Key Provisions in a Construction Contract – Part 1
When negotiating construction contracts for either residential or commercial projects, there are several key provisions that should be given careful attention. The following is a list some of those provisions that should be carefully considered before signing the contract. Attorneys like us who are experienced in drafting, negotiating, or litigating construction contracts should be consulted to review and negotiate these critical provisions to avoid potential consequences that may arise from a poorly drafted contract.
- Scope of Work — The Scope of Work provision typically defines the project and the parties’ duties and responsibilities. If drafted properly, it should clearly describe the nature of the project and the work to be performed. A poorly drafted or vague Scope of Work commonly leads to disputes regarding what work was to be performed, by whom, and to what standards. This can be avoided by, for example, clearly defining the project and incorporating the project’s construction and design contract documents, specifications, and standards – just to name a few.
- Indemnity — The indemnity provision is a risk-shifting mechanism in which one party (the indemnitor) becomes responsible for any losses incurred by the other party (the indemnitee) during construction and after completion. A carefully drafted provision should specify whether the owner or contractor is responsible for any losses incurred by third parties, including for bodily injury and property damage. This provision is critical, as owners need protection against potential claims brought against them by third parties arising from, for example, the defective construction work of the contractor. There are limitations on indemnity, including limitations imposed by statute, which can potentially render the indemnity provision unenforceable and leave owners exposed to potential liability.
- Dispute resolution — While the most effective way of resolving disputes is to just avoid them, that is not always (or even usually) possible. A clearly written dispute resolution is critical to address how claims will get resolved. This provision will detail how to initiate and resolve the claim, where the dispute must be resolved (arbitration, mediation, or court), and whether the prevailing party is entitled their attorneys’ fees and costs. It may also detail certain consequences if a party does not comply with the stipulated procedures.
- Delays — Delays in completing the construction projects may cause one or both parties to suffer damages. If a contractor is responsible for the delay, this provision may protect the owner by holding the contractor responsible. A clearly written delay provision may, for example, set schedules, milestones, and timeframes for completion of the project. It may specify which types of delays are excusable and require extensions (e.g., a hurricane), as well as delays for which the contractor is not permitted extensions or additional compensation. Additionally, the provision may provide for liquidated damages, which must be carefully drafted to ensure enforceability.
- Insurance —A proper insurance provision should set forth the types of insurance coverages and amounts of coverage required for the project. Careful consideration should be given to make certain that the owner is maximally protected, including, for example, requiring the contractor to name the owner or owner’s property as an additional insured. The provision may also require coverages required for any subcontractors on the project. Since litigation in the construction setting typically centers on the amount and extent of insurance coverage, this provision is crucial.
Drafting and negotiating these key provisions requires great attention to detail and expertise in construction law and construction defects. We recommend that you speak with an experienced Miami construction law attorney who understands the nuances of construction contracts and how they apply to you. Stay tuned for Part 2 of this series where we will discuss other key provisions to consider before signing construction contracts.