How to Build a Contract Review Checklist for Your Company
When you receive a construction contract for a new project, do you lot read it? The truth is near companies probably don't. The linguistic communication can exist intimidating and in that location's and then much to read, who has time? In nearly cases, there's probably no harm in signing a contract y'all haven't read. However, to protect yourself and your visitor from potential problems, it'southward best that you review each contract before signing. If yous feel like you don't know what to look for when reviewing a contract, we've put together a construction contract review checklist — then you know exactly which clauses to look out for, plus ideas for changes that will do good your company.
Plus, proceed reading to view a checklist yous can download and print to help you go on track of all the important things to look out for every time you lot review a contract.
Structure contract sections to review for accuracy
Scope of work
The showtime department that you should review is the telescopic of work described in the contract. Make certain that it matches the work that you lot have offered to perform. Some contracts will provide a detailed description of the piece of work needed, while others may be quite broad. A well-divers scope description helps all parties to the contract know exactly what piece of work is included — as well as excluded.
Contract amount
Brand certain that the contract amount matches the corporeality of your proposal and any agreed-upon alternates or alter orders. If changes have been made to the scope of piece of work, brand sure that the changes are reflected in the telescopic description, as well as the contract amount.
Projection schedule
Contracts may include a construction schedule or dates for the projection as function of the contract language. If a schedule is included, review the dates for your piece of work carefully. Brand sure you have been given enough time to become submittal approval, gild materials or equipment, and accept them delivered before you lot start piece of work.
Since project completion depends on everyone completing their work on time, it's particularly of import to review and observe whatever schedule changes equally early as possible.
Contract documents
The contract documents, like drawings and specifications, are often referenced in structure contracts as the basis for the telescopic of work.
Commonly, they are considered function of the contract past beingness listed or incorporated into the document. Review the list of drawings and specifications and other contract documents to make sure that yous have the correct versions of the documents.
Pay special attention to the dates of drawings, as they commonly go through several revisions on a projection. Having the wrong documents listed on the contract tin create conflict when it comes time to determine the scope of piece of work.
Dispute resolution method
Take note of the method of dispute resolution that is required by the contract. Many contracts stipulate that the parties will go to arbitration if there is a dispute. Other options include arbitration or a lawsuit. Y'all'll likewise want to annotation who is responsible for chaser'due south fees if a merits is settled or decided by a judge or arbitrator.
Clauses in your contract to watch out for
'Pay-when-paid' or 'pay-if-paid'
Y'all'll want to be sure to cheque the payment clauses in the contract to determine if they include a pay-when-paid or pay-if-paid clause. These clauses attempt to delay payment to lower-tier contractors.
Pay-when-paid states that payments will be fabricated to a subcontractor after the owner has paid the general. There's usually a deadline for when payment will exist fabricated, such as vii days subsequently payment from the possessor. These deadlines are subject to federal and land prompt payment laws, and then make sure y'all know which laws apply for your project.
Pay-if-paid clauses, however, create a dependency betwixt the owner paying the general contractor and the subcontractor being paid. They shift the responsibility for non-payment from the GC to the subcontractor. Y'all should ask for a pay-if-paid clause to be removed from the contract if possible. If the GC won't remove it, go along with caution.
Termination for convenience
These clauses stipulate what happens if the possessor terminates the project for their own purposes. Ofttimes the clause states that contractors volition only be paid for work that has been performed or installed after the appointment of termination. This means that materials or equipment that have been purchased and haven't been installed withal aren't paid for, and the contractor incurs the cost without reimbursement. This clause should be changed to include reimbursement for materials and equipment that accept been purchased and oasis't been installed yet.
No damage for delay
A no damage for delay clause states that a contractor cannot be reimbursed for costs incurred past a delay caused by an upper-tier party.
For example, a subcontractor cannot claim costs for a delay caused past the owner or the GC. This ways that lower-tier contractors can lose pregnant amounts of coin waiting for upper-tier contractors to move the work along, whether they caused the delay or not. This clause should be changed to include reimbursement for damages if a delay is caused by an upstream party and is not the mistake of the contractor.
Liquidated damages
Liquidated amercement are penalties for completing a projection subsequently its scheduled completion time. They are assessed to assistance compensate the projection owner for lost revenues due to a delay in the project. Liquidated damages are commonly assessed by the owner to the general contractor and are often passed downward to subcontractors. If there are liquidated damages on a project, make certain that the damages volition exist passed downwardly only to the contractors responsible for the filibuster.
No-lien clause
Some contracts include clauses that crave a contractor to waive their lien or bond claim rights earlier work starts. The waiving party ends up like-minded (whether they know it or not) to perform the work without the protection of a potential mechanics lien or bond claim against the holding if they end upwards not getting paid.
These clauses are by and large not enforceable, because y'all can't build a contract on an act that goes against the law. Notwithstanding, yous should be aware of whether or not they can be enforced in the land the piece of work is in. Either way, you lot should ask to strike the clause , as information technology takes away a legal right you are entitled to.
Subordination of lien
Another clause you lot may find related to lien rights is a subordination of mechanics lien clause. Subordination of a mechanics lien relates to the mechanics lien's priority, which is what may ultimately decide who gets paid first (or at all) in the upshot the lien is foreclosed on.
These clauses frequently country that the mechanics lien will be placed behind other liens in priority. Being at the end of the priority line can hateful that you lot won't get paid — fifty-fifty if you lot take a valid lien.
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Structure contract review: Where to go on with caution
Flow-downwardly clauses
Many subcontractor contracts take a clause that states that the terms of the prime contract apply to the contract with the subcontractor. These are called menses-downwards clauses. If you find such a clause in your contract, make sure you request a re-create of the prime contract so you can review it.
Since yous are agreeing to the terms of the prime number contract, you have a right to review those terms. If you lot have a question about something in the prime contract, ask the general contractor earlier proceeding.
Change orders
Exist sure to review the department that deals with change orders. You'll want to know what the procedure for submitting changes is, what the notice deadlines are, and the procedure for filing a merits if a alter is not accepted. If the notice deadlines are too brusque, negotiate to extend them so you lot take time to put together the required backup information.
Warranties
Most structure contracts require contractors to warranty their cloth and labor for at to the lowest degree 1 twelvemonth. Review the warranty clauses to brand certain there aren't hidden warranty requirements that the owner or full general contractor is requesting.
Sometimes they may request warranties of five or 10 years, depending on the piece of work existence provided. Make sure yous know how long yous have to warranty your piece of work before you start the project.
Download a structure contract review checklist
Ever read contracts advisedly
The lesser line is you need to read each contract you receive carefully. If you can, have an attorney review each contract earlier signing it. They volition suggest changes and let y'all know of any red flags that y'all need to be aware of. Always use your best judgment, and don't be afraid to suggest changes that better protect your company.
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Source: https://www.levelset.com/blog/construction-contract-review-checklist/
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