Whatever your industry, contracts are more than just paperwork – they’re the foundation for everything you do. This is particularly true in construction, where contracts become roadmaps for multimillion-dollar projects. Your contracts spell out who does what, when something must be done and how payments are expected to happen. When those contracts are poorly drafted, vague or incomplete, however, disputes are almost inevitable.
What starts as a routine construction job can quickly turn into an expensive dispute if the contract between the parties leaves too much room for interpretation. For contractors, subcontractors, developers and property owners alike, one truth remains constant: Good contracts create clear expectations and bad contracts create lawsuits.
Ambiguity is the most common problem
Perhaps the single biggest issue is ambiguity. Vague or undefined terms in a contract can open the door to disagreements. In an industry where delays and unforeseen issues are common, ambiguity is dangerous.
For example, a contract that requires a project to be completed “on time” may sound clear enough, but what does “on time” actually mean? Is it tied to the original schedule, or to extensions caused by weather or material shortages? If one side interprets “on time” differently from the other, disputes can arise about whether a breach has already occurred.
Missing essential terms can be another issue
Construction projects involve dozens of moving parts – and often have multiple parties involved. Leaving out key details about how those parts and parties are expected to work together is a recipe for conflict. For example, a construction contract that fails to address who is responsible for obtaining permits, managing change orders or handling unexpected site conditions invites litigation.
Imagine a situation where a subcontractor begins work only to discover that some necessary environmental permits were never secured. If the contract is silent on whose responsibility that was, then the project stalls, the costs climb and both sides may end up in court arguing over who should pay for any associated losses.
A properly drafted contract anticipates these details (and many more) and allocates each party’s responsibilities clearly.
Contradictory provisions can lead to chaos
Sometimes, poorly drafted contracts become “Frankenstein agreements,” stitched together from old templates, borrowed language or online forms. The result can be contradictory provisions that confuse issues rather than giving clarity.
For example, a construction contract might include one clause requiring disputes to be resolved through arbitration, while another clause specifies litigation in a particular court. Which one applies? The only way to find out may be to fight about it in court – an outcome that defeats the whole purpose of having those clauses in a contract in the first place.
Forgotten legal requirements are also an issue
Construction contracts also have to comply with state-specific statutes and regulations. Payment clauses, lien waivers and retainer provisions all have rules. A contract that ignores the applicable laws may be deemed unenforceable or expose one party to penalties if the issue ends up in court.
For example, mechanics’ lien laws often have strict notice and filing deadlines. If a contract includes language that conflicts with the state’s statutes on liens, someone may mount a challenge that ties up a property, delays financing and more.
Failing to involve an attorney from the start
Some construction businesses hesitate to involve an attorney at the contract stage because they view it as an unnecessary expense – especially with boilerplate contracts available everywhere they look online. But in reality, the cost of drafting or reviewing a contract is minor compared to the cost of litigation.
Consider a contractor who saves money by using a generic online form for a $500,000 project. If the vague or missing terms in that contract lead to a dispute, the litigation costs could easily exceed the savings many times over – maybe even reaching into six figures. Add to that the possibility of mechanics’ liens, lost project opportunities and reputational damage, and the savings of a “DIY” contract disappear entirely.
In construction, the margin for error is slim, and the stakes are high. Poorly drafted contracts are a leading cause of project disputes, but they are also one of the most preventable. With the help of an experienced business attorney, you can keep your projects on track and out of the courtroom.
