5 Major Sections Of A Building And Construction Contract

20
Nov

A construction contract is a written agreement between the main stakeholders in a project, usually the project sponsor or owner and the project contractor. Basically, a construction contract spells out all the relevant operational details and all the agreed terms and conditions of executing or implementing the building and construction project. The contract features the project specifications, projected date of completion, the estimated budget or projected cost of the entire enterprise, the payment details, agreed contractual terms and conditions, a list of all contractual documents, the contractual responsibilities of the key players in the project, and the legal and regulatory implications of the contract. Depending on the nature, type and magnitude of the construction project, a contract includes a wide range of details in a myriad of sections. However, a typical construction contract covers the following major issues, regardless of project specifications.

 

Project Description Section

 

Mostly, construction contracts start with a brief description of the project. This section focuses on the project scope and its design specifications as defined by the owner and confirmed by the contractor and engineer. The contract tells the reader what the project is all about, its design implications, intended or desired construction outcomes, project needs in relation to its objectives etc. A complex resource-intensive infrastructural project can feature a detailed project description in its contract but a small Greenwood asphalt striping project might only include a brief paragraph in the contract. In the implementation or execution section of the contract, the introductory definition is complemented with a comprehensive description detailing the construction scope of the project. Here you get a thorough description of the project design and construction features and activities.

 

 

Financial Section

 

The financial section of a contract focuses on all the cost-related attributes of a project including the project price and the agreed terms of payment. Project costs are usually split into three financing stages or elements. There is the development cost for financing the initial design stages of the project, the construction bill, which represents the capital expenditure, and the contingency fee, which is set aside for cost overruns and delays. The terms of payment can either be set as a fixed lump sum settlement, which is paid on project completion, as a target lump sum, which is a flexible version of the fixed lump sum. Other types of contractor compensation include progressive payments according to tasks completed and progressive payments according to human resources expended.

 

Project Construction Section

 

The contract should also feature all the terms and conditions for the actual project implementation including the set or agreed project time schedule. The project completion schedule or calendar showcases the total time it will take to complete the project and in most cases it breaks down the project development process into various time milestones with all the expected deliverables. Project management tools like CPMs and Gantt Charts are very much preferred for graphical illustration.

 

Contractual Conditions Section

 

This part sets and lists the contractual obligations of all key stakeholders in a construction project. Common stakeholders in a typical project include the building engineer, contractor, project sponsor/owner, architect, quantity surveyor, project manager, consents managers etc. With regard to these key players or stakeholders, the contract highlights the roles, obligations, and responsibilities of each of them.

 

Legal And Regulatory Compliance Section

 

This section indicates that the construction project has complied with all the local, state, and federal legal and regulatory requirements for a building and construction project. These include all the site acquisition and development consents, health and safety compliance, and the inspection and fulfillment of other sensitive and hazardous installations like fire certification, gas & electricity installation, and highways access.