Monday, October 21, 2013

Tilt the Contract Your Way


All construction contracts are not created equal. Most attorneys will confirm that they could write a construction contract that either:
  1. Makes it nearly impossible to lose money on the job, or
  2. Makes losing money on the job almost certain.
That’s called contract bias. Every construction contract has bias, favoring either the property owner or the contractor. You have better control, more options and extra security when contract bias is in your favor. Don’t believe any claim that a contract is “standard” or has no bias. There is no such thing as a standard construction contract just as there is no such thing as a standard construction project.
Here’s my list of 10 contract clauses that favor the contractor and another 10 clauses that favor the owner.
Clauses favoring the contractor:
  • Anything not in the contractor’s estimate will be at extra charge.
  • Design defects are corrected at the owner's expense.
  • No retainage will be deducted from payments due.
  • Changes required by law are charged as extra work.
  • Changes will be charged at the normal selling price of the contractor.
  • The contractor provides no warranty other than required by law.
  • Disputes have to be resolved by arbitration, not litigation.
  • The contractor gets paid for delay caused by the owner.
  • Final payment is due 30 days after termination.
  • Any defect not on the punch list is accepted..
Clauses favoring a property owner:
  • The contract price covers job conditions as they exist.
  • The contractor is responsible for hazmat found on the job.
  • The owner can reject any work considered defective.
  • Any ambiguity in the plans is resolved in favor of the owner.
  • Final payment releases all contractor claims.
  • Claims for extra work expire if not made in writing within 5 days.
  • Unsatisfactory work must be removed at the contractor's expense.
  • The contractor provides a broad form warranty on all work completed.
  • The contractor is liable for any loss suffered by the owner (indemnity).
  • The contractor has to pay for any corrections required by law.
Contract clauses like those above can create a very one-sided contract. But there’s no need to bend every contract clause your way. A more balanced contract will be accepted sooner with fewer revisions. If you want to shift contract bias your way, be selective. For example:
  • If the owner is in a hurry to take occupancy, pay close attention to bias when dealing with the construction schedule.
  • If the plans aren’t as complete as you would like, consider bias very carefully when spelling out how the owner gets charged for extra work.
  • If materials have to be ordered and paid for before work starts, require an initial payment that covers your up-front costs.
With Craftsman’s Construction Contract Writer, bend bias any way you want. Or draft a fair and balanced contract that offers a little extra protection when there's more risk. It's entirely your choice. The trial version is free.