So, let’s say that you’re a specialty subcontractor and you’ve been awarded a contract on a new construction project by the general contractor. You are ready to go to work. But is the general contractor ready for you?
While most construction schedules are set to begin from the signing of the contract, often, the actual, on-site construction work for each of the individual parties hired to work on the project may not begin until they receive a Notice to Proceed from the party that hired them.
Read on as we take a look at this important document.
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What Is a Notice to Proceed?
It’s pretty simple – a Notice to Proceed is a notification letter indicating that performance should begin under a construction contract. Any party that has hired another party on the project (be it an owner hiring a contractor, a contractor hiring a subcontractor, etc.) might utilize a Notice to Proceed to indicate the recipient should start their work.
A Notice to Proceed provides a clean, crystal-clear indication of when a particular party’s project work begins. That party’s performance time starts ticking from the date indicated in the Notice to Proceed document.
Why Use a Notice to Proceed?
Obviously, timeframes are crucial for any given project. Construction schedules are incredibly important, and these notices help to clarify them. Further, when lenders are involved with a job, it might be important to show that work started on a certain date after the lender’s first lien is in place on the property. Where the project start date is unclear and a lender is present, lien priority disputes could pose a serious threat to a lender’s investment.
There are a few options when deciding how to determine when the project starts. The project commencement date will often be one of the following (or some combination):
- Contract date
- Date set forth in a Notice to Proceed
- Date a Notice of Commencement is filed
- Some other specified date
- Calculated based on some other detail described in the project contract or agreement
There can be several different reasons to delay the commencement. The owner may be waiting to get the contractor’s certificates of insurance and bonds before allowing them on the job site. A contractor might be asked to hold off so that permits can be secured. The customer might just need time to schedule contractors, mobilize workforce, secure materials. They may not have access to the project site until a certain date. It might come down to something as simple as the lender’s approval.
Regardless of the reason why the start date of the project needs to come sometime after the construction agreement is signed – a Notice to Proceed is an important tool to document the “official” date for the party in question.
Why Is a Notice to Proceed Important?
If getting everything in writing sounds annoying and labor intensive – you’re not wrong. Still, having documentation can help both parties understand deadlines, rights, and provide clarity in case any potential payment disputes that may arise.
That’s why there are so many documents running back and forth on construction projects.
When these notices aren’t given in writing, it can prove to be difficult on all parties. Without something in writing, there’s always a chance at a he-said / she-said scenario when it comes to establishing important project dates. Having it in writing establishes a link between the Notice to Proceed and the contract which can ultimately be legally enforced.
Increased communications can help avoid wasting valuable time and resources. Using a Notice to Proceed process ensures that contractors or subs don’t unilaterally begin executing the contract.
For contractors, this is useful because they can be sure that, regardless of any previous negotiations or discussions, they will only begin work (and begin to incur costs) once the Notice to Proceed is received. Remember, Notice to Proceed means “it’s time to start work.”
So, any performance prior to receipt of the Notice to Proceed, where one is necessary, could potentially be a financial risk.