A construction contract, like any other type of agreement, is a legally binding document that defines the rights and obligations of the parties. It is possible to purchase a construction contract from a retailer, but pre-drafted construction contracts often contain a variety of terms that may not be relevant to your project. Instead, you can create a construction contract yourself. This allows you to include specific terms, such as a payment provision and an insurance clause, that are tailored to the needs of your project.
Identify the scope of the work. The contract should specifically define the work the contractor or subcontractor will perform in as much detail as required for each party to understand their obligations. For example, if the contract is for the construction an office building, the contract should state that the contractor is responsible for the construction of the building and must build it in accordance with the plans created for the project.
Write an insurance provision. This provision is important because it covers the risks involved in a project, such as personal injury, property damage and mistakes in workmanship. The clause should state which parties working on the project need to provide insurance, and who should be named as additional insured under these policies. In the construction industry, insurance coverage generally includes workers' compensation, general liability, property insurance, professional liability and builder's risk.
Define how to handle deviations from the original plan. Although the contract defines the scope of work, it is not unusual for the nature of the work to change or for the contractor to perform extra or additional work. The contract, therefore, should define how the parties will proceed under these circumstances. For instance, the clause may state that the subcontractor cannot perform extra work until he receives a change order from the contractor and the failure to do so will eliminate the subcontractor's right to payment for any extra work performed without a change order. Additionally, the clause may also state that the contractor has the right to add and delete work from the subcontractor's scope.
Compose the payment provision. The payment clause should provide the number of days the project owner has to pay the contractor after receiving the invoice, whether retention will be withheld and when retention will be released. Check with the law in your state to determine if it mandates when an owner or contractor must pay. The provision should also state under what circumstances the owner or contractor has the right to withhold payment, such as when a subcontractor or contractor damages the work of others or defaults on the contract.
- This article is not to be construed as legal advice. Drafting contracts yourself may expose you to significant liabilities and risks if you do to fully understand the laws of your state, municipality, and applicable federal regulations. Prior to executing a contract, you should review the contract with an attorney.
- If you are the project owner, make sure the contractor has a state license.
- Number the pages of the contract.
- Include the full legal names of the parties in the contract, including any companies the parties represent.