The construction industry operates through a multitude of contracts. A single construction project can have several construction contracts created and agreed upon by different participants, from the property owner and the general contractor, down to the subcontractors and suppliers. Whether you are an established construction business owner with several employees and multiple construction projects under your belt or a budding independent contractor building their portfolio, creating a solid contract is important to ensure that the jobs move without a hitch and even help you retain your payment rights when filing a lien.
A construction contract serves as a baseline that puts you and your client on the same page. It establishes each party’s responsibilities, the prices for services or materials, the payment methods, and the expected timeline for the job. Any mistake or missing information in the contract can potentially result in work disputes, payment delays, and even the deterioration of your relationship with the client. In the worst cases, it can lead to lengthy and expensive litigation against your company.
If you’re just starting out with your construction business and currently seeking clients, it is important to first learn the ins and outs of construction contracts. Here’s a step-by-step guide on how to write a construction contract.
Before any actual contract writing happens, it is important to first review your state’s laws as well as local legislation for any requirements that need to be included in a construction contract. Missing any clause or disclosure may render the contract invalid and unenforceable. Some may even require a certain format and language to be included in these contracts. Fortunately, your state may provide a template that works as a basis for your contract. Don’t be afraid to use it.
After learning the required inclusions, you are finally ready to write the actual contract. The next step is writing the title of the contract and its preamble. The title should describe the purpose of the contract while the preamble should state some of the basic pieces of information about the contract. They include the name of the parties to the contract, the name of the project, the location of the construction site, the commencement dates and the expected ending date.
The next step will be writing a general overview of the project followed by the exact description of the work to be done. The project overview can be one or two sentences that describe the project’s purpose and goal. Meanwhile, the description of the work is where you need to be thorough, particularly with the details of the job that you need to complete.
Be specific as much as you can. The stages of the project should be clearly established and include the timeline and the number of days expected for the completion of the project. You should state the exact work to be done in each stage of the job, as well as the materials, tools, and equipment needed to complete it. If the client requested a specific brand and color of paint or a particular method to do the job, it should be included in the description of work.
After stating the description of work and establishing a timeline for the project, you may now proceed to write the financial requirements and responsibilities involved. This section of the construction contract is important to avoid any payment issues that may arise over the course of the project.
This section should include a breakdown of the total contract price, including the cost of materials and labor, the non-refundable deposit, a schedule of payments, the final payment, and late payment penalties if any. It should also specify who will be responsible for any unexpected expenses. Be clear with payment due dates and explain how additions to or subtractions from the agreed-upon amount/s will be handled.
Whether you like it or not, there will be disputes and claims against your work performance or completion of the job, so it doesn’t hurt to prepare. Both you and your client should agree on how these disputes will be handled and resolved. Many states already require this to be included, but even if they don’t, you should include it to avoid any costly lawsuit or litigation.
State what type of insurance coverage you and your employees carry. In general, you need to have general liability insurance and worker’s compensation. In addition, state your licensing information, including where you received your license. This establishes trust and assures the client that you have the necessary qualifications and requirements mandated by law to perform construction work.
Finally, provide a space where each party can put their signature as a sign that they agree on the stipulations of the contract. Include their name, address, telephone number, and email address for notification purposes.
Every construction job starts with a contract. All states require contracts to be created and signed by the parties involved to ensure the protection of the aggrieved party in case of any breach of what was agreed upon. As a construction contractor, creating a solid contract should be second nature to you to ensure projects go smoothly and that you protect your right to get paid. As a final note, you should not, in any situation, agree to perform work without the protection of a construction contract.
About the Author:
Patrick Hogan is the CEO of Handle.com, where they build software that helps contractors, subcontractors, and material suppliers with late payments. Handle.com also provides funding for construction businesses in the form of invoice factoring, material supply trade credit, and mechanics lien purchasing.