Basic Information About Construction Contracts.
A construction contract or agreement is actually made up of several instruments in addition to the contract. Construction agreements are governed by the contract, written change orders, and the plans/specifications for the project. It is important to know that these instruments are reviewed together in confirming all agreements between the contractor and the property owner. The construction contract should have the basic understandings between the parties. It should set out the contractor’s scope of work, which describes the labor, materials, and services the contractor is to provide and perform. It should set out the pay arrangements and draw schedules so there is no confusion about payment amounts and timing.
A well drafted contract may also contain provisions for dispute resolution, work stoppage in the event of a dispute, damage limitations, and other obligations/duties of the contractor and the owner. For example, when we are retained to draft construction contracts, we typically recommend the contract include a provision that the contractor’s warranty is not effective until all payments have been made by the property owner. We also work to make sure the contract complies with Texas Property Code requirements so that the contractor has the ability to lien the property if necessary. It is important that both parties read and understand their obligations, rights, and duties under a construction contract.
Change orders are also a part of the contract documents. A change order is a written agreement between the contractor and the property owner that alters or adds to the construction project. For example, let’s say the property owner decides a wall needs to be moved, or decides to add a fountain to the construction project. The contractor and property owner should draw up a written change order that will set out the added/changed work scope, added/changed material and labor costs and payment deadlines, as well as any deadlines and changes to the overall construction project/critical path changes. A written change order is the industry standard for changes in construction, so that there is little to no confusion about what should be done, how much it will cost and when that will be paid, and how the changes will impact the project.
The plans and specifications detail specifically what work is to be done on the project. They contain important information about the project. By way of example, these documents will specifically show where walls are to be located, confirm that setbacks from property lines are correct, etc.. They vary widely depending upon the type of construction/improvements being made, and provide needed detail about where construction elements will be located.
Construction projects, for both contractors and property owners, represent a substantial investment of both time and money. It is well worth the investment in good, experienced counsel in drafting or reviewing construction contract documents. It is also important to know what happens in the event of a dispute during or after construction. A contractor may file a mechanic’s and materialmens’ lien (or M&M lien) against the owner’s property if payment has not been made by the property owner, the deadlines to do so have not expired, and the requirements of the Texas Property Code have been met.