In construction management, few things are more vexing than contracts. Each project is a complex endeavor that requires detailed planning, but the underlying contracts may be even more complicated. From the initial phase, when a contractor is awarded a project, to the final sign-off, all parties must closely follow contract provisions. One short clause in a lengthy document can cause a project to go wrong for either the construction firm or the client. For these and many other reasons, contract management in construction projects is critical for protecting your interests.
If your construction firm doesn’t have a contact management procedure, now is the time to get started. It can protect your company, help ensure timely project delivery, and satisfy stakeholders. Here are some tips to get started with construction contract management.
Create Clear and Comprehensive Contracts
Construction contracts get thorny because there’s so much to consider. You have to consider the standard project milestones, deliverables, and deadlines. Both sides’ rights, responsibilities, and obligations must also be covered, with an eye toward mitigating potential disputes and keeping the project going. The trick is to find a balance between explicit, plain English provisions while still covering every possibility.
To create a clear and comprehensive contract, follow this template:
- Define the scope of work, with specific tasks, deliverables, and a timeline both sides agree on.
- Establish payment terms, including schedules, milestones, and payment methods.
- Define change order procedures with an authorization and management process. Clearly lay out pricing and schedule expectations for changes.
- Spell out all insurance requirements, with liability limits and indemnification clauses.
- Establish a fair and efficient dispute resolution process like mediation or arbitration.
- Incorporate force majeure clauses for unforeseen circumstances like natural disasters or global pandemics, which might impact project timelines or costs.
Review Contract Terms With Legal Counsel
Once you have a tentative contract that both parties are happy with, review the terms with an attorney — preferably one experienced in the construction management industry. Experienced legal counsel can ensure the contract aligns with your firm’s best interests while reviewing it for clarity and completeness.
An attorney who knows the construction industry can also advise on the contract’s enforceability. As each legal jurisdiction differs, some terms may not apply or need additional provisions. Your legal counsel can modify the terms to ensure your business is protected in the area where the job will take place.
Prepare to Manage Contract Changes
While your ideal contract will clearly define the change order process, it’s common for some change requests to require contract amendments. For example, if a request significantly impacts the project’s timelines or costs, it’s best to include the changes in the master contract. Otherwise, your firm might proceed under terms that have suddenly become unfavorable, maybe even threatening the project’s profitability.
To prepare for contract modifications, create a plan to identify potentially significant change requests. If a change will impact a project’s scope, schedule, or budget, that’s a sign you might need to amend a contract. Obtain accurate cost estimates for proposed changes to justify the change process.
Address Contract Disputes Promptly
The steps covered so far aim to minimize misunderstanding and project delays. However, contract disputes still arise occasionally, and they can be costly. If you find yourself in a disagreement with your clients, it’s best to address these disputes promptly. Letting these issues linger only increases the chance of project shutdowns or non-payments.
When necessary, utilize the dispute resolution process outlined in your contract. If you choose mediation, a neutral third party will help you and your client find common ground. A neutral arbitrator will hear from both sides and render a binding decision if the contract specifies arbitration.
Document Contract Performance
An important but often overlooked part of contract management is documenting your performance against the outlined terms. Documented evidence of reaching project milestones goes a long way in the dispute resolution process.
To document contract performance, maintain detailed records of progress reports, payments, change orders, and correspondence with the client. Also, document the reasons for any deviations from the contract terms, such as material cost overruns or weather delays. Maintaining this and other documentation can demonstrate your compliance with contract terms, helping to resolve disputes in your favor.
Seek Professional Help for Construction Contracts
Construction management is plenty challenging on the job site. Contract management adds another layer of complexity, but it’s worth the effort. Sound contract management processes help protect the interests of all parties involved, ensuring profitable projects and earning your construction firm a sterling reputation. The tips discussed here can help you navigate the ins and outs of contract management, but you don’t have to handle it alone.
When you partner with a HireQuest company like MRINetwork or HireQuest Direct, your construction company benefits from years of experience in contract management. For assistance with construction contracts, contact MRINetwork today.