How to make sure a construction contract protects your money?

When you begin the process of constructing a new building or remodeling a project, you believe to have hired dependable, honest, and experienced contractors. Many times, contractors prove that they are thorough professionals. But sometimes, they aren’t. After several months of project completion, you might find yourself abandoned by the general contractor, required to pay more money, left with poor craftsmanship and a whole host of other problems.

A well-written contract is the only thing that will allow you to move on with your project and get your money back. Remember, having a contract is non-negotiable. Further, a written contract that works for everyone is in the best interest of all parties. Here’s why:

Pay-if-paid/Pay-when-paid: The difference between the two is significant. Pay-if-paid clause states that if the owner never pays the contractor, the contractor has no duty to pay you. On the other hand, pay-when-paid clause explains if there is three months delay in paying the contractor by the owner, the contractor has no duty to pay you during that period of delay. Contractors, suppliers, sub-contractors and all the other parties must carefully review all the provisions of every contract before accepting, approving, and signing them. The construction contracts will bind the parties – financially and legally – once signed.

Change orders: This is a document where any change to the original contract regarding the scope of price, work or schedule agreed upon between any of two parties in a construction project can be made. As many unpredicted things happen all the time, causing a need to change the original agreement, change orders are common in construction projects. Changes orders are necessary when the scope of work is ill-defined, conditions affect safety, unrealistic budgets and timelines are in place, unpredicted conditions and issues arise. Therefore, ensure to include a revised schedule, cost, and the scope of work, or any other changes that are being implemented. Ensure that this document is read carefully and signed by both the parties to protect your money.

Damages for delays: Just like the way sub-contractors can hold up each other’s work, the owner can hold up a general contractors’ progress. The contractor remains responsible for the damages caused to the owner because the owner was unable to use the completed project during the delay period. The contractor must continue paying for equipment rentals, insurance and job site trailers. On the other hand, the contractors can substantially increase the cost of the project to the owner if the owner causes the delay and the additional expense. The damages can be disastrous and substantial to either party. Therefore, it is important for the parties to address the possibility of construction delays and how they are going to deal with them in their contract.

Retainage: Withholding a portion of each progress payment – 5% to 10% — earned by a subcontractor or contractor until the completion of the project is often referred to as retainage. It is routinely called for both public and private construction contracts. Withholding retainage provides the contractor with the economic incentive to stay on the job, correct any remaining details if required, and work until completion. Further, retainage provides an immediate source of funds for owners to reset the performance default if general contractor fails to complete the project, especially at the later stages of the project. Care must be taken to ensure that retainage is not used as a de-facto risk shifting mechanism but is treated in a fair manner for its intended purpose.

Ensure that all contract documents are written well before signing. In fact, these documents can definitely help you save your money. To know more about the latest updates in the construction industry, stay logged into the A F Alber. We take the utmost pleasure in providing you with all the latest updates about the construction industry.

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