10 Steps to Reviewing a Construction Contract

Construction contracts can consist of: Contract Agreement (general contract, subcontract, rental contract or Sales Contract); Purchase Order; Terms and Conditions; Proposals or Quotes; and Credit Agreements.  The following are 10 steps in reviewing any of these kinds of agreements:

1. Who are you contracting with?

Are you a subcontractor to a general contractor or to another subcontractor? Is the company registered? Do you have a personal guaranty from an individual?

2. When will you get paid?

If you are extending credit, do you have terms for payment? Is there a joint check agreement? Is there a “paid-when-paid” or “paid-if-paid” clause?

3. What is your security for payment?

Perhaps it is a mechanic’s lien, a security interest in equipment, a bond, or a personal guaranty? See one of our recent posts for further information on this question.  Blog on Mechanic’s Liens

4. When you receive payment, are you waiving any rights?

Are you waiving mechanic’s liens and when? Is there is a conditional waiver?

5. How are changes and damages handled?

Do change orders need to be signed or is a verbal change order accepted? Is proof of insurance required for damage? What is covered in the insurance policy?

6. What are your warranty obligations?

If you are a dealer, distributor, or supplier you should NOT provide a warranty yourself and you need to make that clear in writing. Provide a manufacturer’s warranty where necessary.

7. What are your indemnity obligations?

You want to limit liability where possible.

8. What happens if there is a dispute?

Some contracts have arbitration clauses and others specificy a venue for any litigation. Look for these clauses in the contract.

9. Will I get my attorney’s fee and costs?

In Colorado, there needs to be a statute or contract clause allowing for attorney’s fees. Make sure their contract doesn’t have a one-way provision for fees – meaning only they get fees and you don’t.

10. When do I have to file a lien or take legal action?

Discuss this with your attorney.  Mechanic’s liens and other legal actions have deadlines and limits. You should know these limits prior to signing a contract.

By: Jean C. Arnold, Esq Arnold & Arnold, LLP

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