terms of the contract

6 Things You’re Missing in Your Contract that Can Hurt You

For many contractors, once they have signed the contract for a project, they tend to file it away and forget about it. For them, the blueprints and specifications that they need to get the job done are more important than the legalese of a 100-page contract.

Unfortunately, once they’ve started work on the project, not knowing the terms of their contract can hurt their ability to complete the project on-time and on-budget.

In a previous post, we discussed how our Client Contract Analysis program works.

Now we’d like to dive into to how it can help you to avoid costly mistakes that can affect your bottom line.

1. Scheduling

It may seem self-evident, but one of the first things a contractor should look at is the overall schedule for a project. Before they start scheduling their team and ordering materials, contractors should be able to answer the following questions:

  • What are the actual start and end dates for the project?
  • If the start date is delayed, how does that affect the end date?
  • What are the penalties (liquidated damages) if a project is not completed by the designated end date?
  • Does the contract allow for adjustments in schedule due to unforeseen delays?
  • If yes, how are those adjustments determined?
  • Under what terms can an extension be granted?
  • Are there any restrictions on access to the project site?

Knowing the answers to these questions can help contractors to budget their time more effectively to get the most out of every project dollar. It can also allow contractors to avoid scheduling confusion that can hurt their bottom line.

2. Liquidated Damages

Liquidated damages are penalties a contractor may face if a project is not completed on time. If not carefully monitored or accounted for with change orders, these damages can easily add up to thousands of dollars in lost profits.

Don’t take anyone’s word for granted; contractors need to understand the contract language and understand for themselves the conditions under which liquidated damages are assessed.

3. Change Order Processing

Over the course of a project, contract specifications are likely to change, often due to design changes or unforeseen circumstances. Contractors should never assume that having a project manager sign a change ticket will be enough. Insist upon an official signed change order. Otherwise, at the end of the job, the contractor may find themselves having done the extra work for free.

4. Contingencies

Many contracts will contain budget contingencies. These are funds set aside by project owners for specific purposes and to handle unforeseen expenses. The problem is that if contractors assume that these funds are available for general use, they may then find themselves budgeting outside the scope of the project.

Also, these contingency funds may or may not be used in the course of the project.  If not used, the contractor has to give them back, which is something contractors may not plan on.

Understanding these contingencies lets you budget resources more effectively so that they can complete the project on-time and on-budget.

5. Allowances and Alternates

Allowances and Alternates are terms used in a contract to either cover specific requests for a brand or type of material from a contractor, or an area where funds are set aside to cover the costs of materials that have yet to be decided upon.

It is very important that all alternates have a decision date as to acceptance or rejection. Otherwise, a late decision could cost the contractor in labor and material markups.

In addition, knowing and understanding these in advance can be critical when planning the budget for materials costs and negotiating with suppliers.

It’s also vital that there are clear terms specified for how to handle any overages, and who is responsible for covering the difference in cost. Otherwise, if the cost of the materials selected exceeds the amount originally designated, contractors can be having to make up the balance out of their own pocket.

6. Wages

In the past, we’ve talked about the way that payroll issues can impact your project budget. That’s why it’s important to review your contracts in advance so that you can understand how you are contractually required to pay your team members for a project. Otherwise, you may find yourself facing heat from the project owner, and fines and scrutiny from the Department of Labor.

It’s for these reasons and more that we include Client Contract Analysis with our Contractor Credit Program. Our team of experienced construction professionals reviews your contract from start to finish and provides you information relating to these issues and more.

Best of all, when you sign up for the Contractor Credit Program, there is no extra fee for this service.

Looking to take advantage of our Client Contract Analysis service? Get a free contract bond quote today, or call (877) 55-THE-OX.

Contractor's guide to Contractor Credit Program

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