Contracts pose a major source of conflicts and disputes. Often, the reason is that construction companies don’t administer and manage their contracts. If you adopt some proactive habits regarding your contracts, you can nip a lot of the problems in the bud.
Decide What Success Is
Each project involves multiple contracts. If you are a GC, you’ve got contracts with owners and subcontractors, potentially with others as well. If you are a specialty contractor, you have contracts with GCs, specialty subs, and maybe even suppliers.
A major consideration in contract administration is knowing when a contract is right for you. A contract should support your business and project goals. A poor quality contract, on the other hand, is rife with risks for conflicts and disputes. To get more control over contract quality, you need to know what partners and contract wording work best for you.
First, get picky about choosing your partners. It costs you to sign contracts with parties who don’t deliver on quality. It costs you even more to sign contracts with partners who can’t meet the schedule or require a boatload of changes. Third parties, such as unresponsive designers and engineers, come along with owner contracts. When owners don’t make your needs important, it also costs you. Wisely choosing the parties to your contracts is a smart step in successful contract administration.
Then get aggressive about contract negotiations. Some contract wording isn’t fair to you and increases your risks. Your legal counsel can help you restructure contracts during contract negotiations so you get treated fairly.
Thoroughly Review the Contract
It’s easy to fall into the trap of assuming you know what’s in the contract simply by skimming the section heads. You might be very familiar with the standard clauses used in construction contracts. However, each of those clauses is custom-tailored to each project, and so there is a lot of variation between contracts. Some more onerous clauses include indemnification and dispute resolution, but every clause holds some risk.
Do a contract review with all the key people working on the project. These are the people who would likely decide on factors directly affecting the contract. They need to understand their portions of contract management, especially when it comes to the processes required to comply with the contract. This is a good time to mark up your calendars showing key dates related to your obligations or rights. Filing change order paperwork too late or failing to substantiate a claim within the specified time will likely cost you in more ways than one.
Manage the Contract
If you want to manage a contract, you need to know where your risks lie. You also need to have a contract management system that addresses the concerns, needs, and goals of everyone involved in contract management. For instance, a project manager might deal with the change order clause at a top level, while the superintendent must deal with all the details. The contract management system must respond to both of their needs and goals.
Alerts, notifications, and reports make up the backbone of a contract management system. Using Procore, you can quickly and easily set up reminders on contract deliverables and deadlines. You can also build out lists for notifications to make sure everyone gets the reminders on time. By using custom reports, you can create records of activities related to each contract. These reports can help fill in end-of-project reports on contract performance.
Do A Post Project Contract Assessment
If you do a thorough assessment of each contract at project closeout, you can find all the instances where the contract fell short and where it met or exceeded your expectations. Whenever you renegotiate or renew a contract, you can modify it to improve outcomes. A GC doesn’t have to use the same contract repeatedly with the same subcontractor. The same goes for the specialty contractor working with a single or multiple GCs. When you evaluate contracts, you find instances where you might tweak them so you get better performance.
Was the deadline for mockups unrealistic? Did the plumbing specialty contractor always meet contract deliverables deadlines? Was there too much time allotted for discovery? Did some parties take advantage of soft claims procedures? Wherever the contract terms didn’t fully support the project or business goals, you might improve the contact wording or requirements. Do that enough, and you’ll start having fewer contract headaches.
Many contractors make the mistake of signing contracts and filing them. But if you treat them as living documents with terms and conditions modifiable from one contract to the next, you can reduce potential disputes and conflicts. More importantly, though, they will fit your business and project goals more closely as a result.