If you are a contractor, a subcontractor, or a supplier, it is crucial to fully comprehend a construction contract before your work begins. This includes understanding the meaning of potential consequences and repercussions of the contractual terms you are about to agree on. Failing to understand the agreement terms can lead to an unwanted legal dispute with financial and reputational damages. Before starting a project, any prudent construction company will first have their attorney look over the suggested contract’s terms and begin a negotiation dialogue, where language will be used to protect not just one party, but all parties. As always, there are several contract pitfalls you should be aware. This article focuses on three top traps you should try your best to avoid or negotiate before signing the contract.
1. Obtain all of the documents
Often times you will be signing a contract that does not include the full set of obligations that will apply to your work. Therefore, you must always remember to ask for the prime contract documents (and any addenda involved). The prime contract usually binds the general contractor to the owner, but it also binds you as the subcontractor or supplier, even if you are not a signatory in the main agreement. This “binding” usually happens due to a commonly-used “flow down” provision, which states the all contractual obligations that apply to the general contractor will flow down to everyone else working on the job. If you do not obtain the prime contract documents you may remain unaware of all the provisions, obligations, and limitations, how they work together, and how they may affect positively or negatively your work.
2. Review all Project Specifications
Another thing you want to keep a close eye on is language. Usually prime contracts and subcontracts include project specifications only by reference, so make sure you obtain the full specifications on the project and you review them before signing anything.
3. Be crystal clear
Lastly, watch out for any ambiguity in all of the documents you are about to sign. Avoid jargon like “customary,” because even though parties may verbally agree on what is customary in the business, when things get ugly, “customary” will become a puddled word with interpretations that only serve the party raising a claim against you. Therefore, eliminate vague language and stick to clear and defined terms.
Avoiding these three traps can’t guarantee a 100% iron-clad contract, but it can certainly inform and educate you and the potential risks that the project can involve you down the road, if anything goes wrong.