Offices in Ottawa and Perth
(613) 722-1500

CONTACT US (613) 722-1500

Importance of Construction Contracts in a Construction Project

Importance of Construction Contracts in a Construction Project

By:

Mann Lawyers

Posted December 17, 2020

Construction and renovation projects are a big investment for all parties involved, whether you’re an Owner, a Contractor or a Subcontractor. Such projects involve risks, including but not limited to, financial risks, project delays and safety risks.

The best way of alleviating these risks and chances of a construction or renovation project running into issues is by having a well-drafted construction contract.

Construction contracts are an important tool which can provide certainty to a construction/renovation project as well as mechanisms to mitigate risks. They also define the relationship between the parties to the said project. The parties to a construction contract can be, for example, an Owner and a general contractor, a general contractor and a subcontractor, a subcontractor and a sub-subcontractor, etc.

Of many clauses that can be included in a construction contract, some important clauses to consider when entering a contract are the following:

  1. Scope of Work

It is important that the work be defined as precisely as possible and that any work that is to be excluded be expressly stated in the contract. Defining the work too broadly may create misunderstandings and false expectations, resulting in potential disputes between the parties in the future.

  1. Payment Terms

Stipulating the terms of payment in a construction or renovation project can not only assist in avoiding delays in payment and with the project, but it can also assist in ensuring cash flow throughout the project.  Of payment terms to define are the dates as to when payments are to be made, the method of payment as well as interest, penalties and remedies, should payment be late.

  1. Project Price, Cost and Change Orders

The lack of clarity as to the project price (or the subcontract price, if applicable) can lead to significant dispute between the parties. In fact, construction and renovation disputes are most commonly related to the price and cost of the project.

A construction contract should specify whether it is a fixed-price contract or a cost-plus contract. A fixed-price contract is the most common type of contract which provides that the contractor will perform the specified scope of work at a fixed-price.  Such contract can provide certainty to an owner as to the cost of the project, if finances are limited. A cost-plus contract provides that an Owner will pay the actual costs paid for labour and materials on the project. In addition to same, the Owner will pay a contractor fee for managing the project. With this type of contract, it is easier to make changes to the project. Further, an owner has the benefit of receiving all invoices to support the cost and price of the project.

Most construction or renovation project require changes to the initial Scope of Work. Terms should be set out in the contract in the event that changes are requested or required to expand the initial scope of work. Of common terms to be stipulated are the requirement that changes be agreed to in writing by way of change orders before work can commence and that the change orders specify the new scope of work, the cost of the additional work, the additional time required to perform the work, the new project schedule and new payment terms. A lack of detailed written change orders can expose the parties to further dispute in their construction project.

The above noted clauses are only a few of many important clauses that can be included in a construction contract. The type of clauses that should be included in a construction contract is case-specific. Whether you are a Contractor, Subcontractor or an Owner, consult with a lawyer before entering into any construction contract.

This blog post was written by Stephanie Simard, a member of the Real Estate and Family Law teams.  She can be reached at 613-369-0385 or at stephanie.simard@mannlawyers.com.

More Resources

Blog |
Employment, Labour, and Human Rights, Commercial Litigation

By: 

Posted May 23, 2023

Both in my commercial and employment litigation practice, I encounter Ontario business owners faced with serious charges laid against them under the Provincial Offences Act[...]
Blog |
Family Law

By: 

Posted May 18, 2023

The recent Supreme Court of Canada decision in Anderson v. Anderson, 2023 SCC 13, provides guidance on domestic contracts and the enforceability of an informal[...]
Blog |
Environmental Law

By: 

Posted May 16, 2023

When many people think of contaminated sites, they think of the usual suspects such as industrial properties and gas stations.  They may not think of[...]
Blog |
Business Law

By: 

Posted May 9, 2023

Often business owners reach a point where they are considering the sale of their business either through the sale of shares or the sale of[...]
Blog |
Family Law

By: 

Posted May 2, 2023

Overview of Tort Claims in Family Matters Tort claims can be made in family law matters, so as to prevent a multiplicity of proceedings and[...]
Blog |
Employment, Labour, and Human Rights

By: 

Posted April 25, 2023

In a case that recently was decided from the Court of Appeal of Ontario called Celestini v Shoplogix Inc., 2023 ONCA 131, the Court had[...]

Subscribe to Our Newsletter

"*" indicates required fields

Name*
Consent*
This field is for validation purposes and should be left unchanged.