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Construction Contracts Formation

Contract Formation

    Those who work in the construction industry know that contracts can have a huge impact in various situations. Contracts do not train the workers or get materials to a job site, or cause the structure to be built. However, when things go wrong, contracts can make or break a project.

    Consider some of the following situations:

    • You are the owner facing a "make or break" opening date and your general contractor is not making timely progress. You want to either terminate the contract or make a claim for damages.
    • You are the general contractor and your framing subcontractor fails to show up on time, delaying the other trades. You want to hold the framer financially responsible for the impact costs.
    • You are the drywall subcontractor and the general contractor tells you that, because the framer was late, you must accelerate your schedule, including overtime, at no cost to the general contractor.
    • You are the drywall subcontractor and the flooring subcontractor punches holes into the drywall. The general contractor expects you to repair that at no cost.
    • You are the material supplier and your subcontractor customer tells you that, because of your "late" deliveries, the subcontractor has been hit with liquidated damages claims. The subcontractor expects you to reimburse him for those costs.

    Parties need to understand the issues and complexities involved with construction contracts, all the way from the contract formation through contract completion (or termination). When you are reviewing a contract, consider how the following fact patterns might play out in a courtroom:
    1. A prime contractor uses a subcontractor's bid as part of the general's bid to the owner. When the prime contractor informs the subcontractor that the owner accepted "their" bid, the subcontractor says he has accepted other work and is unable to do this project.
    2. A subcontractor submits a bid to a prime contractor and then turns down other bidding opportunities so that his schedule will remain open. Unfortunately, the prime contractor tells the subcontractor he has selected a different bid.
    3. The prime contractor sends a subcontract to a successful concrete subcontractor bidder. The subcontractor does not like some of the terms, so he crosses them out, signs his initials at each place, and returns the signed subcontract.
    4. The prime contractor sends a subcontract to a successful concrete subcontractor bidder. The subcontractor does not like some of the terms, so he refuses to sign the subcontract but goes ahead and does the work.
    5. The subcontractor's bid sets out specific work exclusions. When the prime contractor sends the subcontract, it does not refer to the exclusions and says the subcontractor will do "all work necessary to achieve the final result."
    6. The subcontract says it "incorporates by reference" the contract between the prime and the owner. The subcontractor objects when the prime contractor attempts to hold the subcontractor to obligations within the prime-to-owner contract.