You Need to Avoid These Top 7 Construction Contract Mistakes
Between supply chain issues, employee shortages, and extreme weather events, it isn’t unusual for projects to experience severe delays or become derailed entirely. Any of those hurdles can seriously cost you if the project’s contract didn’t include provisions allowing for those situations. Here’s what you need to know to protect your company while getting construction completed on time.
Protect Yourself From These Common Construction Contract Blunders
Using the same boilerplate contract for every job can easily lead to major problems you didn’t expect that put your business and your livelihood at unnecessary risk. Don’t leave any aspect of your life’s work to chance. Instead, work with a skilled attorney who has experience in Louisiana construction projects to avoid these seven common problems.
Construction jobs rarely end exactly as everyone had planned from the start of the process. Experienced contractors know to expect change requests from the client as the project unfolds. Unfortunately, if you don’t set a limit on the types of changes that can be made before construction actually begins, you could find yourself in a difficult financial or legal situation.
In some cases, Louisiana state law intersects with how change orders must be handled with certain types of projects. When dealing with public construction like roads, for instance, change orders that exceed a certain dollar amount outside the scope of the original arrangement require another bid for a second public work project.
Cost Plus or Fixed Contract
Exactly how you are paid can have just as big an impact on your business as any other clause in a construction contract. In some cases, your best course of action is to utilize a fixed-price contract, so you know ahead of time exactly how much money will be available. There is a major pitfall to going this route, however. If your costs increase for some reason, such as needing to hire additional laborers or suddenly finding the price of a key material has gone up, you could end up losing all your profits.
That’s why in some circumstances a “cost plus” contract may be a better solution. This type of payment structure covers both the expenses you incur during the project and an extra amount specifically for your profit. While ensuring you earn a profit is obviously a major plus, these contracts have their own potential downfalls with flawed estimates and extra work in tracking costs that you should discuss with an attorney before breaking ground.
Define the Scope of Work
As the previous two common problems should have driven home, having a solid definition for the overall scope of the work and how problems will be handled when they occur is crucial to a successful project.
A clear explanation not only manages client expectations, but protects you legally if things don’t go according to plan. You should specifically define the scope of your work by laying out:
- When you will be paid
- How you will be paid
- Specific project timelines
- A Force Majeure clause for truly unexpected events
Don’t Forget About Unexpected Circumstances and Acts of God
That last bullet point above deserves special attention because absolutely any business can be destroyed by problems that you assume won’t happen to you. Inclement weather, natural disasters, and world-changing pandemics have all caused endless headaches for the construction industry.
That’s why you need an experienced construction lawyer to thoroughly review your contracts before work starts. Nobody expects a hurricane to disrupt their construction project for weeks, but failing to plan for that possibility is a recipe for financial disaster if it happens.
Prepare For Delays Ahead of Time
Even if weather issues like heavy rain and flooding don’t end up halting construction, delays caused by other issues are almost inevitable. While you may not be excited about the prospect of putting a clause in the contract that can cost you money, having a clear and well-defined consequence for those delays can protect you in ways you might not realize. If you don’t set caps on damages or specifically cover what will occur when the guarantee date of substantial completion passes, you could end up exposing yourself to significant liability for damages in court.
Warranty Time Lengths
Any construction project requires a warranty to protect the client if structural defects occur down the line from problems with materials or workmanship. That warranty only has to be in place for a set amount of time after substantial completion of the project, however.
All-too-often, construction companies utilize standardized contracts that don’t set clear end dates on those warranties, which need to be corrected before either party sets down their signature. Louisiana, in particular, has very specific rules you need to be aware of ahead of time under the New Home Warranty act that designates what must be legally covered and for how long.
Waving Lien Rights
The ability to file a lien is important, both for you and your workers, to ensure everyone is paid what they are owed. Some contracts will include language requiring you to waive your right to file a lien before you receive finalized payment for the project. If you are concerned about the possibility of losing out on an avenue for collecting owed payment, be sure to discuss any part of the contract that mentions waving lien rights with your legal counsel.
Consult an Experienced Construction Litigation Attorney Before Signing a Contract
While these are by no means the only potential missteps either a contractor or home buyer can put into a contract, they are some of the most frequently seen issues in Louisiana projects. Your best course of action is to have an experienced construction litigation attorney scrutinize the contracts in advance to avoid mistakes ahead of time. If you are currently already embroiled in a dispute with an existing contract, however, it is even more important to contact a lawyer as soon as possible.
Call or message the Scott Vicknair law firm to schedule a consultation and discuss your contract needs. Whether you are preparing for the future by sidestepping problems now or need help with an ongoing legal issue, we want to hear about your case and help you find the best way to protect your financial stability.