The following are some general principles that might help you evaluate a construction contract:
- Define the Scope of Work
One of the most important things you can do is define the scope of work. If you and your contractor are not on the same page when it comes to what you want done and what the contractor is offering to do, you’re going to run into all kinds of problems. Hiring an engineer is critical for larger projects that require strict compliance with codes, but no job is too small to have any and all of the details defined up front and made a part of the contract documents.
- Set the Schedule and Anticipate Delays
Again, definition matters. When must the project start? When must the project be completed? What happens when – not if – construction is delayed? What if the delay is caused by events beyond anybody’s control (e.g., weather, supply-chain issues)? Clear expectations prevent misunderstandings. Proper contract provisions can shift delay liability back on the contractor, and even contemplate remedies for the unexpected.
- Cost Increases
COVID-19, trade issues, inflation, and high demand (for both labor and materials) make cost increases increasingly common, and on larger projects, those cost increases can be significant – we’re talking hundreds of thousands of dollars. Most construction contracts include “escalation clauses” – clauses that explain who pays for what when the costs go up. If your contract doesn’t have an escalation clause, you may end up paying the lawyers what you and the contractor could have been using to keep your project moving along. A project that once seemed affordable can quickly double in costs, often times beyond the control of the contractor. This can almost always be avoided with the proper contract provisions established up front. Furthermore, without the proper payment provisions and/or lien release requirements, not only can you pay twice for certain work due to the failure to handle a sub-contractor timely, but an association can face construction lien headaches and litigation complications that become out of control.
- Change Orders
Even when you and your attorney collaborate and communicate clearly with your contractor, the need for a change order – an amendment to the construction contract that changes the scope of work – often arises. Your contract should set forth procedures for revising the contractor’s scope of work, and provide authority for when and where a change order is acceptable
- Quality Assurance
This is an oft-overlooked component of a construction contract. If the contract is for the installation of four pavers for the new flowerpots by the pool, quality assurance is something that probably doesn’t require professional training. But when you’re talking about a multi-million-dollar roof replacement, quality assurance (including the contractor’s compliance with approved plans and state/local building codes) becomes slightly more complicated. Your contract needs to define the role of your quality assurance expert, as well as your expert’s authority to compel compliance with approved plans, state/local building codes, etc. Spending a little extra time and money on a professional engineer or consultant to be the association’s expert eyes on a project is the smartest move any association can make to avoid problems later.
Often even a small proposal for repair work can cause thousands of dollars in unanticipated costs later, which likely could have been avoided by association counsel. A few changes and/or a short addendum to a contract can be surprisingly affordable and possibly the best fiduciary decision a board can make in any given year. Becker has more Board Certified Construction Attorneys than any other Firm in Florida to assist with construction contracts.