Like a construction project, construction contracts have a lot of moving parts. This is often echoed when simultaneous projects occur within the construction at any given time. With construction contracts, there will often be several contracts moving concurrently. This can be because different vendors are involved in the project or because different circumstances arise.

Contracts help keep companies and individuals on the same path. The completion of construction relies on the contract to guide how work is carried out and set expectations across the board. 

A contract will serve as protection for both client and vendor during construction and both parties will want to review it before signing. It can feel overwhelming to dive into the language of a construction contract and understand what’s on paper and how it relates to the scope of work. 

Carefully reviewing a contract ensures you and your company are protected and that the scope of the job is agreeable to all parties involved. There may be a few points to clarify and some key things to look out for when reviewing a construction contract.

What Should I Look for in a Construction Contract?

When you first look at the contract, you may go into it with some specific areas you’d like to review. Most likely, your main focus for the construction contract will relate to the job itself. Knowing the how, when, and what of a job will be top of mind for both the client and vendor. 

Let’s take a look at the key points you’ll want to review before presenting and signing a construction contract:

Scope of Work

The scope of work is probably the first thing that comes to mind with a construction project. Review this section to make sure that the work outlined matches what you expect to be performed on the project. 

The scope of work defined in the project will help keep everyone involved on the same page, so make sure the expectations are set during this portion of the contract. It should detail the overview and summary of the project. 

It will show the deliverables that are promised through each phase of the project. The scope of work should show the details of the job which can include describing how this construction will be accomplished.

The construction contract should detail who is responsible for each part of the process. Having a point person and hierarchy of who reports to whom can help keep a flow of communication. Without good communication during construction, operations can be stalled, there will be confusion, and the timeline can suffer delays.

Construction Timeline

Keeping a project on a schedule is important for all parties. Review the contract and look for specific dates and milestones that are expected to be achieved. These dates should be practical timeframes to get work completed and have time for the work to be inspected. 

Allowing time for the purchase of materials and equipment and having them delivered on-site are all important considerations. Because several parts of the project may happen at once, and other work may need to wait until after specific work is completed, the timeline can be a crucial review point.

Work Specifications

The specifications, drawings, blueprints, and plans should be included and referenced in the construction contract. A portion of the contract should be dedicated to documents relating to the scope of work in terms of technical plans of the work to be performed. 

Review the plans to ensure they’re all up to date regarding the agreed-upon work. Drawings and plans can often undergo several revisions, so check to make sure the most recent or final copies are the ones referenced.

Payment and Budget

Every construction contract needs to detail the payment amount and when it should be made. This may be with certain upfront deposits or clauses that accept a change in the scope of work and how payment for those changes will be handled. The contract should also outline how each payment will be submitted.

What Construction Contract Fine Print Should I Watch For?

Within the depths of the contract are equally important details that some consider to be the fine print. Fine print gets its name because it may be harder to read and contain areas that specify important information that will come up in certain events. 

These conditional areas may exempt a party from the contract or help handle special situations. Here are a few fine print details to look out for:

Warranty of Work or Products

Warranties act as a sign of good faith to assure a customer the work performed will be covered if there is an issue. A construction company will likely have part of its labor or materials covered under some type of warranty. 

Review the warranty section to understand the work or materials covered and for what length of time. There may be special requirements that need to be met for the warranty to be applicable and can be a crucial section to review if there are any issues with the construction.

Change Orders

With the growing landscape of the project, there may be issues that require a change to the scope of work or the project as a whole. These can be changes requested by the client or due to unforeseen circumstances that require a change to be made. The contract should outline the steps and procedures for handling a change in the construction. 

This may result in adjustments to the timeline, an increase in budget, or to bring in negotiations while the issue is sorted. This portion of the construction contract is an opportunity to establish the order of operations in such an event. There must be some flexibility or procedure to handle unexpected changes that could affect the project or contract.

Handling Issues Within a Construction Contract

Unexpected issues can arise in any work environment. Dealing with them in construction can be fairly common. You can’t be prepared for every unforeseen circumstance, but a construction contract can help guide everyone in knowing how the issue is dealt with.

Contracts may be invalidated, terminated, or trigger a clause within the contract. A well-written contract will outline the details of what may constitute a terminated contract or clauses for some of the more common issues that may arise. 

Here are some of the issues a contract should be able to handle:

Dispute Resolution

If there are disagreements at some stage in the construction process, a contract should be prepared to handle disputes. A dispute resolution clause should lay out the guidelines for addressing these types of issues. A construction contract with a dispute resolution clause should call for the parties to meet and confer. 

If a meet and confer session is unsuccessful in remedying the situation, the next step would be mediation. Should mediation fail, there may be the ability to move to litigation. Ensuring these conditions apply to subcontractors as well is a smart step.

Non-Payment

Non-payment is often a common reason for a breach of contract. A contract may be broken if payments aren’t met for whatever reason. 

Stipulations of work being performed can rest on the budget and payments being made as promised. Failure to make payments can result in contract termination and show the contractors and subcontractors involved that they are protected. 

Missed Deadlines

When a construction project exceeds its timeline, misses important milestones, or surpasses the deadline entirely, revenue can be significantly lost. Deadlines and milestones are important markers to reach; they ensure the project will be completed on time. 

Missing these deadlines is a part of what can cause a contract to be terminated. Reviewing your reasons for terminating a contract should include situations of missed deadlines. 

To help avoid issues of missed deadlines, review the contract and ensure the expectations are clear and that there is language that helps all parties involved stick to the timeline. The contract should try to anticipate some padding is needed to allow everyone to get their work done in the event of a setback.

Simplifying Construction Contract Review With AI

Reviewing a construction contract is a lengthy and labor-intensive process. As you review the contract and each section, going through our checklist above, you’ll be looking for some very specific things. 

Ensuring your contract has all the right clauses and components is one thing; finding confusing, ambiguous, or contradictory language is another. Artificial intelligence can assist in the contract review process by spotting issues right away. 

This means you can take hours of time spent combing through language and reduce it to a fraction of the time. AI, like LexCheck’s contract review software, is capable of processing large amounts of information from a construction contract using an LLM (Large Language Model). Large language models are specifically designed to handle large amounts of data.

With LexCheck’s software, you can implement your playbook in minutes and get down to reviewing faster than ever. You’ll get instant callouts on potentially problematic language, learn why it's an issue, and allow you and your team to address them. 

Construction contract review through AI isn’t just fast — it’s a way to mitigate risks. AI can be highly accurate, which reduces the possibility of errors when reviewing. LexCheck promotes security as an important feature of the service offered. 

All data is AES-256 encrypted and delivered through TLS 1.2 or higher. Your data always belongs to you, is never mined or used for advertising, and is regularly backed up. The system that LexCheck uses goes through regular security checks to search for and repair potential vulnerabilities.

With the complexity of a construction contract, it makes sense to use artificial intelligence to save time and money. In fact, AI, like the LexCheck software, can give you a 50% or more reduction in legal fees per contract review. 

Save yourself time and money on your construction contract review with the help of LexCheck.

Sources:

How Contracts Can Protect You And Your Business | Forbes

Warranty | Cornell Law School

Meet and Confer | Cornell Law School

What is Mediation? | US Department of Commerce