The importance of a good construction contract

Tennessee construction contractors negotiating their projects know that a good contract is essential to the success of the project.

There are some main elements to every construction contract. Your contract should state what work will be completed, the timeline of the project and how much you will receive in compensation when the project is complete.

Outside of these basic terms, there are several tips that can help you ensure that you have a solid construction contract. This reduces the potential for disputes and litigation, which can be costly and lengthy.

Use clear language

Your contract should have concise and simple language. Using complex language or complicated terms increases the risk of misunderstandings and can hinder the overall project if the parties have different interpretations of the language.

Make sure all your contract terms comply with Tennessee law. Including language that you later find out is illegal can cause everyone major problems.

Plan for delays

Address what you will do if there are construction delays due to weather or other unexpected events. This is especially crucial in today’s world, where delays from labor and material shortages are relatively common.

There may be delays for reasons that are out of your control. You should avoid including language stating that your only remedy in this situation is an extension of time to complete the project.

Rather, try to negotiate an increase in the contract sum in addition to the extra time to complete the project.

In addition to detailing what work you will perform you may want to specify what types of work you will not perform. For example, you might want language stating that you will not perform work with hazardous substances or materials.

Resolving disputes

Do not ignore the possibility that a contract dispute could arise in the future, no matter how much work you put into your contract.

Agree on a method for resolving contract disputes. Many contractors use an alternative dispute resolution method, such as arbitration or mediation, to resolve disputes, as an alternative to heading straight into litigation.

You should also address the fact that there may come a time when terminating the contract is necessary. Certain situations can dictate that terminating the contract is in everyone’s best interest. Include language as to how the contract will be terminated.

Addressing damages

Damages are a major part of any construction contract. Language that waives your consequential damages is vital to protect you against potentially enormous costs if the project is delayed.

Consequential damages are damages you pay to an owner because of the delay. Because there are numerous potential consequences that may be involved in a construction delay, it is easy to see how your costs could quickly accumulate, leaving you financially ruined.

When negotiating damages, it is best to include a liquidated damages clause. This is language stating that you will pay the owner a specific amount for each day the project is delayed by something you caused.

Additional terms in a liquidated damages clause that will benefit you include a grace period before liquidated damages are assessed and a cap on liquidated damages.

Professional assistance is available

There is a lot that goes in to drafting a construction contract, and failing to include certain terms can cost you.

You also need strong negotiating skills to ensure a deal that you are happy with and a profitable project. Consider having a professional guide you through the contract negotiation and drafting process.


FindLaw Network
FindLaw Network