Being a successful real estate investor means having a strong building process. But there are a lot of legal complications that surround the process of crafting a high-quality construction contract.
If you don't have a good contract, your bottom line can suffer. That's because you'll lack the protections and conditions necessary to engage with contractors.
You can end up paying for a sub-par project, or even one that never gets completed. So make sure you build a proper contract for your construction projects.
In particular, make sure it involves these elements.
1. Ensure a time frame
People are often frustrated by how long construction projects take. The government is particularly notorious for stretched out projects that take unbearably long.
This problem can also occur in a private project. But there are ways for business owners to cope with and even fight against this length. One of the most important is by putting a time frame into the construction contract regulating the project.
This is essential for ensuring accountability. If you make sure that the people you work with will be held to a time frame, you're more likely to have the project done as efficiently as possible.
While you should add a clause that allows for extensions (in cases of absolute necessity,) it's worth noting that, most of the time, you simply won't need to use it.
2. Acquire legal protection
A contract is absolutely useless if there's no process for legal protection. This is why you need to look things over with your lawyer before taking on any new projects.
If there's no system of enforcing the contract, you might as well not have it. But along with working with your lawyer, you also need to make sure your project doesn't violate any laws.
It can be a pain to get a building permit in a lot of cities. It can also be hard to make sure your project is consistent with things like zoning regulations.
Your construction contract should involve in-depth legal research. It's always better to play it safe than to find out, at the last minute, that you're missing some essential aspect of the building process.
This can make your building illegal and result in massive fines. It can even mean that you have to shelve the building entirely. So make sure you play it safe.
3. Know the price
A construction contract works to protect both parties. Your contractor does not want you to underpay. Similarly, you don't want them to overcharge.
Unfortunately, overcharging can be an incredibly common problem in the business world. It's incredibly common for people to spend time asking if their contractor is overcharging.
This even happens when people are being given a fair price. And often, it's because no standard of fairness was established before the project began.
Specifying the price in your contract is one of the most important ways to avoid this problem. It helps you avoid both being overcharged and also provides a convenient way to handle pricing disputes.
If you don't know how much your project costs, you'll be unable to make a smart decision about it.
This is an essential part of any construction contract.
4. Confirm what you're paying for
In addition to knowing how much you're paying, you'll need to include what you're paying for within the contract. This is true for two reasons.
The first is verification.
Most people don't know the exact price of a project. If somebody gives you a totally out of context price range, you won't know how much is going to materials and labor.
The second is leaving room for change.
While a project may have a particular price as it begins, that price can change as it continues. By knowing how much particular materials cost, along with the hourly cost of labor, you can make sure these adjustments are fair and accurate according to your construction contract.
5. Understand what the risks are
Any project has risks. If you don't understand what the risks are in your project, you will not be able to complete it successfully.
Understanding risk isn't just essential in construction. Any business is built upon the fact that you'll look at the risks of an investment and decide if it's a good idea.
In this respect, your contract can also be an opportunity to learn whether or not you should invest in the project. If the risks are too high, you can consider doing something else.
6. Establish your goals
Along with understanding the risks of a project, a construction contract can be a great way to learn exactly what your investment goals are.
Make sure the goals of the project are written in the contract you give out. Not only will this help you have a firm understanding, it will also help your contractor.
This is a great way to make sure that there are no misunderstandings when the finished project is unveiled. It can also help you create a firm timetable for building success.
7. Have a process for handling disputes
Disputes happen. Whether you need to hire a new contractor or think something is being done poorly, there needs to be a process for handling problems that may arise.
A process outlined in the construction contract is essential. Without it, you won't be able to avoid expensive legal fees and lengthy proceedings over something that should not be a problem.
You may even end up paying for work you don't accept. So make sure you include this process.
One of the only ways to avoid overpaying is by hiring the best contractor, or an owner's representative that can represent you during the construction project. If you're in the Philadelphia area, feel free to contact us for more guidance.