Construction Contract Composing a Contract

Construction Contract

Composing a contract is an important part of any project. The terms within that contract determine what exactly needs to be done, how much time is available for work to be done, who is liable for any damages, and all information about payment and payment schedules. This information needs to e clearly laid out as to avoid disputes and complications later on after the project is under way. Along with the General Provisions of a contract, which include speculation information, agreements, grantees and warrantees, resolution of disputes, references to standards and codes; there are also specific provisions which will differ to each construction project. These include, but are not limited to time schedules and how to handle delays, how to handle changes in the original orders, payment and payment schedules, specific information about insurance and bonds, project plan and exact final speculations, addenda, and if necessary a subcontractor clause. All these parts are necessary for the solidification of the whole contract. Both parties must also agree to follow the provisions of the contract in question, or else the fate of the entire project is at stake.

Contract formation plays a key role in the understanding and acceptance of any contract. There are key elements which must always be addressed within any contract to make it legally binding and functional. The contract must show that both parties involve are in full cooperation with each other. In any contract, there are basic general conditions which lay out the formation of the contract and the project in question. There must be a section which reviews current standards and codes by which both parties promise to adhere to completely. These standards and codes may vary from state to state and project to project, which is why it is important to know the rules and regulations of each state one begins work on a certain project in. There must also be a section which includes how to handle any disputes, whether they are legal or not. This section will include various methods by which disputes between the contractor and the owner can be handled in a timely manner, as to not delay the time line of the project any further than necessary. By agreeing to this section of the contract, both parties pledge to handle disputes in the manner which is specifically laid out in the contract.

Another basic element of any contract is a laid out plan on how to deal with any unforeseen events or conditions which might hinder the commencement of the project in any way. During a construction build, any numbers of unforeseen events are bound to occur. Many of these surprise events can be dealt with properly if there is a specific way laid out in the contract. Spelling out exactly how to handle these types of events and the existence of a change clause, which will be discussed more later in accordance with special provisions of a contract, will help eradicate any chances of a huge and nonnegotiable conflict arising from unforeseen events which delay construction. By acknowledging that these types of events occur, and preparing for them ahead of time, tie and effort is saved in the long run.

There must also be a specific agreement and contractor grantee, or warranty, laid out in the contract. This shows that both parties agree to the terms at hand and will not knowingly violate those terms without legal or monetary penalties, "This agreement is often analogous to a marriage, and everyone knows that for a marriage to be successful there must be an understanding and communication of the rules between both parties," (Weeks 2002). The legal ramifications of breaking this agreement are also spelled out in this section of the contract. Both parties promise to adhere to owner-contractor agreement and promise to undertake the work needed to complete a project in the manner determined by the contract as a whole. The exact terms of an agreement will vary from contract to contract, but the essentials are always there. The agreement includes drawings and plans of the project and acknowledges that both parties will abide by the General and Specific Provisions of that particular contract. Both parties' signature solidifies the contract and therefore puts a green light on beginning construction of the specific project. Also necessary for any contract, is a guarantee from the contractor stating that he or she will complete the project in a timely manner as to not delay further construction. A timeline is usually included in the Special Provisions of a specific contract, and failing to adhere to that timeline is a breach of the contractor's guarantee. This guarantee also promises the best possible performance both of the contractors' workers during the building of a project, and the durability of that project upon completion. Safety regulations concerning each specific site must also be laid out in any successful construction contract. Without proper safety provisions, the law suits are simply waiting to pile up. Payment is also an important provision of any contract, which is usually planned out in the special provisions portion of the contract, due to the various pay rates and schedules depending on the type and longevity of each individual contract.

At the end of each contract there should be a section dedicated to solving the many issues if the project is cancelled or terminated. This section shows how either party can successfully terminate the contract in a legal way. Termination usually only occurs if there is a serious and non-fixable situation which occurs either before construction begins, or after the project has already begun. In the case of an event which would terminate the contract, both parties are protected from legal action in this section of the agreement. This section also contains clauses which would suspend the contract until a further date when the event which caused its suspension can be resolved.

Groups like the American Institute of Architects (AIA) and the Associated General Contractors of America (AGCA) are currently publishing over one hundred contract and administrative documents which can be used to cover the general provisions of construction contracts. These documents can be taken from these organizations and placed directly into a contract, or used as examples for writing up individual contracts. These documents come in handy when forming a good and thorough construction contract, for they cover the basic conditions and there are options for more special provisions coverage. These documents ad a sense of security in knowing that the General Terms of the contract are viable and legally binding, and then one can focus on writing the more unique and individualized special provisions of one's construction contract.

