This post was published to Online Education at 10:58:20 AM 12/19/2015

Construction contracts simplified – part 1

Account Online Education

The contract is the legal agreement between the Owner and the contractor.

Definitions

This section defines the meaning of terms. This section is important because each project is unique and is
bound to have certain differences in the definitions. You should interpret the contract using this section
only. Some contracts identify them by initial capital letters.

Agreement

This section shows the signatures of the client and contractor representatives along with the names,
addresses etc. It will have a list of all documents that make up the contract.

Conditions of contract

This section consists of two major parts. The first is the general conditions of the contract. These
conditions do not change.

The second is the special conditions of the contract. These are an extension to the general conditions.
They cover areas considered important, and not covered by the general conditions.

Scope of work

The scope is the work that the contractor must do. A contract describes the scope of work through
requisitions, specifications, drawings, MTO etc.

Schedule

The schedule shows the start and end dates of activities.

Responsibilities

These define the responsibilities of the parties

Approved vendor list

Approved vendor list or approved bidders list denotes all the recommended vendors. The prime
contractor needs to procure all items as per this list.

Payment terms

This section describes the procedure of paying the contractor. The contractor’s invoice is attached to the
progress report. The client verifies it. A small amount is retained by the client up to a certain limit which
is defined in the contract. The purpose of retention is to ensure that the contractor completes the job in
a satisfactory manner. Sometimes, the retention will be exchanged for a guarantee.
Acceptance criteria

This denotes the performance which the project should achieve.

Precedence of documents

A contract is made up of a number of documents. Some documents will have more priority than the
others. Precedence shows which document is the governing document. The Owner’s document generally
has more priority than the contractor’s documents. Also, the specific document might hold more
precedence than the general one.

Penalties

This section shows the penalties which will be levied on the contractor in case the contract conditions are
not met.

Important clauses

Limitation of liability - limits the amount of damages that can be recovered if one party fails

Exculpatory - acquits one party from its conduct.

Termination

Project closure

A project will have a section on how to close the project.

A contract also specifies the milestones, payment terms etc. In the event of a dispute, the contract
documents will be the reference.