If you’re a contractor, laborer, or supplier in the construction industry, you probably have a contract you use for each project (and if not, you should!). While you may change aspects of the contract each time, you should start with a high quality contract designed for you by a lawyer to make sure your specific work is covered. Every construction contractor has a slightly different situation, so it’s best not to copy a contract you find online. It may be years down the road, but eventually you’ll run into a major problem with your contract.
Here are seven things to look at in a construction contract in the set of standard terms and conditions.
- Lien Waivers: It’s a good idea to have a lien waiver clause in your contract that states you waive your right to place a lien on the project once you receive payment for work completed. These clauses are generally written such that the contractor must provide you with a lien waiver for the previous payment before the next payment is tendered. How this clause is written is especially important for general contractors who need to keep the payments flowing down the chain.
- Change Orders: If you’ve worked in construction long enough (or watched enough HGTV), you know there’s always changes requested to the original scope. Your contract needs to clearly state how such changes are handled and at what point they result in extra fees or a delay. Change orders should always be completed in writing and signed by everyone, just like the original contract.
- General Business Obligations: In your contract, you should note whether your markup covers the general costs of running your business or whether those are included in a different line item. The costs for a prime contractor on a big project will be different from those of a smaller subcontractor, but every business has them, so be sure they are included. These obligations can include major items such as overall site management to final cleanup.
- Dispute Resolution: In the event of a dispute about payment terms or work performed, think about how you want to handle the claims. You may want to stipulate that you will bring your issue to court in a certain location (generally where you’re located) or try arbitration first.
- Insurance Coverage: Make sure you state what insurance you’re responsible for carrying (e.g. general liability) and what you expect the property owner or general contractor to provide. In some cases, you may want to offer the owner the right to get a performance bond on the project and indicate that by signing your contract, they have decided against purchasing the bond.
- Relationship of the Parties: Contracts generally specify whether you’re being hired as an employee or an independent contractor. It’s important to know the difference because there are different taxes and requirements for each party. For the most part, if you’re being hired to work on a construction project, you’ll do so through your company as an independent contractor. This means you’re responsible for carrying your own insurance and paying your own taxes, but it also means that you can work on other projects when you have the time.
- Other Legalese: If you talk with your attorney, there will probably be many other standard terms and conditions they will want to place in your contract. These could be as simple as charging interest to encourage prompt payment or as complex as an assignment clause in case you have to hire others to perform the work you contracted to do.
In addition to the general terms and conditions, you want to make sure your contract clearly covers the project you’re working on, the scope of the work you’re performing, how much you’re expected to get paid, and what the payment schedule is. The clearer you are when spelling out these details means the easier the contract will be to enforce.
If you would like help crafting a contract that is perfect for the construction work you do or just want someone with experience to review your standard terms and conditions, reach out to National Lien and Bond for a consultation. We’re here to help!