A construction contract is a legal agreement signed between parties who are involved in a construction project, such as between a property owner and contractor or supplier.
This contract includes important information to govern their working relationship, such as scope of work and payment terms. It can be negotiated if you don’t feel satisfied with what it outlines.
Read the rest of this article to learn how to effectively negotiate construction contracts so that you reduce your risks and ensure satisfaction with the project.
How Should You Prepare for a Construction Contract Negotiation?
If you need to negotiate your construction contract, you shouldn’t approach this lightly or without doing your research. This will reduce your chances of being successful. Here are some tips to help you prepare.
Gather Information
You should collect as much information as you can about the project and factors influencing it, such as market conditions. Think about your main goals in completing this project as this will form the foundation for your negotiation.
Review Your Contract
You can’t negotiate a construction contract if you haven’t properly and thoroughly reviewed it. Go through every clause carefully for any red flags and sections you’d like changed.
If you don’t have a legal background or experience with construction contracts, it’s wise to consult with a qualified, experienced lawyer for a professional review of this document.
You can get a legal review of your contract on ContractsCounsel, an online legal marketplace that connects clients with lawyers who have been vetted on the platform. Simply post your project on the ContractsCounsel marketplace (it’s free). Lawyers interested in your project will send you bids. You’ll be able to review the lawyers’ information before choosing a lawyer who best matches your legal requirements.
Getting a legal review of your construction contract will give you peace of mind that it’s legally sound and it’ll break down what you should negotiate for a more favorable outcome.
Detail All Included Costs
This will ensure that all materials, labor, overheads, and other aspects of the construction project have been included in your budget. When everything is laid out clearly, you’ll be able to better check the information against your contract and negotiate terms with the other party.
What are the Main Clauses Involved in Construction Contract Negotiation?
There’s no such thing as a standard contract that can’t be negotiated. While you can negotiate many things in your construction contract, you should pay special attention to the following key clauses.
Scope of Work
This section includes what work will be performed and what won’t be included to avoid issues such as scope creep. Ensure that all dates and deadlines are outlined and that they’re reasonable, while accounting for weather or material delays.
You should negotiate for clarity, such as regarding your list of materials, so that you can identify any changes you’d like.
Payment Terms
This section explains how the contractor will be paid for their work, such as by defining total prices, payment schedules, and more.
You might want to negotiate when payments take place and deposit percentages. There could also be a negotiation opportunity for any changes to scope that would influence the costs.
Risks
Consider indemnification clauses and make sure that risk is adequately allocated should there be any losses during the project.
Check that all warrantees have the correctly specified duration and scope.
Dispute Resolution
This is essential to include in a contract in case disagreements arise. You want to define exactly how they will be resolved, so make sure you and the other party are satisfied with the methods, such as mediation or arbitration.
Penalties
Should there be delays in the project, you want to ensure that as the owner you’re compensated. However, there should be fair and reasonable ideas of what constitutes delays, such as missed deadlines and contractor/supplier error. It’s also worth negotiating how much written notice is required to avoid last-minute delays.
What are the Risks of Not Negotiating a Construction Contract?
If you decide to sign a drafted construction contract without negotiating any of its clauses, this could potentially increase your risks. These include the following:
- Failed projects. If you haven’t negotiated terms or gained clarity on them, you might end up with a delayed or failed construction project. This can cause you to lose money.
- Expensive litigation. If you don’t negotiate terms related to scope, payment, and other major concerns in the construction contract, you could end up having to go to court over disputes, which is time-consuming and costly.
- Risks. You could shoulder unnecessary risk if you don’t discuss the indemnification clauses ahead of signing the contract.
- Strained working relationships. Disputes can cause permanent damage to relationships with your contractor, suppliers, and other individuals.
How Can a Lawyer Help You With Construction Contract Negotiation?
A lawyer can help you enter into successful negotiations with the other party so that you ensure your construction project meets your requirements and quality standards. They can also assist you with the following:
- Reducing your risks. They will identify any red flags in the contract, such as too vague or generic clauses that can be misinterpreted and one-sided clauses that favor the other party. This will prevent you from taking on responsibility for risks.
- Staying legally compliant. You want to ensure that your construction contract is aligned with all construction laws in your location, as well as building codes and federal rules. This prevents you from running into problems or having disputes at a later stage.
- They’ll use their negotiation skills. Lawyers are experienced in knowing how to bargain with the other party so that you can get what you need.
- They’ll review your contract. By providing a legal review of your construction contract, your lawyer will ensure it’s fair to both parties, reasonable, and legally enforceable.
- They’ll identify negotiable clauses. There could be clauses in your contract that you don’t realize could be negotiable, but your lawyer will help you spot them.
- They’ll consider your specific project. This will help them to negotiate based on what matters most to you.
Do you need to hire a lawyer for a construction contract negotiation?
Knowing how to negotiate with your supplier or contractor can feel stressful, but you don’t have to go through it alone or risk not getting what you want for a successful project. Hiring a lawyer from ContractsCounsel will help you to navigate the situation, protect your interests, and avoid making mistakes that lead to an unfavorable outcome.
