Creating Construction Contracts: Things You Should Know

Construction contracts are important legal documents that should be drafted with care. There are many things to consider when creating a construction contract, such as the scope of the project, the payment terms, and the warranties involved. In this blog post, we will discuss some of the most important things to know about construction contracts.

SCOPE

When creating a construction contract, it is important to be as specific as possible about the scope of the project. What is included? What isn’t? Will there be subcontractors involved? Is it an entire building? An Addition? A renovation? Be as specific as possible in the contract so that there are no misunderstandings later on.

PRICING & PAYMENTS

You’ll also need to agree on a price for the project. The contract should specify how much will be paid for the work, and when the payments will be made. How much will be paid upfront as a deposit? It should also include a clause in the contract that allows for progress payments. This means that the contractor will be paid by milestones, rather than all at once when the job is finished. Progress payments can help to ensure that the contractor is paid for their work in a timely manner. Be clear about when progress payments are due and how payments will be made. Will it be by check, cash, or bank transfer?

TIMELINE

Construction contracts need a clear timeline for the project. It should specify when the work will begin and when it is expected to be completed. It is important to include a clause that allows for delays, such as bad weather, supply issues, or unforeseen circumstances. This will ensure that both parties are clear on when work is expected to begin and when it should be completed. Don’t forget to include acceptable working hours and days of the week.

WARRANTIES

Finally, the contract should include any warranties that are being offered by the contractor. For example, if the contractor promises to repair any defects in the work within a certain time period, that should be noted in the contract. By including all of this important information, both parties will know what to expect and can avoid any misunderstandings down the road.

OTHER CONSIDERATIONS

Dispute Resolution Clauses

No matter how well you know the other party, it’s always a good idea to include language in your contract that outlines how disputes will be handled. This can save you a lot of time and money if something goes wrong.

Are there any exclusions?

If there are, be sure to detail them carefully. Good business and good contracts manage expectations for all parties involved.

What about changes?

If there are any changes to any part of the project, they should be made in writing and signed by both parties. If a client wants to make a change part way through the project, everything must be noted. For example, if a client decides to change the type of flooring they want, that must be noted, along with any pricing and timeline changes. Or maybe you included a subcontractor for the project who later pulls out of the contract. Be sure to note the change in the project contract with your client.

BEFORE A CONTRACT

Before entering into any construction contract in any state be sure that you are legally able to enter such a contract.

Do you need to be licensed?

In most states, contractors must be licensed in order to perform work on certain types of projects. Be sure to check your state’s licensing requirements before you begin marketing your services. If you’re not licensed, At Home Prep has a course that can help you prepare for your state’s contractor licensing exam.

Do you have insurance?

Liability: Most states require contractors to carry liability insurance in case they damage a client’s property. If you don’t have insurance, be sure to get it before beginning any work. Worker’s Compensation: You may be required to or should consider getting workers’ compensation insurance if you have employees. This will protect you in case one of your workers is injured on the job.

Do you need a bond?

In some states, contractors are required to post a surety bond before they can begin working. This bond protects the client in case the contractor doesn’t finish the job or does subpar work.

LIEN LAWS

While Lien Laws will not be a part of a construction contract with your client, it is good to know that Lien Laws are legal protections for contractors and subcontractors in the event that they are not paid for their work.

Mechanics liens

Sometimes called a construction lien, this lean is a means of recourse if you are not paid for your work. Every state in the US has mechanics liens. Though each state has their own laws governing these liens, there are four common basic steps for making a claim under a mechanics lien. These steps are:

Preliminary Notice
Notice of Intent
Filing a Lien
Release or Enforce a Lien

To learn more, check with your state’s laws.

Are you subject to a lien law?

In some states, contractors are automatically subject to a lien law. This means that if you don’t pay your subcontractors or suppliers, they have the right to file a claim against your property. Be sure to check your state’s laws to see if you’re affected. If you are, make sure you include language in your contract that states you will pay subcontractors and suppliers in a timely manner. At Home Prep offers online courses on construction law that covers everything you need to know about your obligations and those of your clients. Whether you’re just getting started in the contracting business or you’ve been doing it for years, it’s important to have a solid understanding of construction contracts. Of course, it is always prudent to have your contracts reviewed by a licensed attorney, the tips in this article, can help you be sure that your contracts will protect both you and your clients. @HomePrep has helped folks like you for 27 years and is a national leader in contractor licensing, exam prep and continued education. We have helped over 350,000 professionals launch their career and grow in their profession. Get started today by selecting your state to find the right course for you! Or visit our extensive bookstore to find the materials you need to pass your upcoming exam.