Checklist for Signing a Construction Contract

Signing a construction contract is a significant step in any project, whether it is a small residential renovation or a large commercial development. Ensuring that all aspects of the contract are thoroughly reviewed and clearly understood can prevent future disputes and financial losses. Listed below is a best practice checklist to guide you through the process of signing a construction contract:

1. Define the Scope of Work

• Detailed Description: Ensure that the contract includes a comprehensive and clear description of the work to be performed.
• Specifications and Standards: Specify the materials, standards and quality expectations to avoid misunderstanding about what is included.
  

2. Set a Clear Timeline

• Project Schedule: Outline key milestones and completion dates.
• Delays and Extensions: Include provisions for handling delays, including how they will be communicated and managed. These terms are included in standard form contracts and it is important to familiarise yourself with these.

3. Establish Payment Terms

• Payment Schedule: Ensure that you understand how payments are made and whether these are milestone-based or progress-based. Furthermore, it is important to understand the payment terms as this is important for cash flow management.
• Retainer: Determine if a percentage of payment is withheld until project completion.
• Change Orders: Understand how variations and/or change orders will be addressed.  Standard form contracts detail how additional work or changes will be billed and approved.

4. Include Detailed Plans and Drawings

• Plans and design drawings: Attach all relevant plans, drawings and specifications. It is good practice for these to be included in the contract.

5. Understand Insurance and Bonds

• Liability Insurance: Verify the limit and extent of liability insurance and ensure that sufficient cover is in place.
• Worker’s Compensation: Ensure coverage is in place for all workers on site.
• Performance and Payment Bonds: Understand the requirements of bonds and what is required to raise them in each instance. There may be consequences for failure to comply with these requirements.

6. Define Warranties and Guarantees

• Workmanship Warranty: Familiarise yourself with the warranty requirements and ensure that you can honour these.
• Manufacturer Warranties: Ensure that any product warranties from subcontractors, manufacturers and suppliers are transferred to you and cover you in terms of the contract that you have signed with your client.

7. Clarify Permits and Approvals

• Responsibility: Specify who is responsible for obtaining necessary permits and approvals.
• Compliance: Ensure the risks of compliance for the various categories are borne by the correct person. For example, the risk of compliance for design may be with an Engineer and the risk for compliance with the building codes may be with the contractor.

8. Include Dispute Resolution Terms

• Mechanism: Outline how disputes will be resolved (e.g., mediation, arbitration, litigation). Standard form contracts include the mechanisms in the standard terms and sometimes you may be required to specify the mechanism in the contract data. Ensure that this is populated and is suitable. For example, litigation without an option for mediation may be costly.
• Governing Law: Specify which jurisdiction’s laws will govern the contract. This is usually South Africa for South African projects.

9. Set Procedures for Changes and Extras

• Change Orders: Define how changes to the project will be handled and approved.
• Additional Costs: Ensure there is a clear process for agreeing on and documenting any additional costs.

10. Review Termination Clauses

• Termination for Cause: Understand the terms for terminating the contract due to breach or failure to perform and the process of invoking them. If you terminate a contract and follow the incorrect procedure, you may be liable for breach of contract.

11. Ensure Proper Signatures and Dates

• Authorised Signatories: Confirm that the contract is signed by individuals authorised to bind each party.
• Date: Ensure that all signatures are dated.

12. Consult Legal and Financial Advisors

• Legal Review: Have an attorney review the contract to identify potential legal issues.
• Financial Advice: Consult with a financial advisor to ensure the contract terms are financially sound and feasible.

Conclusion

Signing a construction contract involves careful consideration and a thorough review of all terms and conditions. By following this best practice checklist, you can help ensure that the construction project proceeds smoothly. Taking the time to get the contract right from the start can save you significant time, money and stress down the line.

Bilaal Dawood

Head: Membership Services