New Construction Projects

April 8, 2016

When starting a construction project, typically, much time and money is spent on hiring the right architect and general contractor, reviewing plans, and making finish selections. An often-overlooked task is ensuring that the contract documents (i.e. the design and construction agreements, plans, specifications) afford an owner necessary protections. Oftentimes, a small amount of money and time spent with an attorney to review the documents at the start of the project can save thousands of dollars and headache later. Even with a very basic contract, an attorney can assist you in keeping the critical terms in mind, including:

  1. Payment Schedule – an owner wants to make sure that he is not paying for everything up-front and that payments are tied to completed work. Payments should also be conditioned upon work being performed properly and the contractor providing appropriate mechanic’s lien waivers.
  2. General Provisions – minimally, the contract should provide that the work will be performed according to the requirements of the building code and that the contractor will obtain all required building permits. The contractor should be responsible for all employees and subcontractors. All changes in the work should be through a written change order.
  3. Insurance – the contractor should maintain necessary insurance, including, as appropriate, workers compensation, commercial general liability insurance, comprehensive automobile liability insurance, and contractor’s risk insurance. An owner should request a copy of the contractor’s policies to ensure that there are no exclusions would preclude coverage for certain claims and will also likely want to be added as an additional insured on the contractor’s policy.
  4. Pricing – there are many different ways to price construction projects, including lump sum, guaranteed maximum price, and cost plus. Each of these pricing methods reflects different risks and benefits to both the contractor and the owner. For instance, for a cost-plus project, the owner will be responsible for paying the contractor’s cost for the work, plus a specific fee (sometimes a flat fee, sometimes a percentage of the cost), without a promise of the final, overall price for the project. The owner takes all of the risk of the cost of the project, but also reaps the benefit of only paying for what the project actually costs, plus the agreed upon fee.
  5. Warranties – construction agreements might include express warranties. In addition to express warranties, under Minnesota law, new home construction and certain other home improvement work automatically comes with statutory warranties found in Minnesota Statute Ch. 327A. Homeowners should carefully scrutinize any language that attempts to limit or waive warranties.

While retaining an attorney to review construction documents is not the most glamorous part of a construction project, it can be one of the most important and assists parties in getting a project off to the right start.