5 Critical Construction Contract Terms: Scope, Price, Payment, Start and Completion [VIDEO]
While every contract is different, there are five items that need to be in every contract you sign. 1. Scope You clea…
While every contract is different, there are five items that need to be in every contract you sign.
You clearly need to define the scope of the work that you intend on performing. Specifically, what will you do, what services and materials will you provide. As importantly as what you do provide, you need to clearly delineate what you will not provide. Most disputes that we get involved with a disagreement between the parties. Some misunderstanding where one party believed something was included and the other party did not. To the extent that you know that there are certain things that your price does not include, make sure to include an exclusions provision. That is, what is not included in your scope of work. By just doing that one thing you will save yourself a tremendous amount of headache.
Next is price. Obviously it goes hand in hand with the scope of your work. Whether you are singing a cost plus contract or a stipulated sum contract, the price is critical that it mirror the scope that you intend on providing.
3. Payment Terms
Third and critically are the payment terms – when will you be paid? Most contracts say that you will be paid within a certain amount of time of rendering your invoice or payment application. However, most contracts also include a pay-when-paid provision. This means that if the Owner doesn’t pay the contractor, the contractor may not pay you. If so, you need to know that that provision exists in your contract and be prepared to deal with it in your negotiations.
4. Start Date
The start date – when will you commence your work? Is that a specific date in the contract terms? Is it some triggering event such as the issuance of a permit? Whatever it is, it’s important that it be defined clearly in your contract.
5. Completion Date
Fifth and finally is the completion date. When are you expected to finish the work associated with your contract. Is it a specific date? Is it a certain number of days from the day you started work? Again, that’s up to you to decide, the important thing is that the contract that you sign include when the completion of the work is supposed to occur. This becomes critically important to the extent there are damages that extend from you being late on the job, such as liquidated damages.
You need to address these five issues in every contract and that will be a great start to the way you negotiate contracts going forward.