Important Terms in Construction Agreements

Construction professionals who understand basic contract terms are less at risk of agreeing to poorly written contracts. By better understanding their own contracts, Contractors can spot where negotiation is possible, make changes to clarify, or add protection. This article highlights potential negotiating points and briefly explains important contract provisions.

1. Scope of Work/ Plans and Specs

The scope of work is a critical term and one that is often overlooked. It’s an important term because a contractor or subcontractor is not obligated to perform work that exceeds the scope specified in the contract (i.e., the electrician is not obliged to perform plumbing work). Contractors usually trust their estimating team to describe the scope of the design.

Disagreements can arise about the Owner’s and Contractor’s expectations for quality and completeness of design documents. Scope of work disputes tend to focus on the cause of the extra work and whether the work actually goes beyond the contractual scope.

These problems are greater where projects are complex, fast paced, or begin with incomplete performance specifications and succumb to “scope creeping” (i.e., the Owner attempts to expand the responsibility of the Contractor during construction.) To help prevent such performance disagreements, ask the Owner to expressly warrant in the contract that the design/construction documents are complete, without defects, and ready for construction. Otherwise, attempt to get the Owner to warrant the completeness of all of the design with some minor limitations.

2. Warranties and Bonds

Warranties can either be express or implied. Contractors will be held to any express warranties made in the construction contract. The express warranty often provides (1) that the materials and equipment furnished under the contract will be of good quality and new unless otherwise required or permitted by the contract, (2) that the work will be of good quality, and (3) that the work will conform to the contract.

Iowa law imposes certain implied warranties including the common-law warranty that the Contractor will perform his duties in a workmanlike manner. The Contractor should attempt to establish definite commencement and end dates for all warranties. Awareness of warranty terms is important since, after a manufactured product warranty expires, the Contractor’s workmanship warranty may be called upon instead.

3. Remedies

While a construction contract lays out each party’s obligations towards the other, it also provides remedies available if one party does not meet those obligations. However, in the majority of circumstances, the law creates other remedies that will be available regardless of what the contract provides. There are several ways of limiting each party’s liability including listing types of loss a party will not be liable for, state that the contract is the whole of the parties’ agreement, and set limits on damages a party will be liable for.

A complete understanding of every construction agreement is necessary before signing on the dotted line, so be sure to consult with an experienced construction attorney when you have questions about the interpretation of contract provisions.

This article is providing general information and is not intended to be legal advice.