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5 Must Do’s When Reviewing a Construction Contract

Make these critical changes to your next contract.

Construction contracts are usually written in dense legal language and can be challenging to understand. You can be guaranteed there are hidden red flags, and it is essential to take the time needed to read through each clause carefully – especially those related to work specifications, payment, performance standards, insurance policies, warranties, and changes in scope. It is important that each clause is read carefully and understood properly before signing. Every provision could contain hidden risks.
However, don’t go mountain climbing over molehills. Here’s where you should be paying the most attention:


1. Know exactly what you’re signing
It is essential to review every aspect of the contract’s terms and conditions. This includes understanding all of the rights and responsibilities of the parties involved, as well as any potential liabilities. It is necessary to address any conflicts or discrepancies that exist between the parties as well as any potential legal implications, financial risks, and other rights that may be affected by signing the agreement. Furthermore, it is crucial to make sure all parties are aware of any areas in which they are not adequately protected under the law or at risk for potential losses. If there are any changes made to the agreement after it has been signed, these must be clearly stated in writing and agreed upon by all parties prior to them becoming binding and enforceable. Taking these steps can help ensure that all parties abide by their obligations while remaining protected against future legal challenges or disputes.

2. Don’t assume unnecessary risk
When taking on a project, it is important to understand exactly what is being asked of you, as well as the extent of your responsibilities. Make sure that the agreement you have entered into clearly outlines not only your specific duties, but also what you can reasonably expect from other parties involved in the project. Don’t forget a clause stating you are legally entitled to trust and rely on the accuracy of materials provided by the project overseers, and outlining exactly which party is responsible for obtaining necessary permits, inspections, and approvals. Don’t assume responsibility for anything outside of your work and materials; doing so may put you at risk for legal repercussions. Additionally, make sure to research local laws and regulations regarding building or development projects before signing any contracts to ensure that all conditions are met. Understanding each party’s responsibilities will help make sure that the project runs smoothly and is completed properly and efficiently.

3. Put a Fence Around Indemnification
The purpose of indemnification clauses is to make the party signing them an “insurance company” of sorts – transferring responsibility for issues arising during the course of a project and any losses or damages incurred due to their actions.
So, if you’re being asked to become someone’s insurance company, act like one. Have you ever tried to read your actual CGL policy? It spend more time telling you what your policy doesn’t over than describing what it does.
Be like that. Be very particular about what you’re going to cover.

When structuring an indemnification provision, it is important to be as specific and thorough as possible. One way to reduce risk while still providing adequate protection is to divide the provision into two parts: one that addresses ordinary negligence scenarios and another that covers gross negligence and/or intentional acts.

In cases of ordinary negligence, a party may not be held liable for losses if they can demonstrate that their actions were reasonable under the given circumstances and the other party was not harmed due to any deliberate or conscious disregard of their duties. On the other hand, in cases of gross negligence or intentional acts, a party may be held liable regardless of whether their actions were reasonable.

It is also important to outline any specific types of damages contemplated by the agreement in order to ensure that all potential risks are taken into account. For example, if monetary damages are at risk, it should clearly state what constitutes compensable damages as well as what type of remedies may be sought if such damages do occur. If specific timelines are relevant for certain actions or events such as notification deadlines, then these should also be detailed within the indemnification provision in order to provide further guidance and clarity. It is also important to include language regarding liability caps so that both parties understand what levels of losses they can expect from either contractual breach or negligent behavior by either party.

By taking these steps and thoroughly considering all relevant factors when drafting an indemnification provision, both parties can ensure that any potential losses arising out of their respective obligations will be adequately addressed and managed within the scope of the contract.

4. Watch your Warranty
It is essential for any contractor to guarantee their work and equipment. To clearly define and limit your obligations, be sure that the standard warranty provision is modified accordingly and that your start date, end date and the exact scope of your warranty are properly specified.
What’s more (and here’s something most contractors miss) if your scope of work involves the installation of equipment, your warranty should contain an express limitation to the manufacturer’s warranty where that equipment is concerned. Too many contractors forget this and wind up offering warranties months after the manufacturer’s warranty has expired.

5. Protect your right to get paid
Construction contracts often involve a set sequence of steps that must be followed in order to ensure payment for the work performed. Look out for clauses that can actually waive or limit your right to get paid, and pay special attention to the treatment of change orders. Pay close attention to the language used in the boilerplate (yes – this language can be negotiated). Be sure that lien waivers pave the way for payment, instead of blocking it.

It is also important to remember that construction contracts are binding documents that have significant legal implications if not carefully followed. As such, both parties must ensure they understand all of the provisions included in the agreement before signing it. This includes understanding any potential liability or indemnity clauses which could lead to large financial exposures if there is a breach of the terms and conditions. Additionally, be aware of any dispute resolution mechanisms that may be included in the agreement as well as any applicable laws or regulations.

When entering into a construction contract it is critical for both parties involved to fully understand all of the components included in the agreement. Carefully reading through each clause can help avoid conflicts down the road while also ensuring compliance with applicable laws or regulations. Failing to do so can result in costly holdups, affecting future work and your company’s reputation. Do your due diligence to enter each project confident and informed.

For more legal advice and guidance on signing contracts that work for you, download our free mini guide, 5 Critical Contract Changes Every Subcontractor Needs to Make Now.

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