Each contract has a purpose to solidify the terms and conditions of each project so that construction can begin. The purpose of a contract is to legally solidify the agreement between the contractor and the owner of each individual project. Each party is then obligated by law to uphold their end of the contract in the manner to which they promised it to be done. The contract is a document of cooperation, to which both the owner and the contractor feel satisfied in what they promised to do, and what is promised to them. In the article "Constructing Contracting -- Building Principles," Michael Weeks lays out the purpose of the binding document. He says that a contract is necessary for entering into "an agreement formalizing the scope of work, cost for services, and the time frame for completion," (Weeks, 2002). Without these terms laid out specifically, any project will be completely delayed by arguments concerning these basic principles.

The organization of these basic principles is also important. With all the necessary elements involved in the formation of a contract, it is important to break them up properly into sections which will then lay out the specific structure and goal of any particular contract. The General Provisions must always be present in any contract. The next important piece is the owner and contractor agreement. Also necessary for the organization are the various special provisions, which include but are not limited to things such as changes in the work, time schedules, payment and payment schedules, insurance and protection of both those involved and property, and a clause for the termination or suspension of the contract. Each contract must contain an agreement, any bid documents involved in the project, general and special provisions, as well as drawings and plan proposals. Without these necessary documents, the project is vulnerable to future disputes and delays.

The Specific Provisions of each individual contract will very from project to project. These are the conditions and terms which lay out specifics concerning time delays, order changes, specifics about insurance, project plans, and payments. The basic contract provisions will also vary depending on the individual project. These include information regarding the names of both parties, the date the contract will become valid, the scope of the work involved in the project, and signatures of both parties. As part of the minimum provisions, the Contractors name and license number must be included in the contract. Minimum provisions also include the estimated time frame for construction and completion of a project, description of the work necessary to complete the project, the exact dollar amount of payment including taxes involved, as well as any necessary deposits or progressive payments desired by one or both parties involved.

One of the most important pieces of a contract is the section concerning what to do in the event of changes to the original order. Construction sites are prone to unforeseen events and necessary changes which develop after the onset of building has already commenced, despite how thorough and well drawn out the contract involving that project might be. Changes can occur for a variety of reasons, including unexpected difficulties at the build site, design problems, and owner initiated changes. The importance of the Order Change section of each project is to ensure that any necessary changes will be dealt with in a fair manner, as to not insight disputes. Swift resolution of changes in the original order is also something that every contract aims for. If the contractor is caught up in trying to resolve a change of order for too long, the whole project can be delayed for a considerable amount of time.

Article 7 of the AIA Section A201 code states that there are three types of changes involved in construction. The first is an owner initiated change. According to Richard Hudson Clough in his work Construction Contracting, contracts usually provide the owner the chance to change the original order and any other changes involved in the work of the project. Contractors are then responsible for making changes in the commencement of the project to suit the owner's needed changes. Another change is called a constructive change, and involves any changes on which the owner did not sign off on or approve. Examples of issues resulting in these types of changes include a change in work performance, deficient speculations, or defective owner provided property or materials. The Spearin Doctrine protects the contractor from financial liability from owner deficient materials or speculations. If the owner provides faulty speculations or materials, the contractor may be awarded extra time and money tom complete the project. The third type of change is called a cardinal change; this type of change goes beyond the language of the contract and therefore is the hardest to resolve in a timely manner. The Change Clause also lays out ways for reorganizing any necessary additional time needed for changes in the original plans, as well as any necessary additional compensation.

Within the Special Provisions of any contract will be a lay out of the specific time schedule of each project. The planned time period will coincide with what the contractor needs to complete by a certain date or time period. Also included in every contract is a section concerning delays and how to deal with these delays. If a change of the original order comes from the owner, the owner is usually responsible for supplying any necessary additional time or compensation. If the changes are needed on the contractor's behalf, due to poor performance or some other negligence on the contractor's part, the contractor is usually responsible for corrected any necessary changes along with a monetary penalty for the time the project was delayed.

Payment and the scheduling of payment is also an important provision within any contract. There are different ways in which a contractor can be compensated and how the compensation will be commenced, in terms of time periods. According to the Architects Institute of America, different types of documents are necessary for different payment agreements. A stipulated sum is a fixed price of payment set within the contract. This compensation cannot change, unless set forth by separate provisions within the contract depending on delays and changes of the original order. Another typical type of compensation is a payment with a guaranteed maximum price. This includes the cost of the work plus the contractor's fee, which cannot go above an agreed upon amount. This maximum set price is stated within the contract, and is therefore legally binding. Within this pay scale, the budget is flexible, in that there is no set minimum, however payment cannot go beyond that fixed maximum amount. There is also a flexible budget without a guaranteed maximum price. This scale allows for the cost of the work plus the contractors fee, just as with the previous payment style. However, this scale allows the contractors fee to as flexible as possible, for there is no agreed upon maximum payment. This is always good for the contractor, but sometimes dangerous for the owner.