Top 10 Common Mistakes that We See in Construction Contracts

Dec 15, 2022 | Business, Homeowner's Associations, Real Estate Law

By Tara Malek

As a business law firm with a growing real estate practice in rapidly growing cities, we often get asked for advice on construction contracts. 

These projects, after all, are major undertakings. They require an ample amount of coordination by different people and companies. Generally, that coordination is more successful when backed by strong guidelines in how folks will (and won’t) work together.

A thorough construction contract can keep a project on track and is important to help avoid disputes and outline important specifications. Here are what the Smith + Malek team has seen as the most common errors in construction contracts:

1. It’s not written down. 

A written contract ensures that all of the terms and conditions of an agreement are well documented. So, if a disagreement arises, it exists for both parties to reference.

2. Both parties haven’t signed the contract. 

A contract not signed by one or both parties is not legally binding and cannot be enforced.

3. Not all of the terms of the agreement are in writing and in the contract.

An effective contract must be detailed and unambiguous. The best contracts clearly outline each party’s rights and responsibilities.

4. The timeline is unclear.

A clear timeline allows parties involved in a construction project to be aware of important dates and know when payment is expected. 

5. Particular terms aren’t defined. 

A contract is most effective when both parties understand the terms clearly, and that shared definition is written down. That way misunderstandings and misinterpretations can be avoided. 

6. There’s no written approval of any changes to the contract.

It is unlikely that changes will be enforceable if both parties have not already agreed (in writing) how modifications will be documented and decided on. 

7. Using confusing, inconsistent or unclear language in the contract.

Contracts are more easily understood when they clearly outline each party’s rights and obligations. On top of that, from a legal standpoint, precise word use in contracts is important.

8.Not including mandatory disclosures.

Idaho law (IC 45-525) requires that if you are a general contractor you must comply with certain disclosure agreements (read more about those here). If these disclosures are not made, you can open yourself up to a claim in the Idaho Consumer Protection Act as an unfair practice. 

9. The contract doesn’t discuss retentions.

A contract retention helps provide assurance that a job will be completed (on schedule). Construction retention payments is the amount of money held back until a project is complete. This money comes from the initial contracting bid and the payment used to fund the start of the project. 

10. Relying on RocketLawyer or other free (or web-based) contract writing services for a comprehensive contract. 

With free contract services found on the internet, you run the risk of ending up in an inadequate agreement that might actually end up harming you through clauses you do not fully understand. 

 11. The contract provisions don’t say anything about binding arbitration or mediation. 

An arbitration section in a contract outlines whether contract disputes must be settled through arbitration or in court. Mediation provides the parties an opportunity to settle their dispute outside of the judicial process before filing a lawsuit.  Both mediation and arbitration can potentially help accelerate the process of resolving disputes and can be useful in saving time and money on legal matters. 

Without a clear contract, you can run the risk of being tied up in years of litigation should a  dispute arise. This can result in hundreds of thousands of dollars in legal expenses and a lot of missed opportunities to work on other projects because of the time you will need to invest to litigate a dispute.. On top of that, it is professional practice for a construction business to have a set of rules of engagement with its customers. A well-outlined contract can help mitigate risk and give your construction project a greater chance of running  as smoothly as possible. Get in touch with our team to see how we can help strengthen your construction contracts.