Contractors know that the first, most crucial, step for a construction project is agreeing on accurate and fair terms. During the bidding process, the contract is drafted. Once accepted by both parties, it creates a legally enforceable contract that has both positive and potentially negative ramifications for a party who breaks that contract.
Drafting, reviewing, and signing a contract for construction work can be a difficult-to-navigate process. Understanding the document before agreeing to it is vital to ensuring the project goes smoothly and you mitigate potential personal or corporate risk.
Here’s what a construction contract should do:
- Clearly define expectations. The scope of work/terms of agreement should be specific, accurate, and enforceable. The insurance section and indemnification language is important to review before signing because the subcontractor could potentially be signing an agreement that states they agree to carry certain coverages or limits that they may not have. The agreement should also include limits required and coverages required. As the subcontractor what are you being required to provide to the contractor? Additional insured status and in what form?
- Provide realistic timing. Does the have enough time to complete the work to the terms of the contract? Does the other party have any deadlines that need to be met? Make sure the contract fits the needs of both parties.
- Outline cost to be paid for work (lump sum, unit price, or cost plus a fee), method of payment, and when payment will be sent. Ensure all charges included in the contract were agreed on. Validate payment method, timing (do you require payment at a certain time?), late penalties, and other costs like paying for the other party’s attorney fees should you breach contract and go to court.
- Identify potential disputes or problems and how to deal with them. If something goes wrong, who is responsible? What steps will be taken? Look for one-sided language. If anything seems out of the ordinary or unfair, don’t be afraid to question it.
- Meet all requirements of basic contract law. Is this a valid contract, enforceable by law?
When to Consult a Professional
We always encourage our clients to read every contract before agreeing to it. It’s your best line of defense if something goes wrong. We also understand that contracts can often contain complexities and legal jargon that can be confusing. Never sign a document that you are unsure of. When in doubt, contact your attorney or insurance agent to gain clarity and understanding.
At Catto & Catto, we specialize on the insurance-related portions of contracts, like limits, forms, and endorsements. Please don’t hesitate to reach out if you have questions about a contract or require assistance. We’re happy to help.
About the Author
Dane Wilhelm has over 11 years experience in the insurance industry: 6 years as an underwriter and 3 years as a construction underwriter. He has been with Catto & Catto LLP for over 5 years working with clients in the construction industry. Wilhelm received his BBA in finance from UTSA and he has CPCU (Chartered Property Casualty Underwriter) and CRIS (Construction Risk and Insurance Specialist) designations. He is currently pursuing his ARM (Associate in Risk Management) and is on the education committee for the San Antonio chapter of the AGC.