An Overview of Common Construction Contract Clauses

May 16, 2012 — 1,534 views  

Construction industry firms can experience a fair amount of uncertainty when it comes to building costs, labor expenses, and other details of a new project. The relationships between contractors and clients must be explicitly defined by legal documents, and contract clauses come in a variety of different forms depending on the particular situation. Take a look at some of the following common construction contract clauses.

1.) Abandonment - This clause exists to terminate a project when either the contractor or client has behaved in a way that nullifies the terms of a previous agreement. This can be due to workers not starting the job on time, or customers not providing the funds necessary to begin construction. The language in abandonment legislation is designed to outline consequences if certain requirements are not met, and every major construction project should have such a clause.

2.) Statute of Limitations - A limitation clause exists for the claims process that may result from a breach in contract, insurance issue or other problem. This clause essentially places a time limit on litigation proceedings, and the agreed-upon limit can differ based on state or national standards if it is a private contract. For example, if a tile contractor did not finish a bathroom correctly, the customer might have one year to file a claim before the statute of limitation prevents a lawsuit.

3.) Indemnification - A contract of indemnification is assigned to a business by another party that guarantees against financial loss. This might be between two or more parties, such as a contracting company, specialist workers and the customer. It is basically a form of insurance - if employee negligence leads to added cost, the worker and customer would be covered by an indemnification clause from the contracting agency.

4.) Performance Time - This is closely related to abandonment, and typically outlines the scope of a project in days, weeks or months. In construction, this applies to many different subcontractors, and can govern the completion of anything from a single room to an entire house. Any delay, even if it is unexpected, can be grounds for a breach of contract lawsuit.

5.) Payment - The American Institute of Architects (AIA) publishes specific forms requiring a contractor to assign values to every aspect of a project so a certificate of payment can be created. This is one of the most heavily-scrutinized procedures in construction clauses, because overestimated costs can lead to the incorrect billing of a customer.