By Patrick Hogan, Handle.com

A construction contract is a document that is central to every construction project. It is a key piece of paperwork that lays out the scope of a contractor’s work, the responsibilities of the stakeholders involved, the cost breakdown of the entire project, among other important details.

A contract is also the primary source that construction participants can go back in cases of disputes. It is therefore imperative that the construction contracts you sign are airtight and robust. This means that the pieces of information outlined in your contracts must be accurate, specific, and correct.

Ambiguities and inaccurate details may lead to bigger problems down the road. Below are just some of the reasons that you may have to face if you sign a poorly worded contract that is riddled with inaccurate information.

Overestimation may lead to project cancellation.

A construction contract must include a cost breakdown based on reasonable estimates of how much the project will cost. While the cost breakdown is simply an estimate, it must be done as accurately as possible.

Overestimating the cost of a project may not seem like a big deal. However, it may cause your client to back out of a project due to the high costs. When preparing a cost estimate, you should strive to be as accurate as possible so you do not run the risk of losing a potential client.

Underestimation may lead to poor company reputation.

When you underestimate the cost of a project in a contract, you have to either pay for the unforeseen expenses yourself or charge them to your clients. Your clients will most likely be dissatisfied if the amount they end up spending for a project is significantly different than the amount that they initially agreed to.

Client dissatisfaction will lead to poor company reputation. Your clients will not want to work with you again, and they will not give you positive feedback when they speak with your other potential clients.

Inaccurate cost estimation can result in poor resource management.

The accuracy of your cost estimates must be accurate, not only so you can ensure that your clients are satisfied, but also so you can manage your resources better. When your estimates are accurate, you will be able to allocate the right number of staff, assess whether you need subcontractors and third-party help, and you will be able to prepare for contingency expenses as necessary.

Being accurate, therefore, leads to being organized and efficient when it comes to managing a project. You have more time to focus in ensuring that the quality of your work, and also in ensuring that your deliverables are completed on time.

Poorly defined scope of work may lead to disputes.

The scope of work is arguably the most important part of a contract. It lays out the specific work tasks that a contractor must do, the deadlines for when they must be done, and all the other details related to the work that is required to finish a project.

When the scope of work is vague, poorly worded, and not accurate, the parties involved will most likely argue on who is responsible for doing what. Project completion may even be delayed, simply because the contract does not clearly say who is expected to complete the specific tasks.

Ambiguous payment terms may result in late payments and other issues.

The payment terms included in a construction show the payment structure and schedule for a project. It tells a client when they must pay a contractor depending on specific milestones or project progress, and it also lays out any potential penalties if payments are not made on time.

The contract provisions surrounding construction payment must be accurate and clear. Otherwise, parties may not be paid on time and payment disputes may arise.

Vague liability clauses may lead to client-contractor conflicts.

A robust construction contract must also include provisions on the liabilities of each project stakeholder. These provisions must be clearly stated. For instance, a contract must explicitly state whether the general contractor is obligated to assume the liability of the subcontractors and other third-party construction parties.

If the clauses on contractual liabilities are ambiguous, it may lead to conflicts among the project stakeholders. These conflicts may even result in legal battles, which is not only time-consuming but is also costly.

Accurate information can help settle disputes.

At the end of the day, having accurate information in your construction contracts will help project stakeholders settle disputes. A robust contract means that you have one solid piece of document that you can refer to every time you have a question about your scope of work, about the costs of a project, or about your contractual liabilities.  

About the Author: 

Patrick Hogan is the CEO of Handle.com, where they build software that helps contractors, subcontractors, and material suppliers with late payments. Handle.com also provides funding for construction businesses in the form of invoice factoring, material supply trade credit, and mechanics lien purchasing.