Construction Contract Basics: What to Include in a Contract
By Scotti Ian Ogden
Owner of Ogden Contracting LTD
If you’re a business owner in the construction industry it is crucial that you learn how to write good contracts.
Contracts create legal obligations between a builder and a client. They describe those obligations clearly and the actions that can be taken if they are not practised. A contract is a foundational document for any project.
What we will touch on:
- Why I started Writing Contracts
- Why You Should Have a Contract Agreement in Place
- What is Included in a Contract
Why I Started Writing Contracts
Before I was a general contractor, I owned a framing company. Initially, I was apprehensive to give framing quotes to builders because I didn’t want to be stuck building a job for the price listed in our agreement (if inflation or problems accrued during the project). I still remember the first time I wrote out a quote.
I spent time looking carefully at the drawings, imagining how long the job would take to discuss, plan and design. Then I figured out how much my crew would cost, how long it would take to order lumber, and even how long it would take to walk the lumber from place of delivery to the site. The number ended up being roughly 15% more than I estimated.
It’s very important to create expectations in the construction industry. Writing a contract or agreement creates expectations for both parties involved.
I have always believed that there are 4 aspects to a conversation:
- What you are thinking & want to say
- What you actually say
- What the other person hears
- What the other person thinks you are trying to say
When writing out an agreement, think about these aspects of the conversation. You want to clearly outline what you are thinking, what you are saying, and be certain that the other party interprets those words the way you intended.
Why You Should Have a Contract Agreement in Place
Your Deliverables or Responsibilities
When you write out in detail everything you plan to include in your scope of work, you have the opportunity to visualise the job and each task along the way ensuring you miss nothing.
The Responsibilities of the Owners or Person(s) Hiring You
Any job you do involves two parties and their responsibilities. The owner has to provide clear expectations of you and your services. If the owner is going to provide you with the drawing, products or idea and insite, this will need to be clarified before you start the job. No one has a crystal glass or are able to read minds, so open communication is key.
Additional Notes (a SAVE Note)
Each job will be unique and will have some special notes, for instance, I always include a SAVE note. Simply stating that if the owner wants to keep anything during the demolition, they are to clearly mark those items with the word “SAVE” so that when the team is working on the demo they know what items to throw out and what ones to save. Another note I write is hours of operation that will be expected. I want the ability to work 6 days a week for 10 plus hours if necessary.
Terms and Conditions
The person you are working for wants to know that you will take care of deficiencies and warranty items in a timely manner, as well as how you want to be paid. I also write in my contract a termination clause for both parties. The owner wants to know that if they are unhappy with the way the project is going that they can terminate the contract and hire someone else, or vice versa. You may find that the owners are very difficult to work for, and or they refuse to pay in a timely manner.
I recommend hiring a lawyer to assist you in writing your terms & conditions.
What is Included in Contracts?
- This document serves to set up a clear understanding between…
- The Clients have requested The GC to…
- The purpose of this agreement is to outline the contractor responsibilities, owner responsibilities, additional notes, services, deliverables, and terms and conditions needed to complete the project.
- Project management and supervision
- Labour management
- Workplace amenities
- Safety management
- Debris and waste management
- Home protection during construction
- Schedule development and management
- Budget development and management
- Material and equipment installation
- Quality control
- Permit and licence acquisition
- Communication and reporting
- Issue resolution
- Project closeout
- Material selection and purchase
- Invoice submission
- Availability for communication
- Site access
- Final approvals
- Dispute resolution
- Work hours
- Dust and noise
- Heating and ventilation
- Keeping and saving items
Specific Terms and Conditions
- Commencement of Work
- Course of construction insurance
- Payment terms
- Trade payment and liens
- Item Purchases and Warranty
- Emergency response
- Billing cycle
- Invoice due date
- Pricing structure
- Hourly rates
- Change work order
- Dispute resolution
- Working capital
- Non Refundable deposit
- General terms and conditions
I highly recommended that you have your lawyer read over your agreements with all local and government laws and regulations. There are a lot of people out there that will not pay for a lawyer because they think the cost is too high. The cost of not hiring a lawyer and being in a dispute and not getting compensated for the work that you did is a more costly mistake and it will happen at some point in your business, so make sure you take my advice and have a lawyer look over all your legal documentation.
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