When entering into a construction contract, it's crucial to ensure that all necessary elements are included to avoid misunderstandings and potential conflicts. A well-drafted contract protects both the contractor and the client and lays the foundation for a successful project. There are many standards you can use, here's an overview of the most important elements that should be included in a construction contract.
Overview of what must be included in a construction contract
- The parties to the contract: It's important to clearly identify the two parties involved in the contract. This includes names, organization numbers and addresses for both the contractor and the client, alternatively the main contractor and the subcontractor in the case of subcontracting.
The parties' representatives should be mentioned specifically with contact information, so that there are no unclear situations regarding who should receive a notification, for example. - The scope of the assignment: It should be described in detail what is to be carried out as part of the contract - and possibly what is not to be carried out. This can often easily be done by referring to a request for quotation and a quotation, possibly with minutes from clarification meetings/negotiation meetings between the parties. Here, the tenderer must be clear about the materials to be used, the standards to be followed and the deliveries to be included. Should there be a high standard of material delivery, or does the customer want a cheaper alternative, for example when choosing the type of flooring or HVAC equipment.
It should be described who will arrange construction power and other costs related to rigging and operation, as well as the extent to which clearing/cleaning will be carried out by the contractor. - Contract sum: State the total contract sum based on the tender submitted and accepted. If the contract sum is to be subject to indexation, this must be stated, and if so, how indexation is to take place.
Also make sure to clarify how any changes to the project will affect the price. For example, it is common to specify hourly rates for additional work from the various trades, and a mark-up percentage for material deliveries and the use of subcontractors. - Change management: Projects can change along the way. It's therefore important to agree on the process for change notifications and additional work. Decide how costs and deadlines will be adjusted when there are changes to the delivery, and establish a simple and efficient way to approve change work.
- Progress plan: When should the project start and when should it be completed? How will this be affected by any holidays?
A clearly defined timeframe reduces the risk of delays and disagreements. It's a good idea to include a progress plan with milestones and dates for partial deliveries if the project is large or complex.
If a daily penalty is to be paid in the event of delays, this must be agreed in the contract if it is not described in the tender to which the contract refers. Should the liquidated damages take the place of any other claims, or can the client claim other losses in addition to the liquidated damages?
Should a formal handover meeting be held before the project is considered delivered? Who should call this meeting?
What documentation should the contractor provide in connection with the project? Sometimes the contractor has taken on the role of responsible applicant, and is then the one who applies for a temporary use permit and completion certificate. At other times, the contractor must submit declarations of conformity to the responsible applicant.
If the contractor is to prepare FM documentation, it should also be specified - what documentation is to be prepared and what format should it be delivered in (on paper or in the form of an email/pen drive or upload to the "housing folder")? It's a good idea to agree on all of this so that you have predictability around the end of the project. - Invoicing plan and invoice information: The parties should have thought through an invoicing plan, preferably in the form of partial payments/ payments on account throughout the project. The invoicing plan is often linked to the project's progress plan, so that invoices are issued on an ongoing basis according to what has been delivered. However, note that there is freedom of contract, so progress and invoicing rate are not necessarily linked. Here you need to be clear about what is being agreed.
It should be specified how and to which (digital) address the invoice is to be sent, as well as how many days the invoice is due. The more days the invoice is due, the more risk and liquidity burden is transferred to the contractor.
Also determine the conditions under which payments can be withheld or adjusted if this is not stated in the relevant legislation or chosen standard agreement. - Guarantees and complaints: To ensure good quality and peace of mind for the client, the contract should state what warranty the contractor offers and what the warranty work entails. Also specify the complaint deadlines - i.e. how long the client has to report faults and defects.
Note that in the case of deliveries to consumers, there are minimum deadlines here that the contractor cannot deviate from.
The contractor must also be aware that the consequence of using the word "guarantee" often results in a so-called "reverse burden of proof" if defects occur during the guarantee period. - Insurances: Clarify which insurances the contractor and client should have, for example liability insurance for the contractor or building insurance. Clarify who is responsible for any damage and accidents, and how these are to be handled.
- Division of responsibilities and risk management: All construction projects involve risk. Establish who will bear the risk of unforeseen events such as weather damage, ground conditions or delivery delays. Define how such situations should be handled and what rights and obligations the parties have.
- Confidentiality: If the project involves sensitive information about building solutions or trade secrets, you can include a provision that the parties undertake not to share confidential information with unauthorized persons.
- Termination of contract: What happens if one of the parties does not fulfill their obligations? Agree in advance on the conditions under which the contract can be terminated and what the consequences will be. This makes it easier to avoid legal disputes and misunderstandings if collaboration becomes challenging.
- Dispute resolution: Finally, the contract should specify how disagreements will be resolved. Do the parties prefer negotiation, mediation or arbitration before going to court? Such a provision can make disputes easier, faster and less expensive to resolve.
Also read: Construction contracts—A framework for your projects in Norway
Proper construction contracts provide a good framework for good collaboration
A construction contract that includes the above elements provides both the contractor and the client with a clear framework for collaboration. Clear contracts reduce the scope for misunderstandings and conflicts, while increasing the chances of a successful construction project.
We recommend you seek legal advice when needed, especially for large and complex contracts, to make sure the document meets all requirements and covers all important aspects of the project so there are no surprises at the end of the project. Contact us for assistance.
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