Hammering out the details before breaking ground on commercial construction jobs can prevent headaches for general contractors. Here are some tips for doing so:
Own the schedule
In any complex job, someone’s going to be late with something, and profits erode every hour that workers, equipment and materials sit idle. It’s imperative that general contractors negotiate for sole and explicit contractual authority to adjust the building schedule.
Define payment terms
In commercial construction contracts, the most common payment provisions are “pay if paid” and “pay when paid.” The former absolves general contractors of subcontractor payment obligations until owners cut them a check. The latter simply specifies the time of payment and does not transfer risk to the subcontractor. Subcontractors naturally prefer pay-when-paid provisions because they’re not taking a risk that an owner won’t pay. General contractors are wise to negotiate a pay-if-paid clause dictating that subcontractors don’t get paid until owners settle up.
Scrutinize Your Coverage
Generally, construction contract negotiations involving insurance should identify who supplies the insurance, who is covered by that insurance and what the scope of the coverage is. Not all insurance policies are created equal. Many offer paltry payouts or demand prohibitively high deductibles. Therefore, general contractors are encouraged to state exact insurance policy requirements in commercial contracts.
Pick the right referee
For commercial construction arbitration, the American Arbitration Association currently charges an upfront administrative fee of $8,700 for claims between $500,000 and $1 million; in contrast, the maximum you’ll pay to file a non-jury lawsuit in Cook County, Ill., for instance, is $337.
There is also a variety of other fees associated with arbitration that parties do not incur with lawsuits. On top of preparation and travel costs, an arbitrator typically charges between $1,500 and $3,000 per day, and you may need to rent a hearing room or other neutral venue. Finally, joinder of all necessary parties in arbitration may be impossible, the resulting award usually cannot be appealed and you may wind up in exactly the place you were trying to avoid: the courtroom.