Nine Steps To Signing A Successful Construction Contract
The construction business is risky enough without contractual unknowns. Lower your risk by using this basic checklist for reviewing contracts.
Have you ever signed a construction contract you wish you had read before signing? Often times, general contractors and subcontractors are so excited to get a job they'll sign anything put in front of them. As a general contractor, I often see subcontractors sign our lengthy twenty page subcontract without reading it. What if it contained clauses making it impossible for them to get change orders approved or win contractual disputes in court or give up their rights?
Do you read your contracts?
Many contracts I have been asked to sign contain many unfair clauses which would make it impossible for us to get paid in a timely manner, finish the project per the plans or make any money. We were once asked to sign a general contract including a little clause hidden in the fine print: "The owner has no obligation to pay unless the bank funds the payment." Luckily, before signing, we read the contract, met with our customer and agreed to have the unacceptable payment clause changed to: "The owner is liable to pay for the work regardless of whether the bank funds or not."
Unfortunately, most contracts and subcontracts aren't awarded until the last minute when the project manager finally gets around to awarding them and gets them typed or permits are ready or the funding is in place and the loan has recorded. This usually happens the day before your crews and subcontractors are needed out on the jobsite. Pressure is on to get started as fast as possible and sign the contract later. With this happening, there is never enough time to read the contract in detail, have it reviewed by your attorney and then negotiate all of the unfair clauses before you start work. Signing construction contracts for new buildings, remodels or improvements without agreeing to all of the clauses in advance is like getting on an airplane without knowing where it's going or if it has enough fuel to get to your final destination.
Contractors and subcontractors must take the time and effort to review every contract before signing them. Don't sign what you haven't read or agreed to. The old saying: "Trust me!" doesn't work in your favor very often. For every project, large and small, go through each step of the following checklist before putting your pen to paper and celebrating a new job to start.
Contract Signing Checklist
1. Review your bid
When you get called that you are the successful bidder, don't get excited and put the cart before the horse. Before gearing up to sign a contract or start work, review your bid carefully. Have your bookkeeper check the math. Have your field superintendent and foreman check the labor and equipment figures. Call your major suppliers and subcontractors to confirm their bids. Remember, only you decide if you will sign the contract and agree to all the terms. If all looks good, go on to the next step.
2. Review complete plans
General contractors and subcontractors don't always get to see the complete set of plans, specifications, addendas, general conditions, proposed contract format and complete contract documents when asked to submit their bids. Before signing a contract, review all plans and project documents including: architectural, structural, civil, plumbing, mechanical and electrical plans; soils reports; addendum's; finish schedules and the City conditions of approval.
A general contractor told me about an office building project he built where there was a conflict between the different project plans. The site concrete subcontractor poured the curbs, gutters and sidewalks exactly as shown on the civil-grading plans. The next day, the architect asked the job superintendent if the rebar called out on the architectural plans and in the soils report had been installed in the freshly poured sidewalks. The contractor and field superintendent had never cross-checked the civil plans with the architectural plans or soils report. In addition, the architectural plans were never issued to the site concrete subcontractor. Who's fault is this? The general contractor tried to blame the subcontractor for this problem, omission and remedy. The subcontractor claimed they were not aware of the rebar requirement in the walks. In the end, the general contractor was forced to remove all the sidewalks and repour them with the required rebar steel at a cost of $40,000. Was saving $50 by not giving the subcontractor a complete set of plans worth it? Never - Never - Never sign a contract without reviewing the complete set of plans.
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