What You Should Know About Construction Contracts and the Cooling Market
As the housing market cools and construction projects become harder to land, every penny of profit becomes more important. As good builders know, skimping on the foundation will only lead to costly fixes in the future. The same is true of laying your legal foundation. If you don’t execute sound construction contracts before beginning the project, you may find yourself spending any potential profits on costly lawsuits later in the process.
Because each construction project is unique, using form contracts, like those put out by the American Institute of Architects (AIA), is often cumbersome, irrelevant and leads to unintended consequences for design builders, contractors and even the property owners. Over the past few years, alternatives to the AIA contract series have gained momentum in the industry. The Real Estate Team at Beard St. Clair Gaffney has reviewed new products, such as ConsensusDocs in its efforts to bring its clients the most comprehensive and project tailored contracts. Here are just a handful of considerations that must be addressed in any construction contract:
Define the cast of characters. Relationships are at the heart of every construction project. The contract documents must address the relationships between the contractor, owner, architect or design professional and subcontractors. Defining roles and staking out the areas of control and responsibility is a key element in running the project smoothly and efficiently.
Determine copyright ownership issues. What happens if a dispute arises with the architect or design professional? Who owns the plans? What rights does the owner or contractor have in using the plans to complete the projects? This issue alone can cause significant cost and delay if it is not addressed in the initial contract documents.
Set retainage schedules that make sense. Under the traditional AIA retainage scheme, the architect or owner may withhold retainage on all work performed until the entire project is “substantially complete.” Many contractors and subcontractors find this provision unnecessarily hamstrings their business operations. Alternatives do exist. For example, the contract may provide that retainage no longer be held after a percentage of the project is complete.
Get Paid. Nothing spurs a lawsuit faster than disagreements over payment. The contract documents must set out who gets paid when, under what conditions payment may be withheld and who bears the risk of a owner non-payment.
These are only a few of the issues that deserve careful consideration before designing or building a project. Beard St. Clair Gaffney’s Real Estate Team is prepared to help you meet your legal and business needs by drafting contracts that are tailored to your construction market.
Please join us for one of the upcoming seminars related to construction contracts presented by Beard St Clair’s Julie Stomper, Jarin Hammer and Lance Schuster.
Tuesday, October 28th from 3:00 to 5:00 PM at the Beard St. Clair Office (Idaho Falls)
Thursday, October 30th from 3:00 to 5:00 PM at the Super 8 Conference Room (Driggs)
Thursday, November 6th from 3:00 to 5:00 PM at the Cotton Tree Conference Room (Rexburg)
RSVP to Jennifer Wells by calling 208-557-5297
