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A case in point is the Burj Khalifa in the United Arab Emirates, considered the world’s tallest building at a staggering height of over 828 meters or 2,717 feet. These architectural wonders cannot be complete without workers, architects, and engineers working together to achieve such feat. Nowadays, there are parameters and boundaries for constructing various structures guarded by particular laws. Construction contract agreements prove to be helpful when assembling buildings, no matter how big or small they are. Learn more about these contract agreements, including their definition, composition, and components, by reading the article. Aside from that, there is a series of frequently asked questions provided below.
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What Is a Construction Contract Agreement?
A construction contract agreement is a document that details the terms of a construction project. It classifies the work plan of a structure that the involved parties must show adherence. The agreement is between a contractor that operates the construction plan and the client that employs them to do the essential work. These contracts also indicate the right of the contractor to hire subcontractors if and when it is necessary. Construction contract agreements have various types, and it is up to the employer or the client to select according to the development outcome they are aiming for from the beginning. The agreement identifies and explains the work to be done, including the start and end dates, labor costs, materials, and communication relating to the construction project. It is a necessary document for the client and the contractor because it holds and outlines the scope of work, dangers, responsibilities, and legal provisions of both parties.
According to the data about the construction sector provided by the United States Bureau of Labor Statistics, the workforce statistics relating to employment for June 2021 has a preliminary estimate of 7,410 individuals. Most workers connected to the construction sector points to construction laborers, amounting to 827,100 employees during 2020.
Types of a Construction Contract Agreement
Understanding the various types of construction contract agreements is essential to any person wanting to engage in a project. It determines what you pay, the liabilities, and other aspects of the job. The different types of construction contract agreements can have variations depending on the project needs, with tweaks depending on the product or the construction plan. Below are the four common types of construction contracts.
Parts of a Construction Contract Agreement
Depending on the project plan, each contract varies from one another. The only modification concerns the scope of work, costs, and other essentials depending on the nature of the job. However, each construction contract agreement must have the following components to protect both parties.
How to Create a Construction Contract Agreement
Various construction contract agreements must cater to different clients depending on the scope of work a client intends to happen. In most states, it is mandatory to have a written contract in place. Here are helpful steps in creating a construction contract agreement.
Step 1: Describe the Type of Work to Be Accomplished
State the exact description of the work you have to accomplish as a contractor. It must detail the materials, tools, or equipment you intend to use during the duration of the contract. It is advantageous to be as specific and comprehensive as possible.
Step 2: Include All Necessary Financing Details
Ensure that you indicate the agreed amount that you and the client agreed upon during negotiations for the pay they intend to give for the work you put in to achieve project completion. State the contract price, non-refundable security deposit, payment schedules, final payment price and date, and interest payments to aid the understanding of the client.
Step 3: Indicate the Due Dates and Necessary Fees
Always be clear about your intended payment installment dates. If you agreed on charging late fees, the contract agreement must detail the amount and date the client must pay these charges. Also, explain how you plan to handle the expected costs. Whether you shoulder the expenses or the other party pays for the increase. It is also necessary to outline how the parties intend to handle the addition and deduction processes in the contract.
Step 4: Describe the Handling Process of Adjustments
Indicate terms and provisions that protect you from unnecessary and unexpected work requests from your client and any additional costs. There must be a section that affirms an understanding of change orders and claims.
Step 5: Agree On the Means of Resolving Disputes
Select an ideal discussion or authority to resolve disputes and claims regarding your work performance or completion. It is also helpful to include stipulations that require resolutions in terms of binding negotiations. In doing so, both parties are waiving their rights to file lawsuits, but it helps to arbitrate disputes faster, privately, and inexpensively.
Step 6: Identify Coverage Information
Indicate that it is your responsibility to provide liability insurance and worker compensation for the length of the construction project as required by law. It is also essential to state your licensing information and offers the owner the right to ask for a performance and payout bond.
When do you need to use a construction contract agreement?
A construction contract agreement is necessary for building, renovating, or altering a building or structure. Both parties must have an agreement in writing that acts as a roadmap until the completion of the construction project. It also allows the parties to designate essential roles that include obtaining permits, providing materials, buying fixtures, and paying for utilities. The construction process involves plenty of moving mechanisms that define each party’s responsibility to complete the project.
What are the consequences of not using a construction contract agreement?
The success of a construction project or construction plan depends on clearly defined expectations and schedules. Mistakes and delays affect both parties negatively, resulting in additional costs for labor and equipment because the property is left unused in the intended time and purpose. A construction contract agreement holds a liquidation damages clause that indicates a set amount that the contractor must pay to the client for each delay per day. The document also prevents issues like poor performance, work changes, early termination, lost profits, and imbalanced risk allocations for both parties.
How can construction contract agreements protect a contractor’s business?
Having a well-written and comprehensive construction contract agreement helps get you and your client on the same page with the desired construction outcome. It helps protect you from any legal disputes, disagreements, issues about payments, and other relating concerns. It is necessary to have all the essential provisions and clauses for the extra layer of protection you and your company need to complete the project and move on to the next one.
Having a construction business can be challenging if you do not have the sufficient knowledge and tools to smooth out transactions with your clients. As there are various types of construction contracts available, you must know which one to use, depending on the type of project the client aims to achieve. You must also know the necessary clauses, provisions, or statements that help protect you and your client throughout the project. It is also advantageous to know the steps in creating a comprehensive contract to avoid misunderstanding between you and your client. In the words of Theodore Roosevelt, “It is not often that a man can make opportunities for himself. But he can put himself in such shape that when or if the opportunities come he is ready.”. Be prepared for your future construction projects by familiarizing yourself with the construction contract agreement samples above, ready for use and download.