You’ve submitted your price for the construction project, been through a tough negotiation and finally you are told the project is yours to construct. Jubilation and joy! Let’s get started. Construction project bid negotiations – Don’t make a mistake
Unfortunately this is where some contractors get into trouble.
Do not start a construction project until there is a contract in place
Without a contract there’s no agreement, no protection for the contractor and no guarantee that the contractor will be paid for the work they do. Therefore ensure that there is a signed agreement in place before starting a construction project.
Furthermore, failure to agree the contract terms and conditions prior to starting construction work means that when the contractor finally reviews them they have often incurred costs on the project and aren’t in a position to persuade the client to alter the terms and conditions to those that are more appropriate or acceptable.
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Does a letter of intent protect us
"letters of intent do not always offer the contractor protection"
Sometimes the client hasn’t completed preparing the contract documents but is in a hurry to get the contractor to start construction. In this case they may issue a letter of intent, or similar document. These documents are often only a couple of lines long and offer the contractor little protection if things go wrong.
If a contractor has to work with a letter of intent then the letter should:
1. be signed by an authorised representative of the client
2. be signed and acknowledged by the contractor
3. be dated
4. have the correct names of the contracting parties
5. refer to the tender conditions
6. refer to the contractor’s tender submission
7. refer to a scope of work
8. have the payment terms and conditions
9. include a termination clause
10. refer to a contract schedule or milestone dates
11. include a date by which the contract document will be issued to the contractor
Some Letters of Intent have a set value or are only valid for a specific time period, so it’s important to ensure these values or dates aren’t exceeded since the contractor may find that they aren’t paid for work carried out in excess of that specified
Checking the contract document
Have you checked the contract document?
At last the contract document arrives. But does it contain the same conditions you priced? Unfortunately some contractors are only too eager to get the project started so sign the document without carefully checking it.
"Check that the conditions in the contract are the same as the conditions you priced"
Before signing the contract ensure that:
1. the document is the same as the tender document including checking that:
a. no clauses have been altered (unless these alterations have been agreed)
b. the drawings included, or referenced, are the same as those in the tender including the same revision number
c. no new drawings have been added
d. the specifications are the same
2. the price is as per the tender and includes all post-tender variations
3. the exclusions in the tender submission which have been accepted are included
4. the schedule is in accordance with the agreed dates
I’ve often received documents that had different conditions to those agreed. Even minor alterations to clause wording can drastically alter the meaning and intent. Failure to detect these alterations could result in the contractor committing to undertake work that they’ve not priced or to conditions they haven’t allowed for.
In addition the contract document is often signed weeks or even months after work started so it’s important that the document takes cognisance of all delays or variations that occurred up to the date of signing.
Ensuring your company is protected before starting construction
Contractors shouldn’t allow themselves to be rushed into starting a project without ensuring that their contractual rights are protected. This may mean that you upset your client, or even that they remove the contract from you. But failing to ensure that you are committed to build a project under the agreed conditions you priced could prove to be very expensive. Don’t Start Your Next Construction Project Before Reading This
Other similar articles by the author
Your tender submission or quotation – get it right
How you can make your next construction project more successful
What makes a good client
For more go to: Index of construction articles
(Written by Paul Netscher the author of the acclaimed books ‘Successful Construction Project Management: The Practical Guide’ and ‘Building a Successful Construction Company: The Practical Guide’. Both books are available in paperback and e-book from Amazon and other retail outlets. This article is adapted from information included in these books.)
© 2022 This article is not to be reproduced for commercial purposes without written permission from the author.
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Copyright 2016 - The attached articles cannot be reproduced for commercial purposes without the consent of the author.
The opinions expressed in the attached articles are those of the writer. It should be noted that projects are varied and different laws and restrictions apply which depend on the location of the contractor and the project. It's important that the reader uses the supplied information taking cognisance of their particular circumstances. The writer assumes no responsibility or liability for any loss of any kind arising from the reader using the information or advice contained herein.
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