So, you’re approaching a brand new construction project and you’re tempted to save just a few pounds by going into business with your clients, suppliers, or builders without a contract…
Before you go any further:
Sure, it may be tempting to cut costs in the short term. In the long term, however, damage caused by carrying out a project without a construction contract can cost you far more than the small amount you’d pay to have one professionally written up.
In my experience, it’s not uncommon for that damage to be so irreversible that businesses have no choice but to close their doors for good.
So, whether you’re a contractor taking on a new job or a client investing a significant sum into a brand new development, the answer to the question ‘do I really need a construction contract?’ is this:
Below I’ll outline just a few reasons why a solid, professionally written construction contract is vital for all parties involved in a project.
Before I do, however, let’s get clear on what we actually mean when we talk about a contract.
What is a Construction Contract?
We all know what a contract is, don’t we?
In most areas of business, it’s a document through which one party agrees to provide a set amount of goods or services, and the other party agrees to pay a set amount for them.
In the construction industry, the basics are the same:
An agreement is signed between two (or more) parties that outlines how a project is to be carried out.
At the very least, a construction contract will outline all of the following:
- Project duration
- Payment terms
- Roles and responsibilities
- Final tender sum.
A legally-binding document that covers each of these vital areas will prove to be an invaluable tool throughout the life of your project.
1. Construction Contracts Provide Peace of Mind
With a contract, everybody is clear on what is expected of them.
As a contractor, you know that -as long as you carry out the work exactly as agreed- you’ll be paid a set amount.
As a client, you know that your contractor isn’t going to abandon you mid-project and that, if they do, there’s a defined course of action you can take to prevent loss.
2. Contracts Help With Cost Savings and Managing Cost Expectations
This is true of lump sum contract agreements, in which the client agrees to pay a fixed amount for the completion of the project.
Imagine the alternative, in which the client forms a loose, hand-shake agreement to pay their contractor by the hour.
A less-than-scrupulous contractor will likely find as many incentives as they can to keep working on the project longer than necessary.
Even if you work with a contractor who won’t drag their heels, a genuine, unexpected problem could still cause legitimate delays, adding to the overall cost of the project.
The same goes for materials.
If a contractor quotes $X for materials and that figure is agreed upon in the contract, they can’t then announce that the price has gone up and that they now need to charge more.
As you’ve likely already gathered, this is the most fail-safe method of setting realistic financial expectations and managing costs throughout the duration of your project.
3. Construction Contracts Guarantee Quality Control
A written construction contract guarantees that there’s no way a contractor can quote -and charge- for premium quality materials, only to then invest in cheap, poor quality materials and pocket the difference.
That is, of course, providing the type of materials are specified in the contract agreement.
5. A Formal Agreement Helps to Quickly Resolve Disputes
Even the best projects can sometimes go awry and disputes can occur.
Without a contract in place, resolving those disputes can quickly become an expensive affair, as much due to the project going unfinished as to the expensive legal fees that arise if the issue is taken to court.
More often than not, a legally binding contract will stop an issue from going this far in the first place.
If it does escalate to the point of bringing in solicitors, the contract will play a large role in reaching a resolution quickly, thus keeping costs to a minimum.
What Type of Contract is Right for My Project?
With so many different types of contracts available, choosing the one that covers all the appropriate terms for your project can prove difficult without the expert advice of a qualified professional.
For the majority of residential projects, I recommend a standard JCT (Joint Contracts Tribunal) contract.
That said, the unique nature of construction means that JCT may not be right for you.
As such, you may benefit from consulting with a construction contract specialist who can ensure that you not only have the right contract but that you also have a contract that contains all the right terms you need to ensure success on your next project.