Terms and Conditions: Why you should add them to Your Construction Proposal

General Contractors
November 24, 2020

Construction proposals serve more of a purpose than just providing pricing information. Often, they become the basis for a contractual relationship between a contractor and their client. If this is the case, you’ll want to make sure your proposal contains some “small print” to help you protect your rights.

The following are some suggestions for terms and conditions that should be included in a construction proposal.

Pricing expiration

Material costs are constantly changing, and you need to protect yourself from future changes by putting a time limit on how long your proposal is valid. Standard terms are 30 to 60 days, but you may need to shorten that timeframe if current trends continue. Once that time has elapsed, you will then have the option to reprice the project if your client is interested.

Payment terms

Stipulate when you expect payment for your work. If your standard terms are getting paid by the 10th of the following month for work performed, you should request that in your proposal. If you require a downpayment or have a payment schedule that you adhere to for each project, it should be spelled out. Doing this lets the GC and/or the owner know what to expect when predicting their own cash flow during the project.

You should also include what happens if payment isn’t received according to the payment terms. Do you charge interest or finance charges?What’s the rate, and how often are they assessed? You should also mention your collection practices and who’s responsible for paying any collection or attorney’s fees if action becomes necessary.

Change orders

Changes occur on projects all the time. Often contractors are asked to perform extra work or make changes to the scope of work after they’re on the job site. If these changes aren’t authorized in writing, it can lead to potential disputes down the line when the contractor applies for payment. The owner may claim they didn’t know the work would cost that much or even say they didn’t authorize it. These kinds of disputes often escalate to claims and lawsuits.

Ensure that your procedure for handling changes to the scope of work is clearly defined in your proposal. Specify that extra work will not be performed until authorization is received in writing from an owner’s or general contractor’s authorized representative. Getting this approval may cause delays in the work, but with today’s technology, a simple email will often suffice as proof of consent.

Make sure you are communicating not only pricing changes but schedule changes as well. If additional work takes extra time to complete, it could affect the project’s overall completion date. If the project contract has provisions for liquidated damages or other negative consequences for finishing late, the project team needs to be aware of the potential effects of added work to the end date. Schedule changes should always be part of any change order request.

Unforeseen conditions

In addition to changes in the work requested by the owner, there may be unforeseen conditions on the project site that affect both the amount of work and the schedule. You’ll want to exclude this type of work from your proposal because it often can’t be quantified until work has begun or a contractor has exposed the damage and can assess it.

Not all trades will experience this type of condition. Site contractors may find contaminated soil or added soil that needs to be removed to make the building pad stable. Interior and roofing contractors may find dry rot when removing walls or old roofs. The owner may know of these types of issues, but often the true cost can’t be determined until all the damage is exposed or material has been removed to expose lower layers.

Like changes in the scope of work, these unforeseen conditions can potentially delay the project’s completion. Be sure to include schedule changes when submitting for added costs.

Warranties

The terms and conditions under which you warranty your work should be included in your proposal. Material manufacturers often provide terms for their warranties, and these are an excellent place to start when developing your own terms.

Most warranties don’t cover normal wear and tear of building materials. If the material manufacturer provides instructions on the proper care and maintenance of their materials, make sure you get that information to the project owner. Hence, they are aware of how to care for their building.

Note that the project owner must follow the manufacturer’s care instructions or risk invalidating your warranty. You don’t want to have to cover damage caused by improper cleaning or lack of maintenance. These types of costs should be the owner’s responsibility.

During construction, there’s a risk that other trade contractors may cause damage to your work. It’s important to note that you won’t be responsible for the cost of repairing work that has been damaged by others unless you carry an allowance for such damage, as painters often do.Ensure that you explicitly indicate the amount of time and materials you are willing to dedicate to trade damage without additional costs.

Your proposal should include general terms and conditions that provide the structure for a basic contract agreement. You don’t have to include all the possible contract terms, but it’s essential to select some that are important to your company and include them on all bids. You’ll ensure that your company is covered if the only document you receive is a signed proposal for a contract.

PlanHub is a construction bidding software and online plan room that can help you connect to a network of general contractors and subcontractors. With PlanHub’s bid management software, you can quickly and easily evaluate and compare bids from multiple subcontractors, helping you ensure you’re hiring the subcontractor that’s right for the job. To learn more about PlanHub’s features and benefits, contact us today!

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