Today’s video is about 5 Shocking Things About Construction Contracts, click here or continue with this quick read.
The reality is that there are 5 Key Things that you have to negotiate.
If you don’t, you could potentially go out of business.
#1 NOT HAVING A RECIPROCAL TERMINATION CLAUSE
A lot of the time a contract states that your client can fire you if they are unhappy with your work.
- They could terminate you for convenience
- They could terminate you for default
- Etc.
A lot of the time it may be fair for them to terminate you if you’re not doing your job or living up to your part of the deal.
However, what isn’t fair is that you don’t have the power to be able to terminate them if they aren’t fulfilling their end.
That’s why you need a reciprocal termination clause. This means if they default you won’t run into cash flow issues.
#2 HAVING UNLIMITED LIABILITY
If something goes really wrong on a project they can come after you way more than the contract value is worth.
You need to cap liability.
Ideally, this is 50% of the contract value.
#3 HAVING NO CAP ON LIQUIDATED DAMAGES
If the delay is huge, it means the costs could spiral and spiral.
A standard cap is 5-10% of the contract value.
Knowing that there is a cap will mean that your risk is limited.
#4 AGREEING TO CONSEQUENTIAL DAMAGES
This is where you have to compensate the client for the loss of business because of being delayed. So if an apartment is late and the client can’t let the apartments out, you could be liable for this. You are essentially paying them for their loss of profit resulting from any delays.
#5 HAVING FIXED MATERIALS
At the moment steel is very expensive.
If you agree to not being paid until the steel is installed then you will run into massive cash flow issues because it’s like you’ll have taken a loan to pay for the steel.
While you wait for the steel to be installed you will lose money.
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