Construction Contracts – Everything You Need to Know
Construction contracts are one of the most important business documents you’ll use. They can help prevent mistakes and define requirements. From types of construction contracts to creating them, here’s what to know.
Congratulations! You’ve finally decided to take the leap and have some construction done on your office building.
But don’t get too excited. A lot could go wrong with here, especially if you don’t realize the importance of construction contracts in the construction cycle early on.
So what’s the big deal about these contracts? And, most importantly, what are some dos and don’ts of properly documenting construction agreements?
From the perils of not having a contract to the types of contracts, here’s a bit of information that can help your business in the future.
Why Do You Need a Construction Contract?
Before we go into the dos and don’ts, we’d like to talk about why you need construction contracts. That said, we’ll be taking you through some of the risks of not drawing them up at the appropriate time.
Here are four reasons to draw up a contract before the actual construction begins:
Risk allocation is perhaps the most important reason to draw up a construction contract. The fact of the matter is that both parties need to agree on who should be responsible for any mistakes.
Needless to say, any potential mistakes should be described in detail in the agreement. This means that both parties will have to anticipate what exactly could go wrong beforehand, which is one of the benefits of a construction contract.
Speaking of risk, businesses will want to be sure that the contractors they work with have construction insurance. Construction insurance works to reassure businesses that contractors have the economic means to satisfy the agreement. Details about construction insurance are usually included in the contract.
Business ultimately revolves around money. As a result, any halfway decent contract will touch on the payment terms. Contracts should clearly touch on how much the business is paying the contractor. Not only that, but they should also detail how and when payments will be made.
When businesses pay contractors to work on their property, they definitely have a schedule in mind. They like to know when the necessary work will be completed. Consequently, many businesses and contractors like to have a set end date for their contracts.
What Are the Best Construction Contracts to Use?
Now that we’ve touched on some of the reasons you need construction contracts, let’s talk a bit about the different types of contracts that are available to you. In truth, there are several different types of contracts.
Having said this, we’re only going to touch on a few here. These include conditional, express, and executed contracts.
A conditional agreement is what it sounds like. Services are exchanged if and only if certain conditions are met under this contract.
So what does this mean for the business and contractor?
Well, that the arrangement is for a potential future job. In other words, the services could not be provided at the time the contract was drawn up for one reason or another.
Express contracts are thought to be the most specific of the contracts we’ve listed here. They’re designed to be easily understood by both parties. For this reason, if you’re looking for specificity, an express contract is for you.
Specificity, however, is not always good. You’d be surprised to find that sometimes a more flexible contract works better for certain projects.
Out of all of the construction contracts we’ve discussed thus far, executed contracts probably provide the most protection for both parties when things go south. As the name of the contract suggests, it offers protection to parties even after services have been provided.
So what’s the benefit here?
Executed contracts protect the business or the contractor from damages whenever one of the parties doesn’t provide the proper warranty for an installation that goes poorly.
Can You Get Construction Jobs Without a Contract?
We’ve just spent a while telling you why construction contracts are important, so the question we’re about to ask might seem strange.
And that question is?
Can you get construction without a contract?
Technically, yes. You can do this, but it’s not entirely wise. Contracts offer businesses and contractors protection, so we’re not really sure why anyone would want to go without a contract.
Further still, there is a question about whether or not it’s technically possible to get construction without a contract. Why? Because there is always an implicit agreement, which we’re going more into detail about below.
Oral Construction Contracts
This type of implicit agreement is basically just an oral contract. Oral contracts usually lay out payment terms, construction schedules, and address risk allocation.
But that doesn’t make oral contracts equal to written ones.
Unlike written contracts, oral contracts aren’t always enforcible. Sure, you can say that you and the other party agreed to certain things, but you can’t actually prove every aspect of the oral contract in court. That’s what makes oral contracts so risky.
Which brings us back to what we originally said about failing to draw up a contract: It’s just not wise.
So what’s the takeaway here?
There’s no reason not to draw up a contract if you have an oral contract in mind anyway. If you have these agreements in mind, you might as well put them on paper. Both parties will sleep better knowing that everything has been written down somewhere.
Questions About Putting Together a Construction Contract?
Regardless of what we’ve written here, putting a construction contract together is quite the challenge. It’s not as easy as simply understanding the types of contracts and the risks associated with the construction cycles.
Which is why we’d argue that you should always get a second opinion on a construction contract or project.
Luckily, we live and breathe construction here. This means that we have all of the answers you could possibly want about your next construction project.
So get in contact with us to get your free quote. We offer quotes on office trailers, modular buildings, and steel storage containers. Whether you need space for a church or an office building, we’ll get you the number you need.