After yesterday’s post, I received an email from a reader saying that the post was SWEET. Thanks for the comment! (This picture is for you!) To start a SOUR trend, today I am going to address terminations and changes.
In this second part of a four-part series, I will share some of the contract issues for contractors and subcontractors to review before signing a construction contract. The next five include:
- Suspension of Work and Termination for Default due to Owner’s Nonpayment: Make sure that there is a provision that allows the Contractor to stop work for nonpayment, and ultimately to terminate the contract for nonpayment by Owner.
- Termination for Default by Contractor: Make sure that the clause does not convert the Owner’s wrongful default termination of Contractor into a termination for convenience. If the Owner wrongfully default-terminates Contractor, you will want to want to recover more than the cost of the work in place.
- Change Orders: Can Contractor refuse to perform a requested change order if the Owner will not authorize or acknowledge it as a change? How are changes priced? What happens if there is a change, but agreement on time and/or compensation is not achieved? These are all issues that need to be addressed in the changes provision.
- Who is the “Owner” listed on the Contract? Is the “Owner” (as listed on the d/b or construction contract) a property holding company or other potential “shell” company that is related to a larger company with whom you have negotiated the deal? If so, ensure that you have the financially solid company execute a guaranty agreement that guarantees the performance of the shell or holding company. Otherwise, the Contractor could end up contracting with a party without adequate resources. Also, without a guaranty agreement, the Contractor cannot assert an action against the company with financial resources to get paid.
- Environmental: Are there any known environmental hazards associated with the site that the contract needs to accommodate? The Owner should indemnify the Contractor for existing conditions at the site.
Stayed tuned for the next post, covering warranty, force majeure and payment. What recommendations do you have regarding contract issues?