So you’re looking over a contract, excited and ready to bid so you can start working. You then come across a “General Conditions” section. You stop and ask yourself “Wait, what are ‘general conditions’?” Read on for the answer to this common question.
What are the General Conditions in a Construction Contract?
Construction contracts typically include most of the following:
- the initial agreement;
- general conditions;
- and other documents as needed.
And the general conditions section is the portion of the contract document in which the rights, responsibilities, and relationships of the parties involved are itemized. It defines each contracting party’s duties and privileges, and the rules that will govern the relationship.
In short, the general conditions section is the backbone of the entire contract.
“Categories” of General Conditions that may be Included in a Construction Contract
General conditions encompass every aspect of the project so it can be hard to boil everything down into a single article. Still, the following are some of the more important provisions that everyone should take note of before signing a contract.
Roles and Work of Parties
First and foremost, general conditions set out the basic duties and responsibilities of the parties. This section will identify the parties and their roles on the project, outline each party’s rights and obligations to the project, and create notification requirements.
For contractors, this is where you will find items such as:
- a detailed description of the work to be completed;
- bonds and insurance requirements;
- and any warranties/guarantees.
For the project owners, this may hold their responsibilities regarding:
- site conditions;
- change orders;
- rejection of defective work, and more.
“Time” seems fairly obvious. However, these provisions detail more than just the deadline to complete your work.
For example – when is the date of commencement? It can be right after you sign the contract, but many contracts provide for a Notice to Proceed to be issued before the contractor can start work. It could also be helpful to define what constitutes substantial completion, and setting progress milestones can help clarify a project’s timeline.
Delays and extensions should also be touched on in this section. Construction projects and delays go hand in hand. What happens when you are unable to complete your work because of delays? If questions like this are left unaddressed, they can lead to contractor losing both time and money. Does the contract allow for extensions? This depends on whether the delays are categorized as “compensable” or “non-compensable” by the contract. Typically, if the delay could have been avoided by one of the parties, they are considered non-compensable.
Price & Payments
Here’s the fun part. Price and payment provisions will determine the full contract price and how payments are structured. This is where the important questions that affect your bottom line are answered, such as:
- Will there be progress payments or a lump sum final payment?
- How are progress payments scheduled?
- What is the payment application process?
- Will there be retainage?
- How is substantial completion defined for your work?
- What happens if the owner decides the work is defective or insufficient?
This section will also typically reference the Schedule of Values. This is an additional document that itemizes the price of the different components of the work. They’re especially important for GCs so they can track the progress of the work and make sure it matches the payment price.
All these questions should be addressed in the general conditions section. If not, pick up the phone! Ask for clarification on these issues.
These provisions typically fall under one of three categories:
- (1) change orders;
- (2)changes in directive;
- (3)minor changes.
1) Change Orders are amendments to the contract. They are essentially a mini-agreements to adjust the work, price, and schedule of the initial contract. When they’re validly executed (pursuant to the contract), change orders become a part of the original contract. But change orders also have the potential for creating chaos – so make sure the general conditions discuss how change orders must be agreed upon, executed, and billed.
2) Change Directives can get risky if they aren’t limited by the general conditions of the contract. These provisions authorize the owner to unilaterally make changes to the work, with the price and schedule changes will be agreed upon later. If this is in the prime contract, subcontractors will often be bound by similar terms. Regardless – it’s important to understand whether change directives can be made and how they’ll be managed.
3) Minor Changes are the 3rd types of changes that may be allowable under contract. These are simple adjustments to the project that don’t affect either the price of the time to complete performance. Still, there’s always the chance that one side might consider something to be minor while the other side sees it as a material change to the job. For clarity, it might be a good idea to set parameters for what’s considered a “minor” change under the agreement.
Suspension & Termination
Pay close attention to this section of your contract. This will outline the circumstances where the contract might be suspended or terminated. These can include anything from the owner having funding issues to any delays the project might encounter.
On the other hand, there’s a termination clause present in just about every construction contract. This section of your contract will list the various ways the contract can be terminated. The most obvious one being breach of contract (for cause), but there may be others as well. Depending on the terms of the agreement, a given contract could be terminated for frustration, convenience, or other circumstances that may be listed in the contract.
Claims and Disputes
Disagreements arise all the time on construction projects. The construction contract should provide how these disagreements should be dealt with. Look for guidance on questions such as:
- What types of notices are required when a disagreement arises?
- Are there time limits for any claims against the owner?
- If there is a non-payment issue should the contractor suspend his work, or continue performance as to not get behind schedule?
If you’re having trouble answering the above questions based on the terms of your contract, it might be worth further investigation. This section of the general conditions should be particularly detailed, because disputes cause delays, and delays cost everyone money.
And what if the parties can’t resolve disagreements amongst themselves?
No one wants to go to court. Most contracts provide for disputes to be dealt with by an agreed upon dispute resolution procedure. This gives the parties a means of resolving the issue before spending time and money in a lawsuit. These dispute resolution procedures can be in-house, mediation, arbitration or full-blown litigation (lawsuit). Typically, on larger projects, these procedures are tiered. When one fails to resolve the issue, the parties will move on to more serious means.
The general conditions in a construction contract are not to be ignored. Sure, they can cause your eyes to glaze over, but these terms have an enormous impact on how the project will play out. If well drafted, the general conditions should provide a sound framework for the agreement and promote fairness among all contracting parties. If they aren’t, it could create headaches – if not migraines – when issues pop up on the job.