Having a solid construction contract in place is crucial for any project, small or large. Without a legally binding contract that clearly describes the terms and conditions of a project, both parties could face thorny legal issues. When so much time and money are at risk, it is crucial to have a detailed contract that will hold up in court.
But sometimes, one of the signatories will take issue with some part of the contract. Many contract disputes are caused by one party misunderstanding a certain term in the contract. These are a few of the most commonly misunderstood terms in construction contracts.
- Construction liens
Easily one of the most misunderstood terms in construction contracts are construction liens. One misunderstanding surrounding these liens is the belief that contractors can receive their pay immediately after a lien is filed. This is rarely true. The circumstances regarding a lien can vary widely. Placing a lien is usually just the first of many steps for obtaining payments.
- Pay-if-paid, or pay-when-paid?
Every construction contract should stipulate the terms of a contractor’s pay. A pay-when-paid contract means that subcontractors won’t be paid until the general contractor is paid. Pay-if-paid means that if the general contractor is not paid, then the subcontractors might not ever be paid. These terms are similar, but can have different legal effects and are the cause of many contract disputes.
- Incorporation clauses
These commonly-used clauses are used to incorporate other documents into a construction contract. Sometimes, one of the parties will fail to understand that the contract includes other documents. They will sign the contract without realizing exactly what these documents stipulate. It is crucial for signatories to obtain, review, and agree to the incorporated documents before signing a contract.
Preventing contract misunderstandings
Contract disputes, no matter how minor, can be major headaches. The resulting arbitration or litigation can be time-consuming and expensive. It is crucial for construction companies and their attorneys to carefully comb through every construction contract to understand the terms presented and ensure that the contract is in their best interests. This can go a long way to preventing contract disputes or other misunderstandings.