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“Rules of the Game”: Rethinking the Construction Contract

Updated: Jun 7, 2023

When drafting a construction contract, many items may need to be included or negotiated between all parties. The importance of a well-thought-out, clear, concise, carefully-drafted contract cannot be overstated — as it is the bedrock that sets the terms and expectations for both your project and your relationship with your customers.

Many law firms view construction contracts solely as a way to protect a client. While contracts do protect construction professionals, Minnesota Construction Law Services prefers to think of them as “rules of the game” — ensuring that both parties are on a level playing field while clearly outlining the penalties players will face in the event of a violation.

Without a set of clearly defined “rules,” things can get hazy — fast. This almost inevitably leads to costly contract disputes, which are a tell-tale sign of a contract not created with the best interests of the contractor-customer relationship in mind. MNCLS approaches key elements of a construction contract from a different perspective: one that can be a recipe for success.

Set the Standard with Protective Clauses

A contract includes clauses designed to protect all parties, and setting them from the onset of a professional relationship creates clear communication which allows both sides to properly manage expectations. For instance, provisions that allow contractors to stop work in the event of an Act of God or failure by their client to make a required payment include a Force Majeure clause and a Stop Work clause, respectively.

If a customer fails to make a payment by a specific milestone, a Stop Work clause gives contractors the legal right to stop working on the project until further notice. Without a Stop Work clause in place, contractors are forced to continue working on the project or risk breach of contract. Similarly, Force Majeure clauses will establish guidelines for both parties in the event of an Act of God — referring to instances out of human control.

In a post-COVID world, there is a clause that has become increasingly valuable to the construction industry and their clients alike: an Act of Government clause. This clause accounts for instances where the government may limit commercial activity (as it did during the pandemic) and — while generally included under Force Majeure — should not be left out of construction contracts. Anyone who had not included this clause in contracts as of March 2019 is surely leveraging them now!

Create a Relationship Built on Communication

While many organizations and agencies may use dense, vague contracts to trick (or trap) customers, MNCLS believes that construction contracts should exist to clearly outline project scopes and expectations — limiting project performance disputes which often arise due to poor communication and inaccurate contract details. Though contracts have a reputation for being tools for legal entrapment, they ultimately exist to guide and preserve professional relationships and should be approached with that goal in mind.

As construction industry professionals-turned-lawyers, our approach to construction contracts is to ensure everyone knows exactly what they’re getting out of the relationship — and what happens if they don’t.

Manage Financial Expectations

Conflicts around a construction contract often pertain to unclear payment structures, and there’s nothing worse than a contract that isn’t crystal clear on how people get paid. When it comes to payment structures, simply being clear is often not enough. Before drawing up the contract, contractors should provide customers with a detailed estimate which accounts for every conceivable cost so there are zero financial surprises throughout the relationship. With the ever-fluctuating cost of materials, changes are bound to occur — so make sure you and your customer both understand what happens should the price shift in the middle of a project. Ensuring you and your client are on exactly the same page can prevent headaches, hard feelings, and litigation down the line.

Use Contracts to Play the Game Better

The team at MNCLS has negotiated and drafted countless construction contracts for our clients, but long before we were drafting contracts we were using them to conduct better business as construction industry professionals. Having been on both sides of the construction contract process — and experiencing firsthand the catastrophic effects of an incomplete contract — we understand the impact having clear “rules of the game” can have on the relationship between contractors and their customers. We see each new contract as a way to improve client-contractor relationships, and look forward to helping your business do the same. We know the construction business and we know the law — and the team at MNCLS looks forward to navigating both with you. Give us a call at (651) 484-4412, or complete our online contact form and we’ll take it from there!

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