5 Important Things To Know Regarding Construction Agreements

1. What is a construction agreement?

A construction agreement is a legal document that lays down the specifics of a construction project. This includes which parties are going to participate in the deal such as the property owner, contractor, or service provider. A complete contract contains several clauses defining the scope, terms, and conditions of the construction agreement.

2. Why is a construction agreement necessary?

For property owners who plan to build or renovate, it is important to draw up a construction agreement before the start of the project. This will not only define the job particulars, but also create a binding relationship between the owner and the service provider. Construction agreements ensure that contractors perform the necessary work, complete the project on time, and get paid the amount agreed upon.

5 Important Things To Know Regarding Construction Agreements

3. What constitutes a construction agreement?

A construction agreement must be:

  • In writing
  • Clear on financial terms
  • Inclusive of a full description of the construction services offered
  • Understood clearly by both parties
  • Flexible with a termination policy

4. What are included in a construction agreement?

Project Brief. The first part of a construction agreement summarizes what the project is about. It briefly describes the problem and the proposed solution. The project description may be a summary of items or a single paragraph.

Project Scope. This section contains a complete description of all the work the contractor is obligated to deliver. It is important to read the details so you know what to expect from your service provider. Disputes can happen when a hidden problem is discovered and the contractor refuses to fix it because it is not included in the original project scope.

Project Documents. This is a list of all construction documents that are relevant to the project including blueprints, drawings, exhibits, specs, and supplemental references.

Project Schedule. The duration of the project is written in detail here, including work that is scheduled for which calendar days.

Project Cost. The contract price structure and total amount of money to be paid to the contractor is written in this section. It may also include possible additions or deductions in the future.

Payment Scheme. Construction agreements express in detail how the owner will pay the contractor. It may be a down payment with monthly installments or any other payment scheme. The contract also states when payments are due, the penalty for late payments, accrued interest (if any), and other invoice terms.

Conditions and Responsibilities. This section describes the responsibilities of the owner and the contractor, including specific terms for liens, withholding, arbitration procedures, and claims processing for damages.

5. What are the common types of construction agreements?

Express. An express construction agreement clearly defines the scope of the project. Terms of the contract are understood and agreed upon by both parties.

Conditional. A conditional construction agreement applies to services that cannot be provided at the time the contract was signed. This stipulates a future date for rendering service after certain conditions are met.

Executed. An executed construction agreement provides a warranty period on rendered services. Here, one party is protected when the other party fails to address defective or incorrect installation.

Before signing on the dotted line, read every line carefully and make sure that you understand the terms and condition in your construction agreement. Looking for guidance on your next commercial construction project? Get sound advice from a trusted commercial construction company near you.

Written by Hubert Builders, a full service commercial construction company in Columbia, MO.