Essential Elements of a Construction Contract

Construction companies and project owners face numerous challenges during a project’s lifespan. However, all parties can minimize their risks by entering into contracts that spell out specific details, obligations and provisions.

These are the essential elements every construction project contract should include.

The Project’s Scope

This written statement describes the project with specific goals and a plan for meeting them. It should contain as many details as possible, including specific goals and milestones, a cost breakdown, and responsibility assignments.

Payment Terms

A statement for how a construction company expects payment is critical and must be clear and concise without ambiguity. For example, the contract must clearly state when and how payment is due and discuss possible fees and consequences for contract breaches.

Completion Schedule

Every construction project contract should include a start and completion date for each stage. Also, a force majeure clause releases the construction company from its obligations when circumstances beyond its control prevent or delay a project’s completion.

Dispute Resolution

Miscommunications and contract breaches can lead parties to take legal actions against each other. Therefore, a contract should include solutions to common problems such as:

• Project owner’s displeasure with the results
• Project owners’ requests to make changes after the work begins
• Construction company’s use of the wrong materials
• Suppliers’ failure to meet shipment deadlines

Provisions for Payment and Performance Bonds

Construction companies may require security bond and lien provisions for contracts with property owners to ensure payment to their employees and subcontractors. Also, performance bonds protect property owners’ from economic losses and incomplete projects when construction companies and subcontractors fail to meet their obligations.

Whether you are a project owner or service provider, you must draft and sign a thorough contract before your construction project begins.