Hawaii for a sum of $175,000 <amount>, in accordance with the specification and drawings mentioned in Section 3 of the Contract.
- The Contractor will begin work within five days from the date of signing this Construction Contract Agreement and will have to complete the work within 90 days thereafter.
- The Contractor will ensure that they have the necessary liability insurance to cover any injury, accident, or death suffered within the premises and during construction and should also have the necessary Workman’s Compensation Insurance. The Contractor will need to show the Owner proof of such insurance plans.
- The contractor will not assign this Construction Contract Agreement to the third party without informing the Owner or without written consent from the Owner.
IN WITNESS WHEREOF, the parties “Owner” and “Contractor” have executed this Construction Contract as on the date set forth, which is 11/18/2011 (MM/DD/YY).
SIGNED FOR AND ON BEHALF OF OWNER BY:
…………………………………………………………….
Name:
SIGNED FOR AND ON BEHALF OF CONTRACTOR BY:
…………………………………………………………….
Name: