Every job taken on by a construction company should have a contract that puts into writing every detail of the project they are hired to complete. This contract is meant to set expectations for the project as well as to protect all parties involved from legal consequences if expectations are not met. To ensure that the construction company’s interests are protected in case of unexpected issues that arise throughout the course of the project, certain construction contract provisions should be included. These provisions will detail what happens if work is unexpectedly stopped, payment is not made, work is delayed, or the construction company is asked to do something outside of the scope of its services. To ensure your interests are protected under each construction contract, seek the counsel of the experienced Texas construction attorneys at MehaffyWeber.
Five important provisions to include in construction contracts:
Delay and Damage Provisions
Every construction project has a specified schedule for completion. Because construction projects are always adjusting to their work environment, it is inevitable that a project will not follow that specified timeline. When delays (excluding delays that happen due to natural events) happen during a project, one party to the contract will almost always bear the damage while another will be blamed. To help lessen the level of liability associated with delays, contractors will commonly include damage provisions in their contracts. Some of the most common damage provisions include mutual waiver of consequential damages, liquidated damages, and no damages for delay. These particular provisions will provide a limit on how much the injured party is entitled to recover or remove the potential for liability exposure entirely.
Change Order Provisions
When a construction company first bids on a specific project, it outlines in detail the services and materials to be provided in a construction contract. The contract will also outline the specifications for the work and the projected final outcome. If there are problems during the construction process, or the other party modifies the project specifications, a change order form must be completed. The change order form will detail the new requests – including services, materials, and costs – which are then agreed upon by both parties. The change order form then becomes incorporated into the valid contract by which both parties must legally abide. Having the change order provision allows flexibility within the project to make changes while maintaining the validity of the contract. If a construction company does not include a change order provision and decides to acquiesce to requests to change the plans, it risks not being paid for its hard work.
Contingent Payment Provisions
The risk of non-payment is a consistent concern amongst contractors in the construction industry. Work that is performed according to the contract should be paid for in a timely manner. Construction contracts should include risk-shifting payment provisions to clarify what happens if a party does not pay the general contractor on time. Two available options include the pay-when-paid provision and the pay-if-paid provision. A pay-if-paid provision is written stating the general contractor is not obligated to pay subcontractors unless it receives payment from the property owner. If the provision does not clearly state a conditional precedent, it is considered a pay-when-paid provision and will only delay payment for a short period of time.
Flow Down Provisions
A “flow-down provision” is a provision that can usually be found in subcontractor agreements allowing provisions from the prime contract between the property owner and general contractor to apply to subcontract agreements. This can protect subcontractors working for a general contractor by giving them the benefit of all rights, remedies, and redress against the contractor that the contractor has against the property owner. It also ensures that the subcontractor assumes all obligations and responsibilities the contractor has to the property owner.
Risk of Loss Provisions
For some contractors, business has been interrupted or stopped altogether due to the COVID-19 pandemic. While some projects will have business interruption insurance coverage, provisions included in a construction contract may shift liability for damages from one party to another. If the contract includes a “risk of loss” provision, it may shift the risk of loss due to damage or destruction to the contractor until the project has been completed. If the work has stopped and work site evacuated and damage is done to materials or the building, the contractor may be responsible for that damage. Many contractors are unaware of the “risk of loss” provision and are taken by surprise when they are liable for damages. It is essential for construction companies to review current project contracts to see what provisions have been included or not included.
Texas Construction Lawyers
During these uncertain times, a significant loss on a project can very quickly put a construction company out of business. If you are faced with having to suspend work on a project, quickly reviewing the project’s contract and assessing your company’s exposure will be critical to your business’s success. Before the need arises, make sure your business is protected. Contact the Texas business lawyers of MehaffyWeber for contract drafting, contract review, and breach of contract litigation.