Whether you work in residential or commercial construction, contracts govern all aspects of your business. A well-drafted construction contract will address issues such as payment, delays, and changes to the scope of work. Clearly established terms in a construction contract will manage risk and contain mechanisms that kick in if a problem arises, helping you avoid legal disputes.
Sloppy (or non-existent) construction contracts hurt profitability
You may be pressured start work on a project before hammering out the details of the contract, or you may work on a project without any written agreement at all. If you fail to record the terms of the agreement in writing, you may be exposed to avoidable risk and litigation if problems arise. Serious delays and legal disputes will negatively impact the profitability of the project. It is worth it to take the time to ensure you are protected from the outset.
Protect yourself when negotiating construction contracts
You can avoid legal disputes and manage risk by negotiating a construction contract with clear terms. An experienced lawyer can provide you with advice, highlight areas of risk, and ensure your rights are protected. Written construction contracts will vary from project to project, but essential terms generally include:
- A clear description of both the property and the parties to the construction contract. A title search is recommended to ensure accuracy of the legal description of the property and the names of the property owners.
- A detailed description of the scope of work. Ideally drawings, plans, and specifications will be referenced in the contract and included as schedules.
- A construction schedule. The contract should state the start date and completion date for the work. It should also stipulate what happens if work is not finished by the date set out in the contract and who bears the costs (i.e. remedies in the event of delay).
- Price and payment terms. The contract should set out the price for the work and clearly specify when it is to be paid. If a deposit is paid, the contract should address when it can be drawn upon during construction.
- Changes and additions to the scope of work. The contract should set out how changes to the scope of work or “extras” will be dealt with—and whether or not those changes are included in the agreed upon price. A significant number of disputes arise in this area, and many could have been avoided if the scope of work had been explicitly defined in the contract.
Consider whether other construction contract terms are necessary
The construction contract must be tailored to the project. Depending on the circumstances, it may be necessary for a construction contract to include terms with respect to construction bonds, insuring against loss at a construction site, limitation of liability, acceleration claims, quality issues and the remedying of defects, non-payment (see here for our recent discussion of BC builders liens), circumstances that warrant termination of the contract, and mechanisms for resolving disputes between you, the property owner, and if necessary, other contractors or subcontractors (e.g. mediation, arbitration).
