Contract, and its key components
We are all familiar with the terms "contract" and "contractors". And many of us aspire to establish a career in this field because of its financial scope.
Now people mostly think that contracts, and getting contracts, is a simple process. You just have to fill the tender and if your bid is good, you might get it. But that's just a grain in the sack. In order to become a good and successful contractor, you must have the complete knowledge about contracts, and all the stages and processes involved- from initially filling a tender, to finally getting a contract.
Let's start with the basics.
WHAT IS A CONTRACT?
A contract is a legally binding agreement between two or more parties. It outlines what each party agrees to do or provide and what they expect to receive in return.
In construction works, a contract is a legally binding agreement between two or more parties that outlines the terms, conditions, rights, and obligations related to a construction project. It establishes the framework for how the work will be executed, along with the roles and responsibilities of each party.
Key components:
1. Parties Involved: A construction contract typically involves at least two primary parties:
>Project Owner: The entity or individual that owns or is responsible for the construction project.
>Contractor: The organization or individual responsible for performing the construction work. Contractors can be general contractors overseeing the entire project or subcontractors hired for specific tasks.
2. Scope of Work: The contract defines the scope of work, which outlines the specific tasks, activities, and deliverables required to complete the project. This includes a detailed description of what will be built, renovated, or repaired.
3. Specifications: Technical specifications are included in the contract to provide detailed information about the materials, methods, and standards that must be followed during construction. These specifications ensure that the work meets the required quality and performance standards.
4. Project Timeline: The contract typically includes a project schedule with milestones and deadlines. It outlines the expected duration of the project, key construction phases, and completion dates.
5. Payment Terms: Payment terms and conditions are specified in the contract, including how and when payments will be made. Contracts may include various payment structures, such as lump-sum payments, progress payments, or milestone-based payments.
6. Contract Price: The contract specifies the total contract price, which is the agreed-upon amount that the project owner will pay to the contractor for the work performed. This price can be fixed (lump sum) or based on unit prices, as per the contract type.
7. Change Orders: Change order provisions are included to address changes or modifications to the project scope, schedule, or cost. These changes may arise due to unforeseen circumstances or adjustments requested by the project owner.
8. Termination and Default Clauses: The contract outlines the conditions under which the contract can be terminated by either party and the consequences of such termination. It also addresses default situations and the remedies available.
9. Insurance and Liability: The contract may require the contractor to carry certain types of insurance, such as liability insurance and workers' compensation coverage. These provisions define the responsibilities and liabilities of each party in case of accidents or damages.
10. Dispute Resolution Mechanisms: Contracts often include mechanisms for resolving disputes or claims that may arise during the project. Common dispute resolution methods include mediation, arbitration, or litigation.
11. Performance and Quality Standards: The contract defines the standards of performance and quality that the contractor is expected to meet. These standards ensure that the completed work complies with industry standards and regulatory requirements.
12. Safety and Regulatory Compliance: The contract may include provisions related to safety measures and compliance with local, state, and national regulations, codes, and permits. Safety is a critical aspect of construction contracts.
13. Subcontracting and Suppliers: If subcontractors or suppliers are involved in the project, the contract may specify their roles, responsibilities, and relationships with the primary contractor and project owner.
14. Warranties and Guarantees: Contracts often include warranties or guarantees regarding the quality of work and materials. These warranties outline the contractor's responsibility for addressing defects or issues that may arise after project completion.
15. Closeout Procedures: The contract may outline procedures for the closeout of the project, including final inspections, as-built drawings, and documentation of warranties and guarantees.