5 Things to Keep in Mind When Negotiating a Construction Contract
Before beginning a construction project, it’s imperative to craft an ironclad contract that protects all parties. Some things to keep in mind when negotiating a construction contract are:
The timeline for the project is a serious concern. If you are the project owner, you have to ask yourself, is there a specific date that you need the project completed? However, if you are the contractor, you need to consider how much time you will need to secure the necessary labor and materials to get the job done, and how long it might take to secure the necessary permits. In any construction contract, all key deadlines should be clearly specified and agreed to by all parties. Be careful not to devise a timeline that is not feasible, or it could lead to disputes and related issues during the project.
Many construction projects encounter delays. Have you considered how these delays will be handled? In your contract, you can spell out how to determine who is at fault for the delay, and how damages will be assessed. Additionally, you should include specific, Force Majeure language in your contract, which will address how weather delays and other events outside the parties’ control will be handled. If you address these issues in your construction contract, you can potentially limit or eliminate any disputes during the work.
When drafting a construction contract, another critical element to keep in mind is notice requirements. Notice requirements are especially important because, when issues arise, each side must know exactly who to contact on the other side to resolve things as quickly and efficiently as possible. In addition, if either side disregards notice requirements, that party could potentially waive its rights under the contract. Therefore, it’s essential to ensure that the right people to contact are included in the contract’s notice requirements. Be sure to designate individuals who are in the proper role and have procedures in place to ensure that the notice gets to the right people within the organization.
Indemnification provisions can be extremely complicated, and at times, expansive. You must have your construction attorney carefully review a construction contract, especially the indemnification provisions, to make sure they are reasonable. Otherwise, you could be required to indemnify the other side due to acts entirely outside your control. For example, an overbroad and one-sided indemnification provision could even require paying for the other party’s litigation against you and additional costs of litigation, even if the issues leading to the litigation were caused by the party benefitting from the indemnification provision.
Dispute Resolution Provisions
Construction contracts typically include language specifying the forum in which disputes during the project are to be resolved, and in some cases, include pre-suit requirements, like mediation, which must be completed before a lawsuit can be filed. Mediation is often expensive and time-consuming as it is difficult for all parties to agree on a mediator, dates, and locations to work on the issue, and depending on the mediator, the rates charged for the mediation can be significant. However, the benefit of attending a successful mediation with an effective mediator could also far outweigh the downside of its associated costs. The contract may require, instead of filing a lawsuit, mandatory binding arbitration with organizations like AAA. Arbitrations would require all parties to pay additional fees (to both the arbitrator and the arbitrator’s organization), which would not be necessary if the dispute was filed in court. Before signing any construction contract, you must know exactly what the pros and cons are of pre-suit mediations, and what the pros and cons are of arbitration vs. using the court system. Before signing anything, it is important to have your trusted construction attorney review any potential contracts.
About the Author: Jacob A. Epstein concentrates his practice in the areas of real estate litigation, construction litigation, construction law, and general business litigation.