What is a Construction Contract Agreement?
What exactly is a construction contract agreement? In very generic terms, a construction contract agreement is a legally binding document between two or more parties that creates an agreed-upon agreement or understanding regarding any aspect of the construction industry. These types of documents are signed off by everybody included in a particular project in the industry.
By signing these documents, all parties agree to the predetermined parameters set forth in the documents. There are many aspects of a construction project that can be outlined in the terms of the agreement, including design expectations , deadlines, responsible parties, budget limitations, and other important provisions.
All parties indicated on the contract are expected to hold up their end of the bargain under the terms and conditions of the existence construction contract agreement. All construction contract agreements are enforceable by contract law around the area the document was created and contains jurisdiction.
Even if only a small, singular aspect of a construction project is agreed upon, the individuals entering into the contract must follow through on fulfilling the given obligations and parameters as outlined in the document.
Essential Elements of a Construction Contract
Every construction contract, whatever its terms, will have four fundamental components: scope of work, payment, time, and dispute resolution. Of course, other terms may be included, but inevitably, these four are basic requirements of all construction contracts.
Scope of Work: – This is the section that determines what the contractor has agreed to do. The scope of work is the definitive starting point of almost every construction contract negotiation. In many cases, the bid is the scope of work. From a contractor’s perspective, this section just needs to adequately describe what it has agreed to do. From an owner’s perspective, this section needs to describe what was expected from the contractor.
Payment: – This is the section that describes how and when the contractor will be paid. This section will often tie in to the scope of work as the payment may be tied to the completion of certain milestones in the scope of work. This section may also tie into a required schedule, such as a required completion date. In many construction contracts, the contractor will be required to submit a draw request in order to be paid for work performed.
Time: – This section is not to be taken as merely a calendar that states the date for completion of the project. There may be many aspects of the construction project that need to be completed in a certain order, or that may be dependent on each other. If the project has any time sensitivity to it (for example, a medical facility), then the time is even more vital. Time is money when it comes to a delayed construction project, so the remedies for a delay must be considered when entering into a construction contract.
Dispute Resolution: – This last component of a construction contract cannot be underemphasized. A construction contract must provide for how any disputes will be resolved. There are many ways in which a dispute can be resolved, such as litigation, arbitration or mediation, and is most effective if the owners and contractors discuss the possibilities up front. As with many of the components in a construction contract, the agreement may be specific to the project. For example, if the owner is a public entity that has strict rules about construction claims, then the owner would likely insert those restrictions into the construction contract. If the project is located in a remote area of the country that does not have arbitration facilities, it may not be practical to nominate a person in New York City to resolve any disputes. All of these aspects must be considered when entering into a construction contract.
Advantages of PDF Format
In the realm of digital documentation, PDF has become a household name synonymous with compatibility. When it comes to construction contract agreements, PDF offers a number of advantages that make it an indispensable facet of the process.
Security
Nobody wants to work with a vendor who suddenly refuses to honor a contract because they didn’t save it properly or mail it to the wrong address. When you send a contracted vendor an agreement in PDF form, you’re able to save a recorded version of it in the state it was sent. This prevents the vendor from changing the document after the fact and gives you proof that you are indeed party to the agreement because you saved a copy of it.
Easy to Send
Because of the prevalence of PDF documents, most households these days enjoy file-sharing services like Google Drive, iCloud and Box. These particular services have the capability to both create PDF files and automatically sync them. As a result, sending a contract agreement via PDF is as easy as dragging the document into the right folder. Contrast this ease of use with a Word document that would need to first be converted to PDF before it can be sent safely.
Document Integrity
When you send a Word document, for example, there is a danger that the person receiving it simply won’t have the right version of Word. Not everyone who might be involved with a project will have the latest version of Microsoft Office, so there is a real risk that an agreement sent as a Word document will not render properly for its intended recipient. However, this problem is nonexistent for PDFs. Most browsers today are able to open a PDF—even those browsers compatible with mobile devices. This means that a PDF contract can be viewed clearly and easily on almost any device without requiring the user to download a program.
