As a contractor, your contract of service with a client is critical to all aspects of your business relationship. A well drafted contract is not just a crucial risk management device, but also a useful tool in setting out the descriptions of the service provided, expectations, payment conditions and the extent of liability for that particular service.
It is crucial to define the limitations and scope of the services provided or the results to be achieved in order to manage both risk and expectation.
Ensuring that terms are adequately defined, as well as the inclusion of important provisions, can be achieved through a proper contract review.
This is extremely important for all contractors, as the contract once completed, will form a legally binding and enforceable agreement.
This article briefing sets out some of the things you will want in a construction contract.
Important Preliminary Information
The specifics of a contract will depend on the type of work you are doing. All contracts need to be adapted to the specific needs and circumstances of the arrangement.
A large majority of contracts come in a standard form, i.e. in a pre existing template. These standard form contracts are then altered to reflect the desired terms of the agreement. It’s always recommended that you customise your contract which allows for greater specificity and certainty of outcome.
There are however consistent terms, conditions and information that appear regardless of the contractor contract’s form and purpose.
Consumer Affairs Victoria provides a relatively comparable checklist that can serve as an initial starting point for construction contracts. Fair Trading NSW provides a similar list of helpful ‘contract essentials.’
Some of key information a contract should include for projects between $5,000 and $20,000 are:
- The parties’ names, including the name of the holder of the contractor licence as shown on the contractor licence.
- The contract license number.
- A description of the work.
- Including the date the contract is effective from and the completion date, though placing a clause allowing some leeway in this regard is advisable.
- Any plans or specifications of the work (if completed).
- The contract price if known (ie the hourly rate or the total price being charged).
- Note that this will depend on the sort of arrangement. If it is a larger service being provided, a total price will usually be specified. However, if it is a smaller scale service, an hourly rate will usually be listed.
The written contract must be dated and signed by, or on behalf of, each party.
It is important to note that the importance/content of this information will vary depending on the sort of contractor you are, the kind of work you are doing, as well as the cost of the project.
There are several very important clauses that should be present in all construction contracts. Some of these are mandated by legislation, like a quality of construction clause that lists what legislation the work will comply with depending on the specific type of work being done or a clause that states that the contract may limit the liability of the contractor for failure to comply with the above clause.
Others are useful for guiding the contractor-customer relationship through troubling periods and improving the overall business relationship
Change Of Contract
Often construction involves circumstances which necessitate change. Say for instance the price of a certain material goes up which means for your project to be profitable, the price you are charging must also increase. If something this occurs, it is useful for a contract to have a clause which describes a process for its amendment, and the circumstances in which the clause operates.
Where it is a high value contract, a typical clause will require a deed of variation to change one or more clauses. Lower value contracts might institute a less formal process.
But it is crucial that a change is not rushed and is recorded in writing, as it could have the potential to change the whole document.
Without a clause like this, you could be bound regardless of extenuating circumstances, and you might find yourself earning less than you anticipated.
Breach Of Contract
Depending on what sort of construction work you are doing, specifying the amount payable for a breach in a contractual clause might be a good idea. This would likely require professional consideration to generate an accurate and fair amount for the specified breach.
But note, breaching a contract is never something to be done lightly, even if there is a clause for breach. A serious breach could still lead to extensive liability and compensation.
An ‘inspection notice’ clause usually provides a customer with access for observation and/or inspection of the work being completed. It will usually specify an agreed upon interval for such inspections, as well as dictating the terms of the inspections.
For example, an ‘inspection notice’ clause might require a certain amount of advance notice prior to an inspection and could limit inspection to certain days.
Even if not explicitly entered into the contract, it is important to be aware that certain statutory warranties will apply to the work you have done. There are several that are implied into contracts where a party holds a contractor licence. An inclusion of a warranty clause doesn’t exclude these statutory warranties.
However, it could limit the possibility a customer might rely on them if something goes wrong by providing for repair. Mistakes happen. Having a warranty clause could protect your reputation, by making sure the customer remains satisfied and doesn’t seek compensation, instead relying on the contractual warranty.
Clean Up Upon Completion
This is a pretty standard construction clause which is also covered under aspects of site management specifications, specifically those related to trash removal.
This clause essentially says you agree to get rid of excess and hazardous materials and to leave the property in “broom clean” condition. ‘Broom clean’ refers to a state absent of debris and personal items, and usually includes vacuuming/sweeping.
Cleaning is usually limited to the debris from operations/work carried out under the contract, constraining your responsibility for cleaning to things like waste materials, rubbish, tools, construction equipment, machinery and surplus materials.
What Are General Conditions In A Construction Contract?
General conditions are made up of items and resources needed for the completion of a project but are not actually present upon final handover.
They are crucial to ensuring the oversight of the actual construction projects, but don’t concern things that are part of the finished product.
Put simply, they facilitate the completion of the work in a safe, clean and efficient manner.
These will depend largely upon the nature and scale of the project. Despite this, they usually fall into 1 of 4 categories:
- Site management specifications – relating to the management of the building site itself.
- Project management specifications – relating to the actual completion of the project.
- Material handling specifications – concerning the use of material and how it might be handled.
- Trash removal specifications – relating to the disposal of trash on an ongoing basis.
Most contracts will include all of these. However, some may be emphasised over others. For instance, if a construction is occurring near a pristine river, site management specifications might be focused on proper drainage and prevention of environmental degradation. Material handling specifications may take on greater significance when dealing with the removal of asbestos from older buildings.
What these clauses say will depend on the specific project and its circumstances. But it is important to remember that they all contribute to a better final product, a safer workplace and overall customer satisfaction.
Termination Of The Contract
Once a contract has been signed, it becomes a legally binding instrument. If you or your customer wants to cancel the contract before completion, there may be a financial penalty which in some cases can amount to the full price of the contract, or alternatively a party may institute court action depending on what has been breached.
There are however a number of ways a contract can be terminated early and/or without penalty.
If agreed by your customer, an ‘opt out’ clause can be present in the contract.
Depending on its terms, it might allow the termination of a contract with a substantially reduced fee or even no fee at all.
This will largely depend on what the customer is conformable agreeing to. Further, under Home Building Act, a customer can rescind the contract before 5 business days have passed since its creation.
This article is just a short outline of some of the things you might like to include in a construction contract. To properly protect your business, you should always speak to a lawyer before finalising a contract.
If you have questions we are always here to help. Whether you’re unsure of what terms to include or need help reviewing your contract, you can reach out to firstname.lastname@example.org or contact us on 1800 730 617 for a free, no obligation chat.
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