A valid construction contract must comply with the various elements required in all legally binding agreements. In terms of the construction industry, the typical parties to a contract are a contractor and a buyer. Construction contracts are legally binding agreements between homeowners and builders that describe specific details about the agreed work. Among the details are the compensation the builder receives and how that compensation is distributed.
A contract is formed when one party makes an offer that the other party unconditionally accepts. If you need help with construction contracts, you can post your legal need on the UpCounsel marketplace. Definition of a contractWhile this book deals with situations that arise in construction contracts that give rise to legal recourse, it is essential that a review of the foundations of contract law be completed first. Get answers to frequently asked questions about construction contracts, including payment provisions, problem clauses, and more.
Your lawyer has a solid understanding of the four main elements that make up a construction contract and can advise you during the drafting of your contract. The lump-sum contract can be used when the owner has a full set of construction plans, specifications, etc. To ensure transparency in this process, the National Joint Advisory Committee (NJCC), an organization comprised of the main professional bodies involved in construction, has developed procedural codes. A cost plus cost contract states that a customer agrees to reimburse a construction company for construction expenses, such as labor, materials and other costs, plus an additional payment that is usually indicated as a percentage of the total contract price.
In a construction contract, the inclusion of a base date is generally used as a mechanism for assigning risk between the owner and the contractor in the event of changes that may occur in the period between the price of the offer and the signing of the contract. Several types of construction contracts are used in the business, but some are preferred by industry professionals. For example, if the contract is for the construction of a house and there is no express deadline confirming that the building contractor will obtain payment for the services provided, the Employer will clearly assume that he will have to pay for the services provided and an assumption on the part of the contractor that will receive payment. The NJCC Code of Procedure for selective design and construction tendering describes its code as a procurement method that combines design and construction responsibilities.
The introduction of the Construction and Regeneration Grants Act of 1996, Part II (hereafter, HGCRA 9) has also fundamentally changed the allocation of risks in construction contracts. Sectional termination refers to a provision within a construction contract that allows different completion dates for different sections of the work. Each type of construction contract has its own advantages and disadvantages with respect to the contractor and the owner. The essence of any partnership agreement now involves the duty of good faith, mutual cooperation and trust between all parties involved in the construction process.
The employer hires the construction manager to act as a “consultant” to coordinate these contractors.