Critical Clauses to Review in Construction Contracts

Construction projects often represent substantial investments of time, money, and resources. When entering into any construction agreement, all parties involved—whether property owners, contractors, subcontractors, or developers—rely on a properly drafted construction contract to set clear expectations and prevent disputes. 

At their best, construction contracts are the backbone of successful projects, establishing protections and responsibilities that allow work to proceed smoothly. However, overlooking crucial clauses in these agreements can quickly lead to financial losses, project delays, or even costly litigation. 

For individuals figuring out these complex agreements, the stakes are high. That is why legal insight from attorneys such as Attorney Macy D. Hanson can be invaluable. Based in Madison, Mississippi, Attorney Hanson serves clients nationwide with over a decade of experience handling contract law and construction dispute matters. Through The Law Office of Macy D. Hanson, PLLC, clients are offered personalized guidance and assistance, including free consultations to clarify concerns and protect what matters most. 

To mitigate risks in construction projects, close attention must be given to specific provisions and terms within the contract. Below is an in-depth discussion of several critical clauses that should never be overlooked when negotiating or reviewing a construction agreement: 

Scope of Work 

The scope of work clause is perhaps the most fundamental element of any construction contract. This section should clearly define all parties' roles, responsibilities, and deliverables, leaving no room for ambiguity. 

A well-drafted scope of work prevents disputes over what tasks were agreed upon and holds each party accountable. For instance, detailing timelines, materials, methods, and inspection requirements can help ensure that all expectations are explicitly documented in writing. 

Without meticulous attention to detail in this clause, misunderstandings about the project's objectives or requirements may lead to conflicts that can escalate quickly. If disputes arise, having a well-documented scope of work can serve as a reliable reference point and may even help avoid legal action altogether. 

Payment Terms 

Proper payment terms are vital to smooth operation in any construction project. The payment clause should outline the project budget, payment schedules, and dispute-resolution mechanisms for payment-related issues. This clause is particularly significant because ambiguous or unclear payment terms are one of the most common sources of friction in construction contracts. 

Payment provisions should specify milestones or deliverables tied to compensation, penalties for late payments, and retainage percentages. Additionally, they must address what happens if a party fails to meet the financial terms outlined. With legal guidance from Attorney Hanson, property owners and contractors alike can better safeguard their financial interests. 

Change Orders 

No construction project is immune to changes. Whether due to unforeseen circumstances, shifting project requirements, or material availability, alterations mid-project are common. Change orders are amendments to the original construction agreement and must be documented in writing. Include a robust change order clause detailing how alterations will be proposed, approved, or rejected. 

Verbal agreements or informal approvals can lead to disputes regarding payment and project delays. Construction contracts that formalize the change order process—requiring written agreement by all parties—create a necessary layer of accountability for everyone involved. 

Indemnification Clause 

An indemnification clause is a risk management tool in a construction contract. This clause specifies who will be held responsible in the event of certain disputes, damages, or claims that arise during the project. Essentially, indemnification provides protection for one party against the legal and financial consequences of the other party's actions. 

Understanding indemnification agreements can be daunting due to the complicated nature of liability allocation. For this reason, having Attorney Macy D. Hanson review and negotiate these terms is a strategic step to minimize unnecessary exposure to liability. 

Dispute Resolution 

Disputes are an unfortunate reality in the construction industry, and the dispute resolution clause defines how disagreements will be handled if they occur. Whether through mediation, arbitration, or litigation, this clause establishes the structure for resolving conflicts expediently and cost-effectively. 

Mediation and arbitration are often preferred strategies for resolving disputes without the prolonged expenditures associated with court proceedings. However, every construction party should weigh its options carefully, as each method carries its own advantages and limitations. Legal counsel can play an instrumental role in advising on dispute resolution provisions, helping clients make informed decisions that serve their long-term interests. 

Termination Clause 

A termination clause clarifies the conditions under which the construction contract can be ended before the project is completed. While prematurely ending an agreement is often not ideal, it is critical to include provisions that protect all parties in such a scenario. Termination terms typically address causes such as failure to meet deadlines, breach of contract, or other unforeseen circumstances. 

Clients relying on Attorney Hanson’s experienced guidance often find that carefully crafted termination clauses not only protect their rights but also provide pathways to recover damages if one party breaches the agreement and causes harm. 

Warranty Provisions 

The inclusion of warranty clauses in construction contracts provides assurance that the work performed will meet specified quality standards. These provisions often outline the duration of warranties, the scope of coverage, and the remedies available in the event of defects or failures. 

Warranty provisions that clearly detail timeframes for liability and repair obligations serve the interests of both parties by creating clarity and a shared understanding of the guarantees. For property owners, this clause can mean the difference between costly out-of-pocket repairs and receiving remedies from parties obligated to fulfill their guarantees. 

Force Majeure Clause 

Force majeure clauses address extraordinary events beyond the control of any party—such as natural disasters, pandemics, or government actions—that might impact the ability to fulfill contractual obligations. By including this clause, the contract addresses unforeseen events and outlines how delays or interruptions will be handled. 

These clauses can make or break a construction contract, protecting all parties from penalties or liability arising from uncontrollable events. Consulting with a knowledgeable attorney, such as Attorney Macy D. Hanson, can help you customize these clauses to suit the unique risks posed by specific projects. 

Protect Your Interests 

Construction contracts are far more than mere formalities. They are complex documents that require meticulous attention to detail to protect the involved parties and ensure the project's success. Failing to review or negotiate critical clauses can leave individuals and businesses vulnerable to unnecessary risks and liabilities. 

For those about to sign or involved in disputes over construction agreements, seek legal clarity. The Law Office of Macy D. Hanson, PLLC, based in Madison, Mississippi, offers the knowledge of Attorney Macy D. Hanson to identify risks, negotiate advantageous terms, and defend your interests should disputes arise. With over 10 years of experience and a national reach, Attorney Hanson provides informed and accessible legal counsel to clients across the United States. Free consultations are available, offering an invaluable first step in protecting both short- and long-term financial and legal interests.