Whether you are a homeowner, a general contractor, or a handyman, every construction project presents unique challenges. These challenges can include everything from client management to negotiation of the construction contract. Because of these unique challenges, we thought it would be beneficial to compile a brief list of considerations to help protect you or your business as you start a new project:
- Payment: This seems like an obvious consideration. But you’d be surprised how often people fail to establish a clear pricing structure for a project. Every construction contract should detail in writing the total contract price, the dates of future payment, or a process for determining when payments will be made.
- Type of Construction Contract: There are a few different types or categories of construction contracts. For example, contracts may be Lump Sum or Fixed Price, Time and Materials, or a Cost-Plus framework. Without delving into the details of each option, it’s safe to say that there are many options for pricing and cost structure. Your contract should specifically detail not only the contract price, but also how the parties established the contract price. This will help ensure clarity if the scope of the project changes or if there is a breach of the contract.
- Scope of Work: Your contract should detail the scope of work, the exact materials to be used, and the obligations of each party to the contract. Ideally, the contract will include provisions that pertain to design and manufacturing specifications, references to building plans, permitting requirements, and regulatory approval. It is always best to include as much detail as possible when it comes to the scope of the project and your obligations on the project.
- Timeline: Many projects result in litigation because of a party’s dissatisfaction with the timeliness of construction. And projects run into delays for a multitude of reasons. If your contract doesn’t provide guideposts for completion of various stages of the project, you are left exposed to a lengthy project and potentially limited remedies in the event of litigation. Timelines should parallel payment schedules, and timelines should be finalized before any work begins.
- Change Orders: Your contract should establish a procedure for changing the scope of the project, which can pertain to simple design changes or discovery of latent conditions that severely impact the costs or practicality of the project. All change orders should be memorialized in writing.
- Remedies, Alternative Dispute Resolution, and Jurisdiction: Many contracts include provisions that either limit remedies available or limit the venue for a potential dispute. It’s important to have an attorney examine any provision in your contact that addresses this issue as it will substantially impact any dispute stemming from the agreement.
- Insurance/Performance Bond: It’s appropriate to mandate that all contractors on a project carry insurance and that they disclose the policy before beginning construction. Certain projects should also include the issuance of a performance bond because many general liability policies for contractors do not cover defects in the contractor’s work. Instead, liability policies typically only cover damage caused to other parts of the structure that stem from a contractor’s work – this is generally referred to as the “your work” exclusion in liability policies. Unless the contractor can remove the “your work” exclusion from the insurance policy, an “insured contractor” is no guarantee of proper performance. As such, a performance bond is generally advised on larger projects.
- Attorneys’ Fees: This is a tricky topic. An attorneys’ fees provision can be used as both a sword and a shield, and the inclusion of an attorneys’ fees provision may increase the chances of litigation if there is a dispute. Your decision here likely revolves around your total investment in the project.
- Mechanic’s Liens: Depending upon the parties involved, it may be appropriate to include a provision pertaining to how a contractor intends to complete the work. If a contractor intends to hire subcontractors to perform the work, it’s appropriate to include a provision that guides the subcontractor hiring process as well as how payments to subcontractors will be managed. If this process goes awry, a property owner can be exposed to mechanics’ liens and the general contractor can be exposed to treble damages for failing to issue payment to subcontractors.
- Licensure, Building Permit, and Project Oversight: It’s important to verify that a contractor is licensed in your jurisdiction and that the contractor has pulled the appropriate permit before work begins. It’s safe to assume that your construction project needs a permit; don’t let work begin until you have verified that a permit is in place. Additionally, while your project will be inspected by city inspectors, we advise the use of independent inspectors throughout a project to ensure that work complies with building code and standards of care in the industry.
- Documentation Throughout Project: This consideration mainly pertains to litigation. But it’s important to acknowledge that proper documentation throughout a project will save you time and money if the project results in a lawsuit. You can protect yourself by photographing construction work daily and documenting anything that falls outside of ordinary protocol for a project.
If you are starting work on a new construction project, or if you are experiencing issues with a current project, contact our attorneys at Jorgensen, Brownell & Pepin, P.C. We have the experience and skill to help protect your property or your business.