May 16, 2020

Everything you need to know about construction contracts

Admin
3 min
Everything you need to know about construction contracts
If you work in the construction industry, then you already know how important contracts are.Although construction contracts have changed over the years...

If you work in the construction industry, then you already know how important contracts are. Although construction contracts have changed over the years, there are still some basic guidelines to follow when creating a contract.

Here are just a few details your construction company needs to remember when drawing up a contract:

Construction Contracts: A Changing Landscape

Construction law has changed over the past few decades, which has drastically affected the way construction contracts are written. For example, governing laws for each state require different contract provisions; which only adds to the depth of what's included in construction contracts.

In addition, there are a growing number of categories and sub-categories a construction contract must cover. This includes payment timelines, suspension of work guidelines, retention provisions, lien rights, and indemnification regulations.

If your construction company wants to draw up the most accurate contract possible, it's important to research the governing laws within your state. Along with state guidelines, there are a number of other contract specifics to keep in mind.

Common Contracts in Construction

Before you draw up a construction contract, you need to decide which type of contract best fits your project. The article "Construction Contracts: Why You Need to Know the Differences" describes the three most common types of construction contracts: lump sum/fixed price, cost plus, and time/material.

Each contract type has its own benefits as well as its own drawbacks depending on the scope of your project.

By taking each into consideration and comparing them against your company's needs, timeline goals, and costs, you'll have an easier time choosing which contract best fits the job at hand.

Union Contracts

If your construction company is part of a particular labor union, there are specific guidelines you should include in your contract that go beyond the contracts mentioned above. Most unions require certain expectations to be met in order to commence work.

These expectations include employment conditions set forth by the union shop, seniority and overtime guidelines, no discrimination policies, and grievance procedures. Making sure you include all of these expectations in your union contract is an important part of the process.

Hiring Types

Also included in your construction contract should be the type of workers you'll be hiring. In the construction world, there are generally two types of workers: subcontractors and direct hire workers.

Take note of:

  • Subcontractors - Hiring subcontractors is the most common type of hiring, however it does come with additional contract obligations. Because subcontractors use their own equipment and are independently licensed, these stipulations need to be outlined in the construction contract. Failure to do so could lead to a lawsuit if an issue or dispute does arise.
  • Direct Hire - If you're looking to build your construction company's workforce, then direct hires are a wise choice. However, because your workers are directly employed through your company, there are a few clauses you need to include in your contract. Most of these clauses have to do with work rendered and your payment practices.

By keeping in mind these contract pointers, your construction company will stay on the road to success.

Adam Groff is a freelance writer and creator of content. He writes on a variety of topics including contract law and the construction industry.

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Aug 4, 2021

Diffuse disputes through better Project Management

construction
Projectmanagement
Disputes
Technology
Dominic Ellis
6 min
The pandemic has caused a near-doubling in the value of disputes – which means they need to better manage projects to minimise the fall out

The average value of disputes globally rose from $30.7 million in 2019 to $54.26 million in 2020, while the length of disputes fell from 15 months in 2019 to 13.4 months, according to a recent Arcadis reportThe data, featured in Arcadis' 11th annual report, illustrates industry-wide ripple effects of the COVID-19 pandemic although interestingly, the overall volume of disputes stayed relatively the same in 2020 as in 2019, contrary to what most observers would have anticipated as projects stalled and costs soared during the pandemic.

While trends in the value and length of disputes varied between regions, all surveyed saw an increase in "mega disputes" related to bigger capital programs and private projects. Notably, more than 60% of survey respondents encountered project impacts due to COVID-19.

Owners, contractors, or subcontractors failing to understand and/or comply with their contractual obligations became the leading cause of construction disputes in 2020 (jumping from 3rd place in 2019), followed by owner-directed changes and third-party or force-majeure changes as the second and third-leading causes, respectively.

Highlights from the report include:

  • Proper contract administration was a theme across the globe for the successful and early resolution of disputes
  • Most disputes were settled through party-to-party negotiation, and a willingness to compromise played a key role in early resolution
  • Among regions surveyed, the buildings (education, healthcare, retail/commercial, government) sector saw the most disputes
  • In North America, construction dispute value rose from $18.8 million in 2019 to $37.9 million in 2020, while the length of disputes shortened from 17.6 to 14.2 months.

So how can firms prevent disputes escalating in the first place?

Writing in the foreword to Connected procurement: the Foundation of Construction Success, Mike Pettinella, Director of EMEA Sales at Autodesk Construction Cloud, says trust between owners, main contractors and subcontractors remains a vital element. 

“The importance of partnership makes the preconstruction phase, when organisations decide who to work with and how, so critical to every project’s success,” he writes. “From selecting the best people for the job to mitigating risks, preconstruction is where you make your money and lay the foundations for a successful build.”

Inviting, tendering and submitting bids involves interactions between a large number of construction organisations. But currently there’s little consistency across the industry in the technologies used for this crucial process, the report notes.

Construction firms use a diffuse set of software to manage bids. Email is the most popular tool across owners, main contractors and subcontractors, followed by a combination of Google Drive, Microsoft Excel and  DropBox. Notably, a fifth of owners (20%) and subcontractors (19%) use a custom-solution that has been created in-house. 

