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Many small construction businesses opt to forgo legal counsel in an attempt to minimize expenses, only to find themselves facing challenges due to unfavorable contract clauses. Contractors often encounter difficulties with specific contract clauses that tilt the balance against them, hindering their success even before commencing the construction contract clauses project.

Here are four construction contract clauses that present particular challenges for contractors:

1. No Damages for Delays:

The “no damages for delays” clause restricts the contractor from receiving compensation for project delays and often limits their ability to extend the completion time. Given the inherent risks in construction and the critical importance of timely project completion, these clauses hinder contractors’ ability to claim compensation for delays beyond their control.

An equitable construction contract should allow payment for delays caused by factors such as acceleration, changed conditions, and disruptions.

If avoidance is not possible, contractors should seek to specify the delays for which compensation is not provided and ensure that these only include events beyond their control.

2. Indemnify, Defend, and Hold Harmless:

Clauses requiring parties to “indemnify, defend, and hold harmless” are common in contracts. Understanding the legal implications of each term is crucial. Indemnifying means reimbursing the other party for losses or damages, ideally limited to risks under one’s control.

Defending involves covering the costs of defending the other party against third-party suits, regardless of proven losses. Holding harmless signifies committing to defend and cover losses, irrespective of fault.

Proper use of these clauses allocates risk appropriately to the responsible party. Unfortunately, these clauses are often misused, burdening project participants with the least negotiation leverage, especially subcontractors.

This misuse increases overall project risk, as participants may be unable to cover costs arising from losses or damages. To mitigate this risk, participants should agree to indemnify, defend, or hold harmless only for aspects within their control.

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In conclusion, navigating construction contracts requires careful consideration of these clauses, ensuring they align with fair risk allocation and safeguard the interests of all project participants.

4 Construction Contract Clauses Putting You at Risk
4 Construction Contract Clauses Putting You at Risk

3. Right to Withhold Payment:

The inclusion of the owner’s “right to withhold payment” in contracts is intended to safeguard the owner’s interests. These clauses typically authorize the withholding of payment for various reasons, such as project delays, potential liability claims, or work that deviates from contract specifications.

While owners may have retainage as a form of protection, contractors should advocate for limitations on the instances where payment can be withheld. It’s crucial to scrutinize contract language to prevent the withholding of payment for the “anticipatory breach of the contract.”

4. Reasonably Inferable:

In construction contract law, the term “reasonably inferable” is often used in the general conditions of contracts concerning design documents. This acknowledges the inherent imperfections in design documents and places the responsibility on builders to construct a project in line with the design intent.

The contractor must make reasonable inferences, such as including a frame with a door even if not explicitly shown in the drawings.

Challenges arise when design documents are excessively incomplete, forcing contractors to make numerous inferences. This may lead to on-the-fly construction using materials and methods that deviate from the design intent, or reliance on change orders to address unforeseen costs.

Contractors can safeguard against the pitfalls of the “reasonably inferable” clause by conducting a thorough review of design documents for completeness and constructibility. If concerns persist, avoiding involvement in the project or addressing design issues before the final bid can prevent complications.

While this list highlights specific contract clauses, it is not exhaustive, and the information provided is not legal advice. Awareness of these clauses and their potential challenges is essential. For the best guidance, consulting legal counsel before signing any contract is strongly recommended.

Construction contracts, intricate legal agreements outlining the obligations of all project stakeholders, are indispensable for project success. However, certain clauses can expose contractors to substantial risks if not scrutinized and negotiated effectively. Here are key clauses that warrant caution:

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**1. Indemnification Clauses:**
Indemnification clauses can hold contractors accountable for damages or injuries on the job site, even if not directly at fault. It’s crucial to limit the scope of indemnification and clearly define liability extent.

**2. No Damages for Delay Clauses:**
These clauses prevent contractors from recovering costs associated with delays caused by the owner or third parties. Negotiating exceptions, like delays due to incorrect information, is vital to avoid undue financial responsibility.

**3. Force Majeure Clauses:**
While excusing parties from fulfilling obligations due to unforeseen events, overly broad force majeure clauses can be used by owners to evade responsibilities. Clearly define qualifying events and their impact on project timelines and budgets.

**4. Change Order Clauses:**
Poorly drafted change order clauses can grant owners unilateral power to make costly changes. Negotiate a fair process for approving and pricing change orders, ensuring written documentation for any alterations.

**5. Dispute Resolution Clauses:**
These clauses outline how disputes will be resolved. Consider the implications of arbitration clauses, balancing speed and cost against limited appeal rights.

**6. Liquidated Damages Clauses:**
Specifying predetermined penalties for project delays, these clauses can pose financial risks for minor setbacks. Negotiate fair liquidated damages or explore alternative methods for ensuring project completion.

**Remember, construction contracts are intricate legal documents requiring review by a qualified attorney before signing.** Understanding potential risks allows for negotiations that safeguard against financial losses and unforeseen liabilities.

Beyond these clauses, numerous other risk factors exist in construction contracts. Thoroughly examining the entire contract and seeking professional advice for concerns is essential.

I trust this information enhances your understanding of construction contract risks. Feel free to inquire further if you have additional questions.

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Right to Withhold Payment
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