A contract is an agreement that legally binds contracting parties to do what they promise each other to do. The contract addresses (1) what the parties intend to do when they enter into the agreement, and (2) areas the parties think might become problems. A written contract is invaluable if the parties have a falling-out. An oral contract is legally enforceable, but from a practical standpoint it is not because neither party will remember the contract in the same way. Samuel Goldwyn of MGM was right when he said, “A verbal agreement isn’t worth the paper it’s written on.”
The following are six critical clauses that should be in every construction contract. If your contract does not include these provisions you are at risk, and if you do not insist on a written contract for every job, it is probably time you thought about changing.
- Incorporation by reference. An incorporation by reference clause is necessary to include other documents that become part of the contract.
- Scope of work. If each party has a different idea of what has to be completed for payment to be due, a dispute is sure to follow. The best way around this pitfall is to include a detailed description of the work in or with the contract.
- Right to terminate clause. This clause describes the circumstances under which one party can terminate the contract, such as a failure to properly perform or make payment on time.
- Notice to cure. A notice to cure clause provides a set amount of time to correct any deficiencies or payment failure.
- Attorney’s fees. The basic rule in American litigation is that each party bears its own legal expenses, regardless of who wins. This clause provides that if litigation becomes necessary, the loser pays the winner’s legal fees.
- Change orders. Owners are notorious for wanting to add to the job while the work is underway. The contractor doesn’t want to lose the extra profit on the additional work because it is high profit work–the crew is already in place. These changes can result in a huge increase in the contract price followed by a dispute over what the scope of the original contract was and a lawsuit. Insist on written change orders for every change.
This law office has been helping owners, contractors, and subcontractors with contract drafting to protect themselves and avoid lawsuits for nearly 30 years. If your company or you are in need of legal assistance to draft, review, or litigate to enforce a construction or other contract, call our office at 800-909-LAWS (5297) or submit an online questionnaire.