A construction contractor agreement protects both parties during a construction project. It provides clear expectations between the company or person performing the work and any employer involved in the process.
Before undertaking any new project, here are 11 things to include in your construction contractor agreement.
1. Contact Information of Both Parties
Open your contractor agreement, or roofing contract, with an introduction to the project and parties overseeing its completion.
This includes:
- The name of the contractor or company
- Their employer
- The parties hiring construction services
Use legal names only, and include contact information, such as telephone numbers, email addresses, and mailing addresses.
This introduction lays the groundwork for the rest of the contract; it clearly states who is involved and whom the document's contents affect. It also needs a termination clause and possibly a liquidated damages clause, clearly stating what will occur if one or both parties choose to end the agreement.
2. Scope of Work
The construction contractor agreement must include a detailed description of the project, including the complete scope and terms of work. In addition, you may find it helpful to assign a title to the project, which you can use to refer to it throughout the rest of the agreement.
As part of this portion of the construction contractor agreement, include a description of the project and its services.
For example, suppose you are hired to remodel someone’s kitchen. In that case, you may title the project “kitchen renovation” and go on to provide a list of remodeling services. But, again, be very specific; ensure that you never perform services outside the contract’s boundaries, such as cleanup or appliance installation.
This contract section should also include any necessary permits or licenses you or your clients need to obtain for work to begin. Specify that work will not start until all applicable parties have documented proof of the required permits or licenses.
Both parties should review the scope and terms of work carefully to set clear expectations before the project’s start date. This can avoid any conflict over the nature of the project later.
Here is an article that explores construction contractor agreements.
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3. Schedule of Work and Completion Date
In construction, clear timelines are critical to enforcing accountability. A construction lawyer can use specified timelines to hold contractors legally responsible if they do not complete projects according to schedule.
Likewise, if contractors experience financial loss due to client’s prolonging the schedule, they can seek legal compensation.
The construction project should have milestones and a clearly defined competition date that assures all work will be done “no later than” an agreed-upon time.
4. Cost Estimate and Payment Schedule
Construction costs can vary throughout a project, but the agreement should provide a detailed estimate. It may also include an amount that the project will not exceed.
If you are using a cost-plus contract, the contractor is to be paid for all their work, plus an additional fee for their time and labor.
With a design-build contract, the contractor oversees the design and construction of a project from start to completion. In this case, they can either charge for the entire project or break down their rates for individual services.
The design-build model is increasingly popular in residential projects, such as home renovations. They allow the clients to simplify the process by having all design and construction elements handled solely by one company.
However, payment terms can vary dramatically between each type of construction contract. Therefore, it is important to have a clear estimate and list any security deposits, payment schedules, and acceptable payment methods before starting work.
Here is an article with 8 methods on how to pay a contractor.
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5. Stop-work and Stop-payment Clauses
The stop-work clause allows contractors to suspend work and receive a time extension if the client does not pay on time. Whether the payment is late by days, weeks, or even months, the contractor reserves the legal right to postpone any further construction work until the client’s payments are up-to-date.
A stop-payment clause gives the client a right to request to cancel the payment of items or services that have not yet been processed. For example, this can apply when a client agrees to pay a fixed monthly amount, but the project is delayed or canceled.
During the delay, the client may not pay the contractor for any services. Only when the project resumes will the client continue to pay according to the terms in their contract.
Here is an article on how stop-work clauses benefit construction contractors.
6. Change Order Agreement
A change order is an amendment to the original work order that alters the project's scope, total cost, or project schedule. These are highly valuable clauses in a construction contractor agreement.
In a renovation contract, the change order agreement easily allows the contractor to modify the contract as the project scope evolves. For example, a client may decide that they want to change certain features or even eliminate some parts of the project.
A change order allows the contractor to thoroughly document changes to a project and ensure the client only pays for the work they order.
Here is an article to learn more about change orders.
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7. Authority
The authority of a construction contractor agreement states that the contract or subcontractor will be the only ones responsible for the project. This can assure the client that only approved individuals will work on their project.
Authority can also grant a subcontractor who works under the contracting company to perform work on their behalf.
Here is an article that explores liability with subcontractors in construction.
8. Warranties
Warranties have many applications in construction law. The two most common are:
- Workmanship: The contractor promises to perform high-quality work free of any defects. The workmanship warranty can also explicitly include professional, appropriate techniques and best practices in construction.
- Habitability : This warranty promises that the project's final result will be safe and habitable. The renovated or newly constructed space will fulfill its intended role without any defects or hazards.
The contractor can also provide warranties for their services if any of the materials used in construction do not perform as intended. However, there is a statute of limitations for how long a client can file a claim.
It is important to list all warranties, disclaimers, and applicable statutes based on state law in clear, easy-to-understand language.
A contractor can also protect themselves by reserving the right to file a lien if their state allows it. A construction lien can hold property owners responsible for payment if they are not unsatisfied with the work.
You can also include a hold harmless agreement that indicates neither party will be held responsible for injuries the other sustains.
Here is an article with more information on warranties in construction contracts.
9. Act of God Clause
The act of god clause protects the contractor from being held liable for events beyond their control. This primarily covers damages and losses sustained during natural disasters, such as:
- Tornadoes
- Hurricanes
- Flash floods
- Earthquakes
Here is an article that explains Acts of God provisions in legal terms.
10. Dispute Resolution
Disputes are not uncommon in construction. Projects may not be coming along as the client would lie or issues with outstanding payments. If contract terms are unclear or misunderstood, you may experience a breach of contract or other violations.
A dispute resolution clause can require the client to follow a specific protocol before pursuing legal action against you or your company. For example, you may require the first step to be negotiation, where you and the client discuss the problem and work toward a resolution together.
Here is an article that explores four methods for resolving construction contract disputes.
11. Signatures of Both Parties
Finally, close the contract with signatures of both the contractor’s and client’s legal first and last names. Include their title, e.g., “contractor” and “homeowner”, and dates.
Ensure the contract has a clear, blank space with visible signature and datelines to conclude the construction contractor agreement.
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