These might sound obvious, but a surprising number of construction contracts do not adequately address these basic elements. This is remarkable when considering that many construction disputes focus on one or more of these key issues (i.e., the project is over budget or late, or the scope of work is in question).
Whether it is a fixed price, cost-plus (with or without guaranteed maximum price), or some other arrangement, all contracts should contain adequate pricing provisions. This includes not only an overall contract amount, but also how the amount will be paid, when it will be paid, and how change orders and extra work will be priced. A thorough contract also should include provisions governing when and why payment can properly be withheld, as well as consequences for improper non-payment. Project timing can be equally important. Contracts should include provisions establishing the relevant dates or periods for work and services, and address the consequences for late performance. Additional provisions should define what the parties mean by “completion” (substantial and final), identify occurrences excusing late performance, and include protocols for getting late projects back on track. Many contracts include a waiver of consequential damages, which can limit the parties’ ability to recover damages related to delays. Parties should consider this and discuss alternatives such as liquidated damages or caps on consequential damages.
Before they are built, most projects exist only on paper in the form of specifications, drawings, narratives and other documents, which can be voluminous. Thus, it is rarely practical to define the project scope in the contract itself. Scope must be defined by reference, which requires thoroughness and precision when identifying external documents. This includes identifying the creators of the documents, titles, dates, sheet and document numbers, versions and other identifying information. Many project disputes can be avoided by accurately and completely establishing the scope of the work and services.
Although the parties might not want to consider it, termination is sometimes necessary. Contracts should identify the possible grounds for termination, as well as the procedures to be followed in the event of termination (this should include notice requirements and an opportunity to cure). The contract also should address whether one or more parties has the right to terminate for convenience or for reasons not the fault of the other party (e.g., failure to obtain financing). In any event, the contract should include provisions governing how final payment, if any, is to be made.
While it is not always possible to avoid disputes, thoughtful contract drafting can reduce the likelihood of disputes, establish party expectations and give the parties more control over disputes when they arise.
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