The construction contract review process is a critical step undertaken before starting any building or renovation project. It involves a thorough examination of all contract clauses and provisions to ensure clarity, fairness, and legal compliance. Just as you wouldn’t begin construction without detailed blueprints, a contract must be carefully scrutinized to prevent costly misunderstandings and legal disputes.
Skipping this review can lead to significant issues such as unexpected cost overruns, project delays, unfinished work, and damaged professional relationships. A well-reviewed contract clearly defines every party’s responsibilities and expectations, outlines the project scope, payment terms, timeline, and provides procedures for handling changes and disputes.
How Does the Construction Contract Review Process Work?
- Receiving the Draft: One party, often the project owner or general contractor, provides an initial contract draft.
- Initial Internal Review: Project managers, estimators, and other stakeholders assess if the contract aligns with the project’s scope and expectations.
- Legal Review: A construction attorney reviews the document to identify unfair clauses, ensure compliance with local regulations, and interpret complex legal terms.
- Negotiation and Revisions: Both parties discuss and agree on proposed changes to balance interests and clarify obligations.
- Final Review and Signing: After all modifications are incorporated, parties review the final contract before signing.
Who Participates in the Review?
Key participants include the project owner, general contractor, subcontractors, legal counsel, project managers, and sometimes lenders. Each plays a role in ensuring the contract protects their interests.
Crucial Contract Elements to Examine
| Contract Element | What to Look For | Why It Matters |
|---|---|---|
| Scope of Work | Detailed tasks, materials, and specifications. Clear exclusions. | Prevents “scope creep” and ensures work aligns with agreement. |
| Payment Terms | Payment amounts, schedules, milestones, retainage, and penalties for late payments. | Helps maintain cash flow and avoids billing disputes. |
| Project Timeline | Start/end dates, milestones, penalties for delays, bonuses for early completion. | Keeps project on schedule and outlines remedies if delays occur. |
| Change Orders | Procedures and approval process for modifications. | Manages project adjustments and avoids conflicts due to unexpected changes. |
| Dispute Resolution | Methods like mediation or arbitration, governing law. | Provides a clear path to settle disagreements efficiently. |
| Warranties | Coverage period and specifics (materials, workmanship). | Protects owners from post-completion defects. |
| Insurance & Indemnification | Required insurance and liability allocations between parties. | Minimizes financial risks from accidents or damages. |
| Termination Clauses | Conditions allowing contract termination and associated costs. | Clarifies exit rights and consequences. |
| Site Conditions | Responsibilities for unforeseen site challenges. | Addresses unexpected obstacles that could impact time and costs. |
Source: Messerly & Messerly P.A., “The Importance of Thorough Contract Review in Construction”
Common Pitfalls to Avoid
- Assuming Standard Contracts Need No Review: Even standard forms like those from the American Institute of Architects require customization and close scrutiny.
- Relying on Verbal Agreements: Unwritten promises lack enforceability.
- Focusing Only on Price: Lower costs can lead to unfavorable terms and costly disputes.
- Ignoring Legal Jargon: Seek clarification of unfamiliar terms.
- Rushing to Sign: Taking adequate time prevents overlooking critical issues.
Tips for an Effective Review
- Always consult a construction attorney for legal insights.
- Ask clear questions and get answers in writing.
- Consider “what if” scenarios (e.g., delays, accidents).
- Keep thorough documentation of all contract versions and communications.
- Confirm all referenced attachments (plans, specs) are included.
Frequently Asked Questions
Who drafts the construction contract? The drafting party varies but is often the project owner or general contractor; sometimes architects or legal firms prepare it.
How long does review take? Depending on complexity, from a few days for minor renovations to several weeks or months for large projects.
Can I review it myself? You should read the contract but also seek legal review to identify hidden risks.
What happens if I skip proper review? You risk financial loss, delays, and legal conflicts.
For authoritative guidance, visit the IRS Construction Contract Guidelines and resources like Investopedia’s overview of construction contracts.
