Prior to beginning construction projects, most boards understand the importance of consulting with engineers, architects and other experts. These consultations help to define the project and shape any bids so that the final product conforms to what the board envisioned. Very few boards think to draft a customized contract before advertising for bids to define and shape the legal aspects of the construction project. This can be a costly omission.
If a contract is not custom drafted, a standard contract from the construction industry is typically included in the bidding specifications package or a contract is provided by the contractor. A contract of this type typically does not protect the association as well as a contract which is custom tailored to the job. Even worse, a contact drafted for general use in the construction industry may be written to favor the contractor over the association. Rather than negotiate a less than favorable contract after the bid is accepted, the association can save time and money by drafting a favorable contract before the bidding process begins.
There are many clauses that are critical for protecting the association in construction contracts, the following are important issues to be included in any contract:
- Formal Names of Parties to the Contract. Make sure the formal legal names of the association and the contractor are used in the contract and the title of the person signing on behalf of each party is included in the signature block. For instance, if the president of the association signs for the association, the signature block should read “John Doe, President.”
- Scope of Work. The contract should always include a detailed description of the work to be performed so that both parties know exactly what to expect. Often, it may be a good idea to include a description of work that will not be done for the contract price (the “extra work”).
- Performance of the Services. There should always be a requirement that the contractor perform the work in accordance with the Scope of Work and that the work will be completed in a workmanlike manner, furnishing such labor, materials, tools and equipment required to do so.
- Dates, Contract Sum, and Payment Terms. The contract should contain the start and finish dates for the work, the schedule for completion, the contract sum and any payment terms. Many contracts provide that payments are made in installments as the work is completed. The basis for calculating the installments should be clear. In addition, the association should make sure it can withhold payment or setoff if the work is defective or a lien has been filed until the situation is corrected.
- Independent Contractor. Every contract should state that the contractor is an independent contractor and not an employee of the association. This provision should also state that all personnel or subcontractors of the contractor are employees of the contractor and the contractor is responsible for its personnel and subcontractors.
- Warranties. There should always be a warranty for work and materials. The length of the warranty will depend upon the particular industry, but a one year warranty for work and materials is the most common. In addition, any manufacturers’ warranties should be signed over to the association upon completion of the project.
- Insurance. Contractor should always have insurance and the contract should specify the types of insurance that are required. A construction contract will usually require builder’s all-risk coverage, commercial general liability insurance, automobile insurance, contractual liability coverage for indemnity obligations, workers’ compensation and employer’s liability. The association should consult with its attorney or insurance advisor to determine what types and amounts of insurance are needed for a particular project.
- Indemnification. There should always be an indemnification clause requiring the contractor or vendor to indemnify the Association against claims of damage or injury resulting from the contractor’s conduct.
- Attorneys Fees. In the event of a dispute, does the contract provide for an award of attorneys fees to the prevailing party? If it does not and the contractor breaches, the association may find that the attorney fees expended in pursuing that breach are equal to or greater than its damages.
- Termination. Termination provisions should be fair to both parties and allow either party to terminate for default. Since a default by the association normally takes the form of nonpayment, the association should include a right to cure the default before a contractor or vendor can terminate the contract. There is often a provision allowing for termination due to default upon a certain number of days notice, although contracts with a quick completion date often do not have this provision.
For a comprehensive listing of boilerplate contract provisions from A to Z click here.