A construction contract is an agreement between two parties—the project owner and contractor—which defines the construction project’s scope, including work that needs to be done, prices, and various terms and conditions of the project. A construction contract aims to protect both parties should any disagreements or disputes arise. Here are some of the critical components that go into making the contract effective.
1) Price and Payment Clause
The construction contract must clearly state all the estimated and quoted prices of the project, including fees, taxes, hourly rates of the employees, detailed estimates as per the construction proposal, mode of payment, etc. If either party has any concerns, they must also include a clause of advance payments, payment bonds, performance bonds, retention of title, and penalties for non-payment to ensure their project capital’s safety. This provides both parties with the confidence that the other party will uphold their end of the contract pending completion of the project.
With construction, time is money. If the construction takes longer than expected, it can exponentially increase the project’s capital requirements. As a result, both parties must set expectations on the time frame by which the project must be completed. This clause must highlight whether that date is subject to change and whether it can be negotiated if one of the parties face an unexpected delay.
3) Material Specifications
The material used for the project is another critical aspect that may cause disagreements or confusion down the line. The owner may have different expectations, or the contractor may source material that does not meet the owner’s specifications or preferences. To avoid that, the contract should define the type, specifications, and qualities of the project’s material.
4) Anticipated Disputes or Disagreements
Despite both parties’ best efforts to avoid disputes, they can still arise during the construction process. As a result, the contract must include two clauses that anticipate disputes and pave the way for resolution. One is the anticipated dispute clause that highlights the potential conflicts between the involved parties and how they can be resolved. Another is the ‘inability to agree’ clause that protects the parties if they fail to reach an agreement regarding a dispute. The clauses must also include the responsibilities of the parties.
5) Termination of Contract
The construction contract must include a provision for the termination. This provision may mention the terms, conditions and grounds upon which either party can terminate the contract. This depends on both parties’ preferences and it can incorporate protections for both parties.
Signing a construction contract in Edmonton may be daunting, but it does not need to be. Contact Prowse Chowne. We make can assist our clients with construction law and contracts.