Developers: What you need to know about construction contracts

Construction contracts are a unique niche within business law. These documents can be extremely complex and involve many moving parts. This post will delve into some of the special considerations and common provisions used within these contracts.

Why are construction contracts so complex?

First, it is important to note that construction contracts are often a creature of state law. As a result, the law that applies can vary depending on applicable law.

One of the initial issues with construction contracts is the parties. Who is actually bound by the contract? Construction projects often involve more than just a developer and a construction firm. The firm may also use sub-contractors and vendors to help finish the project.

Another issue: choosing the right contract type. Construction contracts can come in many different forms. Three of the more common include the lump sum, time and materials, and cost, plus contracts. Each form impacts the cost and progression of the project.

What are some common provisions?

Although each contract should be drafted with a specific project in mind, some common provisions used in construction contracts can include:

  • Deadline clause. It is often wise to include a provision within a construction contract outlining the expected completion date and any applicable bonuses or penalties if the project is completed before or after this date.
  • Indemnification provision. Those who agree to a contract are looking to manage the risk that comes with the project. An indemnification clause can help to explain who is responsible for specific risks that may come with the project.
  • Escalation clause. This provision is generally used for larger construction projects. These provisions can provide protection from price fluctuations. A jump in gas or oil prices can have a large impact on the total price of the project. As a result, these provisions are often wise to include on projects that will last for a year or longer. In addition to fuel or gas prices, these clauses may also apply for certain steel or asphalt products.

These contracts often also include a dispute resolution or claims provision. This provision outlines the accepted course of action if there is a disagreement about the project.