A Brief Introduction About the Building Contract
As the name suggests, This contract is an agreement for a building which can be residential or commercial. The owner of the building and its contractor signs the contract and outline the details of the construction. Generally, this agreement is signed when people want to get their house building renovated. The agreement also includes the responsibilities and obligations of both parties.
Well-drafted building contracts ensure that there are dispute resolution methods available. The agreement protects both parties and outlines all the terms and conditions. There are many building contract templates available online. However, you must choose with caution. The agreement can be drafted by the owner or constructor or both of them together. Parties can also take the help of a legal attorney to draft a perfect agreement. The work starts only after both parties sign the agreement.
It should be noted that the residential building contract is a little different from the building contract. It can be seen as part of it. In the case of residential, the contractor may have to build the entire house instead of just renovation. However, there are no strict definitions. Another name for the agreement is the building contract agreement.
Who Takes the Building Contract – People Involved
A building agreement is signed between the owner and the contractor. The contractor can also be a construction firm. If not, construction firms, workers, property owners, and buyers – all should know about the terms and conditions of the agreement. All the relevant parties must know the details of the construction, mainly the deadlines, etc.
It should be noted that each construction firm has its ideas about the contract.
Purpose of the Building Contract – Why Do You Need It
Your commercial building or house-building is very dear to you. You wouldn’t want the contractor or other people involved to create an issue for you. Sometimes the contractors stop the construction in the middle, occasionally they don’t use the material properly, sometimes they can’t do the work by decided timeline, etc. To avoid such problems, a contract can be helpful. Risk is there for both parties. The owner can default by not paying on time, and the contractor can default by delaying the work, misusing the material, etc.
A construction contract can be of different types, one is Lump Sum Contracts, and another common one is Cost Plus Contracts. Each contractor has his style of creating the agreement, depending on what suits best.
Here are some pointwise reasons to sign the building contracts or the Construction contract –
- The agreement protects both parties
- It is a legally binding agreement
- It provides dispute resolution methods
- It ensures work is done as per the deadlines mentioned in the agreement
- It outlines all the roles, responsibilities and obligations of both parties
- It mentions all the details of payment etc.
- It sets the expectations right
Contents of the Building Contract – Inclusions
Like any other agreement, a contract for building a house or Building Contract contains terms, conditions, responsibilities, and obligations of all parties involved. The agreement must have basic details such as name, address, phone number, identification number, etc. of both parties. It should also have the address of the building or house. It must have detailed responsibilities of the contractor with timelines. Whatever work the contractor is supposed to do in the building, should be detailed out in the agreement.
Deadlines are most important in this agreement since you don’t want the contractor to take additional time to finish the work. The agreement should specify the start date and the end date. The agreement should also have payment term details. Payment is also very crucial for both parties. Depending on the kind of contract, the owner and contractor choose, the payment terms are defined.
Further, the agreement must have the details of governing laws. In each state, the rules can be different. It should also have details of the dispute resolution method in detail. If both parties are okay with mediation, then the agreement should have one clause related to it.
Sometimes the owner can keep a condition that if the contractor delays the work, liquidated damages clause will be applied. It simply means that the contractor will pay the owner for each extra day. The agreement should also have a description of contract documents. Contract documents can have the details of material, design, plans, drawings, etc.
How to Draft the Building Contract
Now that you have read about the key inclusions of the agreement, it is important to know how to write a building contract. Like any other business relationship, a relationship between the contractor and owner is also crucial and important. How both parties talk to each other in person matters a lot. Before drafting the agreement, it is always better to sit together and discuss all the terms and conditions. The owner must tell the contractor about the deadline so that he can talk to his workers and see if he can promise. The contractor must discuss the price point. Now, depending on the type of contract, the payment terms can be defined.
In Lum Sum Contract or Fixed Price Contract, both parties decide one rate and mention it in the agreement. This one rate will include the cost of material, subcontracts, profit, and more. At times, both parties can also agree to add penalties for late work and incentives for early work. In these cases, the risk is on the builders. In Cost- or Cost-Plus Contract, the owner pays for everything first, which means he pays the actual cost and then he will pay the contractor according to the decided percentage of the total cost. These contracts are useful in case the scope of work is not very clear at the start.
Both parties should also negotiate when they sit in front of each other to decide the clauses of the agreement. Both parties should understand state laws (governing law) and mediation policy. They should know what legal remedy they have in case of default, before signing the agreement.
Negotiation is a critical aspect of any agreement or contract. The involved parties must sit together and try to crack a deal that is best for both of them. For a building contract, payment is one important factor for which both parties can negotiate. They should choose which type of payment they want to prefer. Both parties have to agree to such details. Further, they can also negotiate for the deadline for work. How the negotiation should happen depends on case to case. But, make sure before drafting the agreement, you use your negotiation skills.
Benefits & Drawbacks of the Building Contract
All agreements come with certain risks and disadvantages, but the advantages of a building contract are more than disadvantages. As long as the agreement is drafted well and thoughtfully, it is going to help both the owner and the contractor. Without such an agreement, both parties will decide everything verbally. There is always a risk of either party defaulting when a verbal contract has been signed. There is also a risk of miscommunication and confusion. A written agreement takes care of all such things and much more.
Here are the benefits of the agreement –
- It protects both parties
- It ensures there is no misunderstanding or confusion
- It works as a single source for all the essential details related to the work
- It makes the process legally binding
- It provided dispute resolution method and mediation
- It outlines details of the work
- It specifies all the things related to payment
- It can also be referred by the subcontractors, workers, etc.
There are hardly any disadvantages to signing this agreement. It can be risky sometimes, but if both parties draft it carefully and then comply with rules, it helps to make the process smooth.
What Happens in Case of Violation?
Every state has its own set of rules if the building contract is violated. Depending on your state’s rule, you would draft the agreement. Now, when a breach takes place, first, the agreement is referred, and both parties try to mediate(1) as per that. Going to the courts is not an easy process; thus, it is suggested that you meditate.
However, if both parties can’t mediate, they are well within their rights to approach the court. Generally, either the contractor delays the work or the owner delays the payment. These are two common kinds of violations, but there could be more(2). Any miscommunication and misunderstanding should be dealt with utmost seriousness. This is also the reason why it is suggested that you carefully read the agreement and then sign it. Both parties can’t be lenient when it comes to complying with the agreement.
A home building contract can be extremely crucial for you if you are renovating your house or getting some additional construction done; after all, it is your house. The whole process may sound stressful; however, with the right approach, a good agreement can be drafted. A good agreement ensures both parties are protected. It also contains all useful information so that there is no confusion afterward. Make sure you read every clause of the agreement before signing it. You should also understand the governing law of your state.
There are many building contract templates available online, but such a relevant agreement requires an expert’s help. Our expert attorney has drafted an agreement for you.