Gone are the days of handshake deals. Everyone in the construction business should be using written contracts. But there’s more to a contract than simply putting it to paper. Nowadays, construction contracts have a number of distinct, integral parts. Here’s a guide to common construction contract documents.
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Construction contract documents: Common parts to a contract
Unlike contracts in other industries, a construction contract isn’t one single document. Instead, it is a collection of documents that are prepared by a number of different parties. Prudent clients, GCs and subs should read their contract multiple times over.
The value of having a good understanding of the contract terms is priceless when it comes to avoiding any breach of contract and ensure successful performance. Here is a list of the most common construction contract documents, and why they are included.
Signing a construction contract? Make sure you check out Levelset’s Construction Contract Review Checklist: What to Look for When Reviewing a Contract.
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The agreement is the most fundamental document in a construction contract bundle. This is basically “the contract,” a foundation that the rest of the project details are built upon. This document will set out what the general purpose of the contract is and the contract price.
The agreement can be a standard document, like those provided by AIA or ConsensusDocs, or customized to fit a particular project’s need. The form will vary depending on how the contract payment is set up.
The most common types of construction contracts include:
The agreement itself is just the beginning. Construction contracts need as much detail as possible to avoid mistakes, conflicts and delays; which ultimately cost everyone on the project time and money.
General conditions are essentially the framework of the construction contract documents. They provide the “hows” of the project.
Most importantly, general conditions establish all the rights and obligations of the contracting parties. Additionally, it will lay out the roles of every party and the responsibilities of each.
Any time an issue arises on the project, the game plan on how to proceed is usually found here, amongst a litany of detailed clauses. This includes how change orders are processed, how payment apps are approved and any and all notice requirements that may arise on a job site.
This is typically an addition or amendment to the general conditions section. This document will detail the specific clauses and conditions for each task or project. For instance, if there are specific instructions that only apply to one job or portion of the build, they will be included in this document.
Scope of Work
A clearly defined scope of work, also known as a statement of work, is a crucial element of a construction contract. This document will describe, in detail, the precise tasks and objectives of each contractor.
The scope of work determines the amount of work an individual needs to complete to fulfill their contractual obligations. It can also be used as a reference point when dealing with change orders, and punch lists.
Contractors and subs need to know what type of work falls outside their scope of work to avoid performing additional work without additional compensation.
Every construction project should include a set of drawings or blueprints. Drawings provide a simple overview of the project as a whole. They should be presented to contractors before any construction activities begin.
This document informs the contractors what and how to build the structure. Construction drawings are a collaborative effort between the architect, the clients, and the contractor. Ideally, these are the most up-to-date version of the drawings.
The section for construction specifications is where all the technical data and requirements can be found. The specs should detail the materials and techniques expected to be used on any given task. It will outline all the quality standards, acceptable materials, and any quality testing necessary to ensure compliance.
The architect or the engineer will prepare these, and the client will verify them. In turn, the client will then provide the specs to contractors who are expected to perform according to those details. However, any defective specifications might result in the client being liable to the contractor for increased costs they may have incurred due to the specs.
In some cases, the contractor may want to substitute one material for another for a variety of reasons. Contractors should always adhere closely to the specifications prepared by the architect or engineer. However, in the event that a change is necessary, it is important to follow the steps required to make a substitution request.
Bill of Quantities
A bill of quantities isn’t always included, but it can be helpful. A bill of quantities is an itemized list of the various materials, parts, and labor required. This list is typically provided during the bidding process.
The purpose of this is to allow prospective bidders to be able to estimate their costs more accurately and simplify the evaluation process. Typically, bills of quantities are prepared by a quantity surveyor or building estimator. A bill of quantities will look an awful lot like a schedule of values – to the point where the terms might sometimes be used interchangeably.
A well-formulated construction schedule should be detailed, constantly updated and readily accessible to everyone on the project.
Construction schedules can be developed in a number of different ways, such as Critical Path Method, Gantt charts, a line of balance or any other schedule that meets the project’s needs. Schedules can be relatively simple outlines of the project.
However, the larger and more complex the project is, the greater the need for more formal, detailed approaches. Detailed construction schedules keep everyone aware and informed about the project status, which can reduce both conflicts and delays.
Schedule of Values
A schedule of values is provided by a contractor and lists all the work items from start to finish. It will allocate the entire contract sum among the various portions of the work. The schedule of values is also a useful management tool to form the basis for submitting and reviewing progress payments. This document can help keep the cash flowing and bills paid on time.
What to Do When Construction Contract Documents Conflict?
As you can see, construction contracts are a bundle of different documents that are prepared by a number of different project participants. So what happens when a subcontractor finds an inconsistency?
Anytime there are conflicting provisions in a contract; there should be an established totem pole of priority to determine which provision in which document will prevail. Therefore, many contracts include an”order of precedence clause” that deals specifically with this issue. A standard order of precedence will start with any change orders, the agreement, special conditions, general conditions, specifications, drawings, then any other documents that form the contract documents.