Construction projects involve complex agreements with multiple parties in order to work. That’s why construction law is so difficult to understand even for people who work in the industry. There are many areas of required federal, state, and local compliance. Plus, most agreements are inherently more complex than a standard sale of goods contract.
The construction industry has historically be rife with lawsuits and disagreements, in large part because of misunderstandings caused by unclear contracts. If you are involved in a major construction deal, it’s better for all parties to understand what is agreed upon upfront in order to avoid problems later. If you are undertaking a construction project, you should discuss all the potential legal issues upfront with a construction lawyer. At Priori Legal, we can help you find an attorney who best serves your unique needs.
Construction contracts are incredibly complex agreements that dictate all the expectations liabilities, compensation, and other elements of a construction project. There are many types of construction contracts, all of which deal with different elements and parties of the project, whether expansive contracts with the contractor overseeing the entire build from start to finish or minor supply contracts dictating the agreed upon price and delivery date for lumber.
Standard Form Contracts
Many construction contracts used in the industry today are developed out of standard forms developed in conjunction with organizations like the American Institute of Architects and ConsensusDocs. While these documents can have merit, they should only be considered a starting point for drafting any construction contract, as each project is unique. A construction lawyer can help you draft a contract that is customized to the needs of your construction project, as well as harmonize all contracts for your project with one another and market standards.
Key Terms, Documents, and Clauses
Although every contract is unique and will require specific provisions according to its purpose and goals, any construction contract will at least need to address the following terms, documents, and clauses:
- Risk Allocation. When something goes wrong (which is almost inevitable in a large construction project), it’s important to know who is responsible for fixing the problem. Therefore, it is vital to clearly allocate risk at every stage to the person most in a position to control for such risk.
- Insurance and Indemnities. Indemnity provisions and risk allocation serve no purpose if the responsible party cannot pay for damages. That’s why every stage of the project and all supplies must be properly insured.
- Change Order. Construction projects inherently will experience changes. Provisions dictating change orders ensure that these changes happen smoothly, are clearly expressed with proper notice and that the funds to make the changes happen are available and fairly priced.
- Authority. Chain of command—and who needs to be consulted for what kind of decision—must be expressed clearly in the contract or parties risk decisions being handed off to the wrong person and long delays caused by indecision or unresponsiveness.
- Payment. Payment and price agreements are vital to a successful project, yet far too many contacts do not include enough detail on price terms. Every issue surrounding payment should be clearly addressed, including the schedule, authorizations and invoice procedures.
- Notice. This term generally requires contractors to provide written notice of circumstances that may give rise to a claim within a certain time or forfeit rights to a claim.
- Notice of Intent to Award. This document binds a contractor and an owner in order to draw up final contracts to proceed with a construction project.
- Notice to Proceed. This document formally begins work on the construction project. After the notice to proceed has been issued, neither party can back out without breaching the contract unless otherwise stipulated.
Building Codes and Standards
All construction projects must clearly follow all relevant building codes and standards—even during planning stages. Not only must construction contracts specify which codes must be followed, but they must also require due diligence to find out any other codes and standards to be followed as work proceeds.
Construction is a risky field for workers, which is why all construction projects must be properly insured through workers’ compensation insurance. In addition, all construction projects must meet basic workplace health and safety standards or owners and contractors risk workers’ comp lawsuits beyond simply an insurance payout.
How does the Fair Housing Act affect construction projects?
The Fair Housing Act requires all multifamily residences to be designed and constructed in a way that is accessible to and usable by people with disabilities. If your construction project involves developing a residential property, all plans must be certified as compliant with Fair Housing Act standards.
What is a construction lien?
A mechanic’s lien or a construction lien is a risk management tool that gives builders, contractors and suppliers legal recourse to get paid for their work and materials if payment is not made per an agreed-upon schedule. If you are facing a construction lien, you can talk to a construction lawyer about how to block or resolve it.
What are IPDs?
IPDs, or Integrated Project Delivery contracts, are an increasingly popular type of contract that is designed to make collaboration on a construction project more efficient, both in terms of cost and time. IPDs are multi-party agreements between the owner, designers, contractors, suppliers, and key trade contractors working on a construction project that allow every party involved to better understand their role in the bigger picture and be held accountable to each other, as well as a single cost and timeline for delivery.