What to Know in Construction Contracts

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While initiating a construction work, you need to enter into a construction contract. Like any other contract, a construction contract contains details of a construction deal. You need to have a clear understanding of the construction contract so as to protect your interest and avoid endless disputes.

Types of Construction Contract

Following is a list containing various construction contracts available in order to assist in your decision-making process:

Guaranteed Maximum Price: This type of contract allows the client to know the highest cost of his project. Any expense beyond the cost of the work is paid by the contractor.

Documented Design (DD): In this type of contract, most of the designs are prepared by consultants engaged by or on behalf of the construction agency. Till the entire work is designed, tenders for construction contract are not invited.

Design Development & Construct (DD & C): Here the contractor is required to engage its own consultants to develop a preliminary design of the construction specifications provided by the construction agency, the construction documents and asset construction.

Design Novate & Construct (DN & C): The construction agency engages a designer to carry out an early design work under a design agreement and enters into a contract with a construction contractor. The agency then grants the design agreement to the contractor who then assumes full responsibility for the whole design and construction and also pays for the designer’s fees.

Design and Construct (D & C): The construction agency provides a project brief containing some concept design and specifies the performance and quality requirements. The contractor engages consultants to prepare and develop the design and the construction documents.

Design Construct & Maintain (DC & M): The contractor is provided with a project brief including concept design and the quality and performance requirements of the asset. The contractor is responsible for preparing and developing the concept design, construction documents, asset construction and maintenance for a specified period.

Managing Contractor: This contract is awarded early in the design phase after a project brief is developed. The tender document sets a target price based on the estimated cost of the construction work and a target date for completion.

Alliance: These types of contracts require the involvement of owners, designers, builders, and key stakeholders on a project at the conceptual stage. Both risk and reward are shared by the parties to the contract.

Things you Should Know before Signing a Construction Contract

Before signing a contract, look carefully whether your contract has the following elements or not:

Time Frame: A construction contract should have a time frame for any transaction occurring or that will occur including the project completion date.

Price: The contract should clearly state the consideration amount and any additional charge involved. You should ask for an estimate of all the additional charges that you have not discussed with the other party and incorporate the same in the contract.

Payment Method: Do not forget to determine the terms and method of payment appropriate to your financial condition.

Payment of Penalties: Determine whether there are late payment penalties and if yes, whether they are reasonable.

Material Terms: Clauses detailing project completion date, consultant costs, risk allocation, construction of electrical cables, provision for contract revision in situations of price hike, right to appoint sub-contractors, maintenance requirements, compliance of regulatory requirements and grounds of termination must be included.

Inability to Agree: In case you cannot come to a concurrence regarding the final terms of an agreement, ensure that you sign a contract that cannot be enforced as a permanent agreement. In such circumstances, you may enter into an interim agreement till you negotiate a permanent one.

Dispute Resolution: Disputes may arise despite taking all necessary precautions. Your contract should include an arbitration clause as an effective instrument for dispute resolution before resorting to Court proceedings.

Attorneys’ Fees: Your contract should also mention the fee to be paid to the attorney by the contracting parties

For better understanding of a construction contract, do not forget to contact our team of experts at Owen Hodge Lawyers.

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