What Mistakes Could Your Construction Contract Be Hiding?
The construction contract is king. It’s the single most important determiner of how projects, payments, and disputes play out. Despite the importance of a contract, many contractors are satisfied with “boilerplate contracts,” generic contracts that are in no way comprehensive enough to outline a construction project. Whether you realize it or not, your contracts may be hiding something that could come back and hurt your company.
Below, a Denver construction lawyer with Cotney Attorneys & Consultants discusses several mistakes that your construction contract could be hiding. While some mistakes may be of little consequence now, the mistakes described in this article regularly result in stalled projects, payment disputes, and costly litigation. If you’d like to avoid these pitfalls, consult one of our attorneys for construction contract review in Denver.
Poorly Defined Scope of Work
As we’ve covered previously, scope of work is the leading cause of construction disputes. Delays, disruptions, and growing costs are threatening to overcome contractors across the nation. And it’s all because of the construction contract. Scope of work, project timelines, and payment schedules are all things that should be negotiated and clearly defined in your contracts well in advance of breaking ground.
Of course, all the planning in the world can’t account for the unforeseen. Unfortunately, material shortages, labor shortages, injuries, and inclement weather are common occurrences in the industry. When the unexpected hits and plans have to be altered, it’s vital that your contract protects the project, you, and your company. That’s where force majeure clauses come in.
Not Allowing for the Unexpected
Earthquakes, floods, and tornadoes are all considered “acts of God” and are generally covered under force majeure clauses. Without these crucial contract clauses, contractors could find themselves liable for catastrophic events beyond their control. Too often, contractors elect to move forward on a project without a force majeure clause in their contract. Remember, every contractor that’s been hindered by an act of God thinks at one point: That could never happen to me.
Even when force majeure contract clauses are included, they sometimes don’t include language that’s to the benefit of the contractor. Consult a lawyer for contract review in Denver to ensure that your contract accurately lays out qualifying force majeure events, contractual obligations covered by the clause, and actions to be taken if the event continues for longer than a specified period of time, among other stipulations. If your contract is hiding a limited force majeure contract clause, you could be found liable for work that your company can’t afford.
Not Setting Limits on Change Orders
Like acts of God, many contractors would consider their project owners to be a force of nature, and they aren’t far from the truth. As projects continue, owners will inevitably present a change order, a request to alter a project's original scope of work. Make no mistake, a change order is nothing more than a contract amendment. For this reason, your contracts should contain provisions that outline how change orders are to be handled. Your project’s work, price, and schedule depend on whether or not your contract contains these provisions. Time and again, construction companies have buckled under the pressure of mounting change orders.
As Denver construction attorneys, we recommend getting all change orders in writing and keeping a record of them over the course of a project. If you agree to a verbal change order, you may be opening yourself up to a dispute.
Waiving Your Lien Rights
As we’ve covered previously, contractors must be especially cautious when it comes to lien waivers. Lien waivers allow contractors to forfeit their right to file a mechanic’s lien, the most valuable tool in your arsenal for obtaining owed payment. Normally, a contractor would be unable to waive their lien rights until they received the final payment. Many states have laws that outright prevent a contractor from waiving their lien rights. Unfortunately, Colorado is not one of those states. In the State of Colorado, lien waivers are unregulated, and a contractor can even waive their lien rights in the contract. We implore you to consult an attorney if you are concerned that your contract waives your lien rights. Under no circumstance should you waive your lien rights unless you’ve received full or partial payment.
The Wrong Type of Contract
Despite advances in technology, construction is not an exact science. Material prices fluctuate; skilled labor can become scarce, and estimates once thought accurate can become inflated over time. When unforeseen costs emerge, a cost-plus contract is essential. There’s the cost (project-related expenses) and then there’s the plus (your profits). This type of contract can ensure that contractors make a profit even when project costs soar — a necessity in an industry plagued by cash flow issues and bankruptcy.
Related: Cost-Plus vs. Fixed Price Contracts
However, there are drawbacks to a cost-plus contract, and contractors can find themselves on the hook for inaccurate estimates, tracking related expenses, and indirect expenses. For contractors looking to avoid these issues, a fixed price contract may be for you. This type of contract removes any mystery surrounding how much you’ll be paid for a project; however, this in no way guarantees profits like a cost-plus contract. Either contract could benefit your company, just make sure you don’t have the wrong one.
Unclear Warranty Provisions
Similar to right to repair laws, your construction contract will include a warranty on your work that obligates your company to repair defective work. This warranty generally runs for a 12-month period; however, boilerplate contract clauses often omit when this time period commences. Your contract may be hiding vague language that could leave your company liable for a defect it’s not responsible for. As with all things contract related, your warranty provisions should include clear language that leaves no room for interpretation when it comes to construction defects. For any and all questions regarding your company’s options when accused of a construction defect, consult the Denver contractor lawyers from Cotney Attorneys & Consultants.
Related: Warranty and Guaranty Provisions
We come now to one of the most complicated contract provisions in the construction world. These provisions stipulate that one party (the contractor) holds another party (owner) harmless for damages. Essentially, these provisions stipulate that you are responsible for an owner’s legal expenses in the event of a third-party dispute. While Colorado does have anti-indemnity statutes, they are quite broad and may not apply to your contract. Before you are forced to indemnify, or hold harmless an owner, be sure to consult an attorney who can review construction contracts in Denver.
Over the course of this article, we’ve discussed contract language and general provisions that may not have made it into your contract or may have been included incorrectly. However, there are smaller mistakes that could still land your company in legal hot water. Failing to properly identify all parties involved in a project could prevent your contract from having teeth. Even something as innocuous as a simple grammar error could result in litigation. For these concerns and all others, your contracts should be negotiated, drafted, and reviewed by a Colorado Springs construction attorney.
At Cotney Attorneys & Consultants, our attorneys are dedicated to helping contractors overcome the mistakes that commonly hinder industry professionals. Withheld payments, disputes, and delays are just a few of the consequences that can result from a poorly drafted construction contract. For construction contract review in Colorado Springs, turn to the legal team that provides unlimited contract review. Turn to the team of attorneys at Cotney Attorneys & Consultants.
If you would like to speak with a Colorado Springs construction lawyer, please contact us today.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.