Construction Executive

Most people in the construction industry do not like the contract negotiation process. Generally, everyone wants to get the contract signed as quickly as possible and get on with the work.

But before rushing through the contracting process, stop and read! It's important to fully understand what the contract says because many construction project disputes result from a simple failure of communication. Reduce the risk of this contractual failure to communicate by incorporating the tips below and taking a new perspective on the contract negotiating process.

More than anything else, can this contract be used as a project road map? If the project goes off track, can the contract steer it in the right direction? Remember that the contractual relationship will come to an end -- hopefully amicably. Regardless, does the contract have clear terms about what is supposed to happen at the end of the project, or if the parties decide to go their separate ways prior to the end of the project?

Don't think it doesn't matter what the contract says; it does. Most courts around the country will enforce clear, contractual language that is unambiguous and not illegal or against public policy. Know exactly what is being agreed to, to protect the company and to hold another party's feet to the fire if necessary.

While the tips below may seem elementary, they are often overlooked or minimized, which can have disastrous (and expensive) results.

  1. Clearly identify the parties to the contract. This sounds basic, but it is very important when dealing with corporate entities, particularly in real estate. Make absolutely sure that corporate entities are correctly and consistently identified throughout the contract.
  2. Clearly identify the scope of services. If the contract consisted of nothing more than this and the contract price, it is a great start. For example, if a test and balance of the HVAC system is called for during the project close-out, specify who is to perform it, whether it should be certified, exactly what the report should look like, and who has responsibility for verifying that it is performed.
  3. Ensure the general conditions clearly define project responsibilities.
  4. Ensure all aspects of the contract are properly executed and documented, including attachments and addenda. Include a project schedule, if possible. Keep the entire contract (with all attachments) together in one place, including keeping a scanned copy electronically.
  5. Try to insert a reasonable limitation of liability clause that meets state guidelines for proper notice. Typically, this limitation of liability needs to be in all capital letters, bold, and in a different size font than the surrounding type.
  6. Understand the nature of any warranties or representations that may be in the contract.
  7. Be clear in the contract as to who may or may not rely on professional services, particularly disclaiming third parties from relying on such services.
  8. Understand exactly what insurance coverage does and does not provide. Read the policy and do not allow anything in the contract that might later conflict with that insurance coverage. If there is uncertainly, ask the insurance agent to review the contract in the context of the policy.
  9. When the contract calls for follow-up documentation, such as change proposals and change orders, follow the procedures. If the contract requires a claim to be submitted within a certain time, follow the procedure.
  10. In summary, do not just sign the contract. Read it, understand it and follow it. Spend time thinking about the scope of work and make sure it is expressly set forth in the contract.

These principles may seem incredibly basic, but they are at the crux of most construction contract disputes. Following these simple tips will reduce the risk of a dispute when expectations, responsibilities and information surrounding a project have been properly communicated.