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.
3. Review all specifications
Because specification books are often three inches thick, many contractors only read the section that affects their trade. It is imperative, however, to review all specification sections before you sign a contract. You are contractually liable for all requirements included in the complete document. The general conditions section, for example, contains contractual requirements for jobsite safety, submittals, cleanup, change orders and how to get paid.
On a new school project several years ago, an asphalt paving subcontractor got a call from the project superintendent that the locker room floor was ready to pave. Unfortunately for the paver, the asphalt flooring was called out in the finish schedule section of the specifications and not shown on the civil or site plans. A complete set of plans, specifications and the finish schedule would have eliminated this problem. Never - Never - Never sign a contract without reviewing the complete specifications.
4. Visit the jobsite
Always send your field superintendent to the jobsite to look for any unforeseen conditions, conflicts with the project plans and logistic concerns that can cause you grief later. Every job looks different in person than they do on paper. Things to consider include:
- Access
- Parking
- Mobilization
- Staging area
- Power availability
- Phone availability
- Water availability
- Project office location
- Storage yard access
- Soil conditions
- Demolition required
- Clearing required
- Neighboring property
- Protection Required
- Hazards
- Street improvements
- Location of underground
5. Review the job schedule
Before committing to any project, make sure you completely understand and agree with the project schedule. Lost job profits generally can be attributed to improper scheduling of crews, poor supervision and lack of field coordination. And a schedule that's too optimistic will result in a crunch at the end of the project which costs everyone money. Be careful to verify your major subcontractor and suppliers can man the project to meet the schedule. Look for delay and damage clauses contained within the contract. Also, look at how delay charges will be transferred through to subcontractors if they don't perform. Consider issues like weather delays, strikes, material shortages, etc. when reviewing every contract. Verify how you can remedy situations where you are being delayed by the project owner or a subcontractor not performing as well.
6. Complete a project checklist
When reviewing construction contracts, use this simple project checklist so you and your project team won't overlook important items. On the list be sure to include
- Scope of work
- Inclusions & exclusions
- Plans & specifications
- Project schedule & manpower
- Insurance requirements
- Bonding requirements
- Payment procedures
- Cash flow requirements
- Person(s) authorized to sign
- Change order procedures
- Dispute resolution methods
- Notice required on issues
- Delay, claims & protests
- Request for information
- Shop drawings & submittals
- Meetings required to attend
- Safety requirements
- Permit requirements
- Site access, logistics & parking
- Special tools & equipment required
- Contract close-out procedures
- Final payment procedures
7. Verify project funding
Every general contractor and subcontractor has the right to know that projects have adequate funds to complete them plus a reasonable reserve for unforeseen changes and contingencies. So, always ask for proof of funding. It can be awkward to ask, so I often tell customers that my banker or bonding company won't let us sign a contract without assurance there is money set aside to complete the project. Doing jobs without getting paid isn't any fun.
8. Read complete contract
Signing a contract prepared by someone else can be scary. The days of a handshake contract are long gone. Today, contracting Is About contracts! If you don't understand what you are signing, you won't stay in business very long. Many contacts contain clauses that are one-sided and unfair. Carefully look over contract clauses dealing with such issues as:
- Payment, retention & pay when paid
- Indemnification
- Authorizations, notices, approvals & administration
- Conflict resolution and disputes
- Arbitration vs. court
- Schedule issues: Failure to perform; Delays and weather; Acceleration & termination; Liquidated damages
- Change orders & back-charges
- Cleanup & supervision
