The Scoop on Construction Contracts (Part 1)
Construction contracts can contain terms that impact your company’s bottom line. Reviewing them carefully prior to signing is indispensable and can save your company time and money. Below we’ll highlight some common contract terms and their potential impact.
Scope of the Agreement
Examine the definition of services to be provided to ensure the language is clear enough for an unrelated third party to understand the scope. The contract should include a time frame for completion of services. The rights and obligations of both parties should be clearly outlined. Any mechanism for changing the scope of the contract, as well as any of the terms, if allowed, should also be outlined within the contract.
Terms of Payment
Terms of payment should be clearly listed within the contract so the expectations of both parties are clear. The contract should specify the agreed payment schedule for goods received.
There are two types of warranties: express and implied. Both types are assurances regarding particular issues, such as performance.
Express warranties are those that are defined specifically in the contract. Implied warranties are based in statutory and/or common law, depending upon your jurisdiction. They’re two-fold: a warranty of merchantability, which requires that goods/services must reasonably conform to an ordinary buyer’s standards, and a warranty of fitness for a particular purpose, which states if a seller knows the intended purpose for the product or service, the act of selling the product to that customer implies it’s fit for that purpose.
Be aware of warranty disclaimers and understand how the disclaimer limits your statutory rights. If it disclaims all warranties, express and implied, then you’ll likely be limited to the remedies in the contract for issues related to things like performance. You should also examine any disclaimer in the context of the contract. While it may require you to disclaim your statutory rights, other contract language may give you adequate rights and remedies regarding the points about which you are most concerned.
Stay tuned for Part 2 on Damages, Limits of Liability and Indemnification in Construction Contracts!
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