What Should be in Every Construction Agreement
By Alex Barthet
Who doesn’t want to have and use a better construction agreement? You can do so by simply making sure you address the following 6 topics.
Define the scope
You need to define what the scope of work is that you will be providing. Will it be only materials; will it be materials and labor; or will it be just labor? You need to be very clear and very specific in how you spell out the scope of your work. Many construction agreements state that you are responsible for all work that’s shown on the plans and specifications, as well as that which is reasonably inferable. Pretty subjective – even if not actually on the plans or specifications, someone may believe that it should be part of your work and this could expand what you have to do beyond what you understood or priced out.
List all the exclusions
Do the parties each have the same understanding as to what is covered in the construction agreement? Articulate what is not in your price and not in your scope. This reduces one party believing that something is to be done when it isn’t.
Explain the change order process
When you have to perform extra work under a contract, obtain written agreement on the change order. Make sure it’s fully memorialized – signed with change in scope, change in price and change in time, and approved before you do the work. Often you are just given a revised page in the plans. Before you do the work, generate the change order, submit it, and have it accepted. Alternatively, you can request a change directive, directing you to do this change work. You will then have the necessary paper trail.
Verify the schedule
As important as the price in your construction agreement is the schedule – how quickly is the work to be done? Importantly, check to see whether or not the agreement has any penalty associated with the failure to timely perform. Review the schedule and make sure that it is doable. Are there any liquidated damage provisions that exist in the agreement and if so, are they reasonable? Do you agree with them? Know that not having a liquidated damage provision doesn’t mean there are no damages for delay. You may be liable for the actual delay damages of the contractor and the owner. As an example, let’s assume you are a dry wall subcontractor on a hotel and