Thoughtware

Article 10/11/2018

Guidance on Construction Contract Terms & Conditions

Federal Building

Let’s face it, construction contracts are lengthy and cumbersome and aren’t something most owners see on a regular basis. Many might be surprised to know many commonly used construction contract templates don’t favor the owner. One key way to curtail construction costs is to modify the terms and conditions to favor your organization.

To reach a deeper understanding of such contracts, this article will provide a couple examples of contract terms and conditions that, if enhanced, could provide better financial protections.

Equipment Rental Costs

Contractors often own the equipment they rent to you. Most contracts specify billing you at market rates—but what’s the market rate? Contractors often use various industry-recognized equipment rental cost books when determining these figures as often specified in contracts. Unfortunately, these nationally recognized books quote rental fees from region to region. It’s worth noting not all equipment rental publications are created equal. For example, some publications include equipment operators, while others don’t. In the end, the owner can end up being billed costs much higher than the prevailing local rental rates, if the standard contract template is used.

Contractor Personnel Bonus

Most contractors pay bonuses to their staff, but who pays for those? In most cases, these costs are passed along to the owner because contract language permits it. You don’t know if the bonus was ever paid to the contractor’s employee. There also are issues with bonus timing, e.g., some contractors pay bonuses yearly. Your project might have lasted six months, but your contract may allow for the full bonus amount to be paid by the owner.

Many organizations sign construction contracts without reading the contract or questioning the terms. If your organization is anticipating a large construction project or currently has an ongoing large capital project, you can add value to your organization by performing a contract review of the terms and conditions. This review can allow you to enhance various terms and conditions and add new clauses to the contract to financially protect the project’s owner.

Contact Adam or your trusted BKD advisor for assistance with this process.