Contractor-Focused Contract Review: Key Issues Before You Sign

By Gaudet Law Office

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Understanding the Stakes Before the First Shovel Hits the Ground

From the perspective of a contractor, whether general contractor or subcontractor, the contract is far more than a formality. It is the document that defines your risk, your obligations, your payment rights, and, ultimately, your profitability. Too often, contractors approach contracts as administrative hurdles rather than strategic tools. That approach can be costly.

In my practice, I frequently work with contractors who only discover problematic provisions after a dispute arises. By that point, leverage is limited and options are constrained. A thoughtful, front-end review can help identify risks early, allocate them appropriately, and, in many cases, avoid disputes altogether.

What follows is a practical, contractor-focused discussion of key contract issues that routinely arise in private construction projects. This is not a checklist to be mechanically applied, but rather a framework for understanding where risks often lie and how they may affect your business.

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Scope of Work: Where Risk Often Begins

The scope of work is one of the most deceptively complex aspects of any construction contract. While it may appear straightforward at first glance, the actual risk allocation often lies in the details—and sometimes in what is not explicitly shown.

Contractors should take care to review all contract documents thoroughly, including plans, specifications, and any supplemental materials. In many cases, drawings are described as “diagrammatic” or incomplete. That language can have significant consequences. It may effectively shift coordination responsibility and the associated risk to the contractor.

Another common provision expands the contractor’s obligations to include work that is “reasonably inferable” from the contract documents. While this language may sound reasonable, in practice it can dramatically broaden the scope beyond what is explicitly depicted. This can lead to disputes over whether certain work was included in the original contract price.

Coordination responsibilities, particularly for mechanical, electrical, and plumbing (MEP) systems, also warrant close attention. If the contract assigns coordination to the contractor, it is important to confirm, through consultants if necessary, that the systems can be successfully integrated within the existing design and budget.

Subsurface conditions present another area of potential exposure. Contractors should consider what geotechnical information has been provided and whether the contract shifts the risk of unforeseen conditions. If the risk is fully transferred, contractors may need to account for that uncertainty in their pricing and contingency planning.

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Scheduling and Delays: Time Is More Than Money

Construction schedules are rarely static. Delays can arise from a wide range of causes, many of which are outside the contractor’s control. The contract’s treatment of delays can significantly impact both financial exposure and operational flexibility.

One of the first issues to examine is the substantial completion date and any associated liquidated damages. These provisions establish financial consequences for failing to meet project deadlines. It is important to understand not only the amount of liquidated damages, but also how long they apply…whether through substantial completion, final completion, or beyond.

Force majeure clauses are another critical component. These provisions address events outside the contractor’s control, such as severe weather, government actions, or supply chain disruptions. The breadth of events covered can vary widely. A narrowly drafted clause may leave contractors exposed to risks that are increasingly common in modern construction projects.

Equally important is the presence of “no damages for delay” clauses. These provisions can limit a contractor’s remedy for delays, particularly those caused by the owner, to time extensions without compensation for additional costs. While such clauses are not uncommon, their impact can be substantial, especially on projects with tight margins.

Contracts may also require contractors to continue performance even in the event of a dispute, including disputes over nonpayment. These provisions are often paired with strict notice requirements. Failure to comply with those requirements can result in the loss of otherwise valid claims.

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Payment Provisions: Cash Flow Is Critical

For contractors, payment provisions are often the most immediately impactful terms in a contract. Even profitable projects can become problematic if payment is delayed or withheld.

On certain private projects, statutory frameworks may govern payment timing and procedures. These frameworks can establish requirements for payment applications, approvals, and dispute resolution. Contracts that attempt to waive or circumvent such requirements may not be enforceable.

Two commonly encountered provisions in construction contracts are “pay-if-paid” and “pay-when-paid” clauses. While they may sound similar, they operate differently.

A “pay-if-paid” clause attempts to make payment from the owner a condition precedent to the contractor’s obligation to pay subcontractors. Depending on the project and applicable law, such provisions may be limited or unenforceable.

A “pay-when-paid” clause, by contrast, typically addresses the timing of payment rather than the ultimate obligation. However, for such a clause to be effective, it must be clearly drafted to establish that payment is directly contingent on receipt of funds from the owner. Ambiguity in this area can lead to disputes over whether payment is merely delayed or excused altogether.

Contractors should also consider the practical aspects of the payment process, including approval timelines, documentation requirements, and the mechanisms for resolving disputes. Delays in approval can have cascading effects on cash flow, particularly for subcontractors operating on tighter margins.

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Subcontract Considerations: Flow-Down Risks and Responsibilities

Subcontractors face an additional layer of complexity due to “flow-down” provisions. These clauses incorporate obligations from the prime contract into the subcontract, effectively binding the subcontractor to terms negotiated between the owner and general contractor.

This makes it essential for subcontractors to review not only their subcontract, but also the prime contract. Without that broader context, it can be difficult to fully understand the scope of obligations being assumed.

Approval processes can also affect subcontractor performance and payment. Some contracts require multiple layers of approval—such as from the architect, owner, and general contractor—before work is accepted or payment is issued. These additional steps can introduce delays and uncertainty.

Indemnity provisions are another key area of concern. These clauses allocate responsibility for certain types of claims, such as personal injury or property damage. In many jurisdictions, indemnity provisions are subject to statutory limitations, particularly where they attempt to shift liability beyond the contractor’s own conduct. Contractors should carefully review these provisions to ensure they are appropriately limited.

Finally, subcontractors should evaluate the project schedule in light of their specific scope of work. Schedules developed at the general contractor level may not always align with the realities of a particular trade. Where necessary, subcontractors may seek adjustments to ensure that the schedule is achievable.

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Practical Takeaways for Contractors

While every project is different, several practical themes emerge from these common contract issues:

• Early Review Matters: Addressing problematic provisions before signing the contract is generally more effective than attempting to resolve disputes later.
• Clarity Reduces Risk: Ambiguity in contract language often leads to disputes. Clear, well-defined terms benefit all parties.
• Risk Allocation Should Be Intentional: Contractors should understand which risks they are assuming and whether those risks are reflected in pricing and planning.
• Documentation Is Critical: Many contract rights depend on compliance with notice and documentation requirements. Systems should be in place to track and manage these obligations.
• Coordination Is Key: Complex projects require coordination across multiple disciplines. Contracts that shift coordination responsibility should be approached with care.

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Conclusion

Construction contracts are, at their core, risk allocation tools. For contractors, understanding how that risk is distributed is essential to protecting both operational and financial interests.

By taking the time to carefully review contract terms, particularly those related to scope, schedule, payment, and subcontract obligations, contractors can better position themselves for successful project execution. While not every risk can be eliminated, many can be identified, managed, and, where appropriate, negotiated.

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Disclaimer

This article is provided for informational and educational purposes only and does not constitute legal advice. The information contained herein is general in nature and may not apply to your specific circumstances. You should not act or refrain from acting based on this information without seeking appropriate legal counsel regarding your particular situation. Reading this article does not create an attorney-client relationship with Gaudet Law Office.