A significant proportion of companies don’t use technology at all. More than a tenth of owners (12%) and subcontractors (13%) say that most of their tenders are still paper-based, although this trend is less prominent among main contractors.

Errors can take place that compromise the project later on - and this isn’t a rare occurrence. The majority of main contractors (86%) and subcontractors (78%) admit that errors are made during the tender submission process that impact the project down the line. In fact, a quarter of main contractors say this happens on the majority of projects (24%). 

InEight and Microsoft Dynamics 365 connect all business processes with Construction 365

InEight Inc. has announced a strategic integration with Microsoft Dynamics 365 to deliver Construction 365 – a unified enterprise platform incorporating over 30 different integrations to help businesses improve and standardize insights and information flow between office and field for capital construction projects.

The integration unifies the data experience (including CRM, Estimating, Project Controls, BIM, Risk Management, Document Management, Scheduling, Accounting, and Procurement, through desktop and mobile capabilities) to deliver businesses with improved transparency and alignment, providing a single source of truth to enhance ease of user access, collaboration and security across Microsoft and InEight applications. Using the end-to-end, customisable platform, customers can now connect data and processes seamlessly and intuitively across systems to reduce errors, omissions and redundancies while improving the outcomes of complex long-term projects.

Pål Christian Hustoft, CFO, at Veidekke Entreprenør AS, a joint customer of Microsoft and InEight and one of Scandinavia’s largest construction companies said it believes the Construction 365 solution will meet itsr business needs as a fully integrated digital transformation platform, providing transparency and control throughout the business. “We expect the ongoing implementation will confirm our beliefs, making it possible for us with a greater ability to create great projects for our clients with our desired profitability and on schedule.” 

Petter Merok, Industry Executive, Architecture, Engineering & Construction, Microsoft Norway, saic complex construction projects involve huge amounts of variables and many different cross-practice and company personnel. 

“This powerful Microsoft Dynamics 365 integration with InEight empowers teams with unified, real-time data across all processes to make smarter decisions that drive business progress. We are proud to be playing a role in supporting productivity and performance improvements in the construction industry, at a time when it has perhaps never been more important.”

Mike Paul, Managing Director for EMEA at InEight, said while the physical world is still seeing borders and restrictions on freedom of movement, the trend in the data world is the opposite. “Connectivity is key. Through this integration with Microsoft Dynamics, InEight is creating interconnected workplaces to enhance collaboration and project outcomes in capital construction. It’s an important and timely step towards our goal of digitalising construction project management.”

Pursue quality partnerships, embrace on-site tech and adopt agility

Construction professionals surveyed in the Arcadis report have clear ideas about the qualities that would make them want to collaborate with a business again in the future – and  communication, as well as reliability, is an  important factor. 

For subcontractors, regular communication and project updates (31%) and the timely completion of work (29%) are the attributes that would make them most likely to work with an owner again in the future. 

Turning to main contractors, the quality of handover delivered by subcontractors (46%) is the most influential attribute, followed by them completing work on budget (41%) and on time (40%). Notably, the use of digital technology on-site is also an appealing trait for both main contractors (31%) and subcontractors (25%). 

In an article for Business Chief North America, Chris DeBrusk, Partner, Digital Practice, Oliver Wyman, considers the future role of the project manager. He believes as organisations adopt agility and drive their transformation efforts using a more iterative approach with increased alignment between business and technology stakeholders, the role of the project manager is definitely going to change. 

“That being said, it will be a rare organisation that is able to eliminate the role completely,” he says. “More likely is that the role will become one of enterprise coordination, organisational change management, and risk management and less a manager of SDLC processes.”

Arcadis Report highlights

  • Proper contract administration was a theme across the globe for the successful and early resolution of disputes
  • Most disputes were settled through party-to-party negotiation, and a willingness to compromise played a key role in early resolution
  • Among regions surveyed, the buildings (education, healthcare, retail/commercial, government) sector saw the most disputes
  • In North America, construction dispute value rose from $18.8 million in 2019 to $37.9 million in 2020, while the length of disputes shortened from 17.6 to 14.2 months.

Business Banking Resolution Service tackles recent and long-standing disputes in UK

A free and independent UK dispute resolution service, the Business Banking Resolution Service (BBRS), is appealing directly to property and construction businesses to see if their banking disputes, both recent and long-standing, can be resolved. 

 It is estimated that, over the past 20 years, some 600,000 businesses could have developed a dispute with their business banking provider that remains unresolved. More than 179,000 mid-sized businesses including construction companies, property developers, architects, estate agents and residential and commercial landlords dating back to 2001 may be able to benefit from the service according to ONS data.

This number includes businesses that have since closed. The BBRS and Propertymark, are urging businesses to see if they can apply, particularly those with older unresolved complaints, as the deadline for historical complaint applications is February 14 2023.

Businesses going through the service will be assigned a highly skilled dispute resolution specialist, who will act as a single point of contact and offer practical support. The BBRS is fully independent and free to use. Businesses can find out full details, including if it is appropriate for their situation at: www.thebbrs.org/register

 

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