The Importance of Contract Terms

December 2, 2021
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Current Market Conditions Impacting Construction

The post-pandemic world we are living in has added a litany of challenges for Contractors and Developers alike. Whether caused by COVID, Texas Power Crisis, frequent natural disasters, or Suez Canal Blockage, lasting impacts have affected the construction industry worldwide. From unprecedented material cost increases to lingering supply chain issues, navigating these challenges has become commonplace for project teams. The importance of having proper Contract Terms is more important than ever.

How Time and Money Can Impact Your Construction Progress

Two of the biggest factors that can have detrimental impacts on construction projects are time and money. Both have been exacerbated over the last year and reducing their risks may seem more difficult than it is. When dealing with an unprecedented material price increase, being proactive is the best solution. It is recommended that, prior to executing the contract, the Contractor has hard subcontractor/vendor-backed pricing. After this is confirmed, addressing the unforeseen market fluctuations can be handled in the Contract via shared cost increases. Typically seen in the General Conditions of a Contract (an AIA Form), the Contractor will include additional funds, up to a specified percentage, to cover cost increases associated with labor, material, and equipment. If these additional funds are exhausted or not fully utilized, then a Change Order will be issued to the Contract.

As we all know time equals money and, unfortunately, supply chain issues have impacted most projects nationwide. Taking a very proactive approach prior to executing the Contract is the best practice and addressing time impact within the Contract adds an extra layer of protection for all parties involved. Properly listing the requirements to document and requesting a time extension should be included within the Contract as well. Taking this step will help prevent an unanticipated time delay request.

How a Construction Consulting Firm Can Help

No one can predict the future and fully mitigate challenges on a project prior to breaking ground. However, taking a proactive approach prior to going to Contract, as well as, addressing time and money within the Contract, is paramount to setting up a project for success. This not only protects the Contractor and Owner, but also the Lenders and Investors involved. Ensuring that their investment has the proper terms in place if an unforeseen challenge does arise. When looking for a third-party review prior to closing, consider Moran Consultants. Give us a call at 866-545-3350 or contact us online to learn more.

By Tim Amorello (Division Manager)

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