Contractors and developers must learn how to create detailed construction contracts in order to protect themselves and their clients. There are many different contract types, and some of the most common are lump-sum and unit-price contracts. However, there are certain basic elements that must be included regardless of the type of contract.
Creating a solid contract is among the first steps of a successful project, and learning about the essential components of contracts is very important. Most of them start with a basic list of items that are adapted according to each project, and details are added according to the complexity of the project. The following are some basic elements that should be included in every contract:
- A contract must offer a product or service in exchange for remuneration.
- The scope and quality requirements of the product or service must be clearly detailed.
- Another basic element is the time required to deliver the product or service.
Make sure your projects meet all terms of the contract.
Key Terms in Construction Contracts
Construction Contract
This is a document that sets a date and specifies the parties involved in the project. This agreement is established between the developer and the main contractor or supplier providing construction services. Within the contractual agreement there is a set of clauses that define the scope, terms and conditions of the project.
Agenda or Calendar
The Construction Schedule or calendar is the result of distributing all construction activities within a period of time. This item must be described in calendar days or working days, and the schedule may be changed during the work depending on the problems encountered.
The construction schedule tells the client how and when the project will be completed. Visual representations are always helpful when talking to customers, so be sure to create a Gantt chart or other similar visual aid. This document also serves as guidance for the contractor to plan the work.
Statement of Work
The statement of work is also called the scope of work. This document describes all construction activities that will be required to complete the project, which includes:
- Who is responsible for certain activities?
- How will the task be completed?
- What materials are needed?
Creating a clear scope of work for a project is helpful during the bidding process. However, if the scope cannot be clearly defined, there are certain types of contracts that can be created without a completed scope.
Terms and conditions
This section contains all corresponding responsibilities of the owner and contractor. This section includes the legal structure of the overall contract: there are specific terms relating to liens, penalties, arbitration rules, holds, grievance procedures, and even dispute resolution. The most important part of this item is to establish the rights and responsibilities of each party.
Contract Laws
This includes all applicable laws, lien requirements, arbitration procedures, insurance, grievance procedures, liquidated damages, final completion and substantial completion requirements. This section may also provide procedures to be followed when the contract with the contractor is suspended or terminated early.
Specifications
The specifications part of the contract is where all the technical data and requirements are included. There should be a list of specifications for each construction task, including materials, procedures, techniques and equipment that will be used. These specifications are open for negotiation and should be discussed between the parties during contract development. Specifications that must be changed or changed are handled under the conditions of the scope of work change request.
Drawings and Quantities
There is a document known as a bill of quantities, which includes various lists of materials, costs, labor and trades that will be part of the project. This document is useful when contractors are preparing their bids.
Another essential element that every contract must include is a set of design drawings and plans. These can be actual blueprints for the project, as well as simpler drawings that provide a graphic representation of specific details.
Cost Estimation
This document provides a breakdown of all items required to complete the project and its costs. The cost estimate may be detailed by item in a format that combines specifications and costs, or may be provided as a fixed amount when items are not specified individually.
insurance coverage
This part is essential, especially for the owner: it gives the guarantee that the contractor has the financial capacity to carry out the work, under the terms and conditions specified in the contract.
As mentioned previously, there are no such things as overly detailed contracts: some contracts include security specifications, staffing requirements, excusable events, etc. Each contractor should consider adding documents that improve the clarity and scope of contracts. The purpose of a contract is to establish terms for resolving any complaints or problems that may arise during the project.
