Construction Contract Composing a Contract Term Paper

Excerpt from Term Paper :

Minimum provisions also include the estimated time frame for construction and completion of a project, description of the work necessary to complete the project, the exact dollar amount of payment including taxes involved, as well as any necessary deposits or progressive payments desired by one or both parties involved.

One of the most important pieces of a contract is the section concerning what to do in the event of changes to the original order. Construction sites are prone to unforeseen events and necessary changes which develop after the onset of building has already commenced, despite how thorough and well drawn out the contract involving that project might be. Changes can occur for a variety of reasons, including unexpected difficulties at the build site, design problems, and owner initiated changes. The importance of the Order Change section of each project is to ensure that any necessary changes will be dealt with in a fair manner, as to not insight disputes. Swift resolution of changes in the original order is also something that every contract aims for. If the contractor is caught up in trying to resolve a change of order for too long, the whole project can be delayed for a considerable amount of time.

Article 7 of the AIA Section A201 code states that there are three types of changes involved in construction. The first is an owner initiated change. According to Richard Hudson Clough in his work Construction Contracting, contracts usually provide the owner the chance to change the original order and any other changes involved in the work of the project. Contractors are then responsible for making changes in the commencement of the project to suit the owner's needed changes. Another change is called a constructive change, and involves any changes on which the owner did not sign off on or approve. Examples of issues resulting in these types of changes include a change in work performance, deficient speculations, or defective owner provided property or materials. The Spearin Doctrine protects the contractor from financial liability from owner deficient materials or speculations. If the owner provides faulty speculations or materials, the contractor may be awarded extra time and money tom complete the project. The third type of change is called a cardinal change; this type of change goes beyond the language of the contract and therefore is the hardest to resolve in a timely manner. The Change Clause also lays out ways for reorganizing any necessary additional time needed for changes in the original plans, as well as any necessary additional compensation.

Within the Special Provisions of any contract will be a lay out of the specific time schedule of each project. The planned time period will coincide with what the contractor needs to complete by a certain date or time period. Also included in every contract is a section concerning delays and how to deal with these delays. If a change of the original order comes from the owner, the owner is usually responsible for supplying any necessary additional time or compensation. If the changes are needed on the contractor's behalf, due to poor performance or some other negligence on the contractor's part, the contractor is usually responsible for corrected any necessary changes along with a monetary penalty for the time the project was delayed.

Payment and the scheduling of payment is also an important provision within any contract. There are different ways in which a contractor can be compensated and how the compensation will be commenced, in terms of time periods. According to the Architects Institute of America, different types of documents are necessary for different payment agreements. A stipulated sum is a fixed price of payment set within the contract. This compensation cannot change, unless set forth by separate provisions within the contract depending on delays and changes of the original order. Another typical type of compensation is a payment with a guaranteed maximum price. This includes the cost of the work plus the contractor's fee, which cannot go above an agreed upon amount. This maximum set price is stated within the contract, and is therefore legally binding. Within this pay scale, the budget is flexible, in that there is no set minimum, however payment cannot go beyond that fixed maximum amount. There is also a flexible budget without a guaranteed maximum price. This scale allows for the cost of the work plus the contractors fee, just as with the previous payment style. However, this scale allows the contractors fee to as flexible as possible, for there is no agreed upon maximum payment. This is always good for the contractor, but sometimes dangerous for the owner.

Insurance and bond issues are also spelled out in special provisions within the contract. According to Michael Weeks, "Bonds and Insurance must be provided by the contractor prior to the execution of the contractor," (Weeks, 2002). Most Insurance and Bond proposals are included in the bids contractors propose to prospective projects. Copies of these insurance bonds must always be included in the final draft of the actual contract. The insurance section of the contract is unique to each project because it varies depending on the amount of protection each project needs. The owner reviews insurance and bond proposals along with bids, ensuring that the project coverage will be an essential part of construction from the very beginning. There are several different types of bonds which provide insurance for both the contractor and the owner. The Bid Bond provides the owner security in that if he or she accepts a bid offer, that contractor is obliged to accept the award. If the contractor refuses the award for whatever reason, the owner is entitled to a monetary percentage of the project as compensation for the rescinded bid. Another type of bond is the Performance Bond. This bond protects the owner from faulty construction jobs and poor performance. If the project fails to live up to the standards provided in the proposal, which also must be included in the contract, a high percentage of the bid will be protected. This type of bond also secures any necessary repairs done by the original contractor for any unsatisfactory work, (Weeks, 2002).

Project plans and speculations also must be included into any construction contract. Project speculations are defined as the "documents that specify and denote exactly what work is required of the contractor," (Weeks, 2002). These must be approved by the owner and contractor before the signing of the contract and included within the final draft of the contract before the project commences.

Another special provision which is included in some contracts is the Subcontractor Agreement. If the contractor chooses to use a subcontractor for the project, there must be a clause which stipulates exactly who is responsible for what. Usually, the primary contractor is responsible for all the work done by a subcontractor and is liable for any extra time or money spent on a project due to the negligence of a subcontractor. The payment of the subcontractor is also laid out in this section; in most cases the subcontractor is not paid any amount until the owner pays the primary contractor in full.

These are the necessary elements for any construction contract. These specifications are designed to help make a project run smoothly; and in the case that it doesn't, protect those parties who are not liable, and enforce those liable to certain conditions. Without these provisions, the construction of an untold number of projects would have been halted due to everlasting disputes and delays.

Works Cited

Bartholomew, Stuart H. Construction Contracting Business and Legal Principles.

Princeton Hall Publishing. 1997.

Construction Documents. American Institute of Architects. on September 30, 2007.

Construction Documents. Associated General Contractors of America. on September 30, 2007.

Hudson, Richard C. And Sears, Glenn a. Construction Contracting. Wiley-Interscience

Publishing. 6th edition. 1994.

Weeks, Michael. "Construction Contracting -- Building Principles." Camping Magazine.

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