How to Create a Construction Contract Agreement PDF
The process of drafting a construction contract agreement in PDF is a matter of picking the right sample, filling in the necessary details, and making sure all terms are spelled out legally. The following are steps to take in creating a PDF of construction contract agreement without mistakes:
• Picking the right sample: You will find many different types of construction agreement templates online, so make sure you select the one that is right for you. If you are a contractor, you will want a sample that gives you room to fill out spaces with information that protects you. The same goes for clients who hire contractors to do work. Make sure you choose a sample that protects the investment you’re making in the project.
• Filling in the information: Once you have the right sample, you need to fill in the information on the document. There will be spaces for both the contractor and the client to fill out information on their sides. Make sure to specify the type of construction project, the location of the project, payment options and the date the project is expected to be completed.
• Spelling out the legal ends: Along with filling in the information on the document, you need to make sure you spell out all the legal ends. There are certain items that should be included that both parties can agree to, as well as information specific to the type of job being performed. Having too much information in a contract can be just as bad as not having enough, so only include what is necessary.
Common Pitfalls
One of the biggest pitfalls that business owners can make when preparing a construction contract agreement is drafting it in a vague manner. They’ll use terms that are not defined in the contract, or they’ll fail to stipulate how certain information should be documented. For instance, they may stipulate the progress payments should be paid for the work completed; however they will not define what a "completed" phase of work is. What happens if a dispute arises because a "completed" phase of work is different between parties? This is just one of countless examples .
Another common pitfall is failing to state how changes will be made to the agreement. Change orders are one of the most common issues for disputes in the construction industry. If change orders aren’t handled the right way, it can create a nightmare for the contractor and the owner. Stipulating a process for changes will help ensure both parties know exactly how to process change orders. While there are numerous other issues that can arise in the construction industry, these are two of the most significant.
Tools and Resources for PDF Management
A suite of PDF management software tools is now available to facilitate the creation, editing, bookmarking, numbering, hyperlinking, and merging of PDF documents. This software can assist with many tasks related to the PDF construction contract agreement, including the revision of contract provisions, the redaction of confidential information, and the gathering of documents into a single PDF file. Two programs within the Adobe family are particularly useful in this context: Adobe Acrobat Standard and Adobe Acrobat Professional.
Adobe Acrobat Standard is ideal for reorganizing PDF files, correcting typos, adding and removing bookmarks, and adding hyperlinks to a document. For the construction contract agreement, this means eliminating the need for numerous written agreement versions that are being prepared by various people.
Adobe Acrobat Professional enables the creation of a digital signature for each party to the agreement. The digital signature creates a unique electronic signature that is attached to the PDF file. The digital signature enables the PDF to be locked against any subsequent revisions.
In addition to the Adobe products, there are a number of other PDF management tools available on the Internet. For example, there is a robust online service, www.pdfonline.com, that, among other things, will allow you to create PDFs from Word documents, Web pages, and Excel documents. It will also convert your PDF files back to editable form.
Legal Aspects of Construction Contracts
When it comes to construction contract agreements, careful consideration should be given to their legal implications. Locale jurisdiction laws define the mechanics lien laws, which are specifically applicable to lenders and or owners. The responsibility for submitting a mechanics lien will generally fall on the property owner or lender and they may find themselves taking on full liability for a mechanics lien should they close escrow against an unpaid mechanics lien. At this time, they may discover that mechanics lien waivers do not supersede the validity of a mechanics lien claim. Property owners and lenders have legal recourse against the contractor and the subcontracted suppliers who are responsible for the unpaid balance of the contract price.
Further legal considerations include defining the scope of work, payment procedures for completed work , provisions for assessing damages for non-performance or slow performance, termination rights and remedies for defaults. Additionally, will there be a mediation process for resolving disputes and will the contractor be able to collect legal fees from the owner should they be found to be in breach of contract? Construction contracts which are filed as a PDF under the contract or agreement may not always demonstrate proper land use versus what exists on the property or within the home. Legal descriptions are a part of any contract agreement and confirm the property address. Also, should the contractor have a lien bond and or unconditional lien waiver? Differing state regulations apply to construction contract agreement Pdfs which should be thoroughly considered when drafting the document. Also, what terms have been negotiated with subcontractors or suppliers? These may include: