Committing to any kind of contract is a big deal, and even a simple construction contract can come with a very large price tag. Even worse, many people feel totally unequipped to safeguard themselves against all of the potential downsides of signing a legally binding document. Science-fiction author Charles Stross humorously highlighted that dilemma, writing, “Contract law is essentially a defensive scorched-earth battleground where the constant question is, ‘If my business partner was possessed by a brain-eating monster from beyond spacetime tomorrow, what is the worst thing they could do to me?’”
Fortunately, you have options if you’re experiencing construction contract doubts. This post will list nine questions you should ask before signing a standard construction contract (or, indeed, any construction contract) and explain the implications of each query.
What type of experience do you have?
A question like this one might seem boilerplate, a common query that anyone in a decision-making capacity would’ve already asked. And, yes, it always makes sense to examine a contractor’s qualifications, successfully completed projects, and amount of time spent in the industry. Such bona fides help establish a basic level of competency and show that the contractor will prove a good fit for your particular project.
However, determining a contractor’s experience has other added benefits. Not to put too fine a point on it, but starting a new construction project or undertaking a substantial remodeling job almost never goes entirely to plan. Complications invariably arise, and sometimes they can prove messy to deal with. A novice contractor, designer, or other professional might lack the proficiency and perspective to competently deal with complications and bring the project to a successful conclusion.
How much will the project cost?
This is another seemingly straightforward question — but determining costs prior to signing a contract agreement for construction is anything but easy. That’s why you’ll want to clear up any confusion from the start. Doing so begins with understanding common conditions for construction contract agreements, and (more specifically) the type of contract you’re being asked to sign. Typical kinds of contracts include:
- Lump-Sum or Fixed-Price Contracts: This is the most common and most easily understood type of construction contract. In essence, an owner agrees to receive a specific end product with particular features for a single sum. Their popularity doubtlessly owes to their simplicity, but lump-sum contracts can house hidden problems. If a cost overrun occurs due to mismanagement, poor estimations, fluctuations in the price of construction materials, or the project’s complexity, a contractor may request additional funds or slow work.
- Time Plus Materials Contracts: These kinds of contracts set a time-based (i.e., daily, hourly) pay rate and include reimbursements for materials costs, which works well for complex projects and projects with an undefined scope. However, time plus materials contracts incentivize contractors to take their time, making them a poor fit for projects that must be promptly completed.
- Cost-Plus Contracts: In these arrangements, owners pay the entirety of the contractor’s incurred costs plus an agreed-upon amount of profit. (Sometimes this amount is formulated as a percentage of the total incurred costs.) These contracts can lead to overspending by contractors.
- Unit Pricing Contracts: These contracts are often used for specific materials that can be measured in distinct units, and sometimes contractors will employ them when building projects that are comprised of distinct units. (Think of condominiums or apartment buildings.)
- Specialty Contracts: Such bespoke contracts don’t conform to any of the traditionally agreed-upon contracts, and they deserve careful consideration to ensure that you understand what you’re signing.
Understanding the nature of the contract will help you determine how much the project should cost overall.
Is this the final price and could anything cause that to change?
As mentioned in the previous section, multiple factors can cause the price of a construction project to change. Asking this question prior to signing a contract allows the project manager to level with you regarding specific construction-related risks. It also allows you to gauge the manager or contractor’s forthrightness. Few projects have absolutely no risk of price variation, and having a manager acknowledge problem areas helps establish credibility.
Finally, consider including specific information in your contract that spells out how compensation is to be determined and how it should be paid (i.e., preferred financial institutions, specific transactional rules). These details help keep price fluctuations to a minimum.
What type of guarantee do you put on your work?
Project managers worth their proverbial salt should have plenty of answers to this query, everything from successfully completed projects to personal recommendations to membership in prestigious professional organizations. As a client, though, you will want to see some of those promises reflected in the contract’s language. Ensure that you mind fair provisions that protect both parties regarding the following:
- Change orders and back charges
- Failure to perform
- Inability to agree
- Arbitration versus mediation
- Acceleration and termination
- Attorney’s fees
- Penalties for nonpayment
What happens if I’m not satisfied with part of the work?
Similarly, a contractor ought to have a plan in place should a client not feel satisfied at the conclusion of a project — a plan with some sort of guarantee in writing. However, the client ought to perform a little legwork prior to even considering signing a contract. For instance, some language might seem unclear or overly complicated. This may owe to industry-specific practices and procedures — or it may mean the manager wants to provide a legal “out” in case things go south. Reviewing any such red flags, as well as terms for purchased materials, payment penalties, and time frames, goes a long way to eliminating dissatisfactions before they’re realized.
Do you prioritize cost, speed, or quality in your work?
In project management, there exists something called The Iron Triangle. Essentially, it describes three common constraints: cost, speed, and quality (aka scope). Any adjustment to one factor necessarily impacts the others. A good construction project manager will know how to adjust these three factors to achieve a client’s goal. In addition to providing you with your preferred answers when asked about The Iron Triangle, your contractor or manager should insert language into the contract that provides what the client wants (quality) within the preferred time frame (speed) and not exceeding the stipulated budget (price).
Where can I see examples of your past work?
While not necessarily contract related, past work experience definitely should inform your decision to sign a legally binding document. Competent construction project managers should provide you with a portfolio of successfully completed buildings. This portfolio ought to include:
- Client name
- Project purpose
- Pictures of completed projects
- Services provided (e.g., cost estimating, scheduling, project development, market studies)
- Project scope and budget
Though reviewing physical or online reports has some value, consider physically visiting any applicable sites before committing to a particular project. This should give you a feeling for what kind of work your project manager can provide and whether or not it will meet your standards.
Do you have any references I can speak with?
A client should approach a project manager’s references just as one would approach a project portfolio: carefully and thoroughly. Because a contractor is more likely to cherry pick references to provide the best possible impression, consider seeking out principal individuals connected with other projects on which the manager worked. Some questions to ask include:
- Was the manager able to deliver a satisfactory product?
- What was the best thing about working with the manager? The worst?
- What were the manager’s strengths and weaknesses?
- Was the manager dependable and able to stick to your preferred timeline?
- Can you provide an example of a setback that occurred during the project and how the manager dealt with it?
- Would you hire the manager to complete a second project?
How do I know if a construction contractor is licensed and insured?
Having a licensed, bonded, and insured contractor goes a long way toward ensuring that your project proceeds and finishes successfully. Before you sign a contract, you’ll want to ensure that your contractor meets all three qualifications. This not only ensures that your contractor is competent, it also protects you from nonpayment of subcontractors, liability, and the need to provide workers’ compensation in case of injury. You can search for a contractor’s licensing information in Illinois by visiting the Illinois Department of Financial & Professional Regulation website.
GNP Realty Partners has extensive experience managing all kinds of construction projects. We help our clients create a plan for properly using their funds, define a clear scope of work, and oversee construction quality, among other things. Contact us today!