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Nailing It: Guide to Contract Management in Construction

by Busines Newswire
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When a building gig doesn’t stick to the plan, it’s like a domino effect. Imagine, just one late delivery of materials can spark a whole chain of delays, blowing your budget and causing a heap of other headaches. Not to mention, if you mess up on following the rules, you’re in for even more trouble. But hey, since all these construction relationships are tied up in contracts, getting smart with contract management can be a real game-changer in making things run smoothly.

Think of contract management as a tidy, methodical way to make sure every part of a contract – from what needs to be delivered, when, and how things need to be made – is followed during the contract’s lifespan. In the construction world, sharp contract management is crucial. It not only ensures your build goes as planned but also helps you spot potential issues before they throw a wrench in your project. Plus, it’s a big deal for keeping your costs from spiraling.

Handling contracts usually means going through a bunch of key steps, from figuring out how your company will deal with contracts, perhaps by integrating robust Contract Lifecycle Management (CLM) software, making standard contract templates for common business stuff, all the way to sorting out each deal. This involves drafting, negotiating, signing, and managing them until everything’s wrapped up. To really get your money’s worth from any contract, you’ve got to fine-tune these steps, making sure your contract management is both smart and slick.

In the construction scene, there are three main contract types that are pretty popular, each with its own risks and chances to make things work better for everyone involved.

  1. Lump Sum or Fixed Price Contracts

These contracts lock in a total set price for a construction job. They should lay out the project’s scope and timelines clearly, maybe throwing in bonuses for early completion or penalties for delays.

Optimization Tip: With these contracts, you know your costs or earnings straight up, and can plan your budget around the project’s scope. But watch out if there’s a change in what’s planned during the build. The trick to nailing these deals is to stick closely to the project specs – and if things veer off track, communicate fast and clear. When changes pop up, make sure to get approval on any plan and price tweaks. Jot these down in an extra document called a rider, signed by everyone, and keep it with the original contract for quick reference.

  1. Cost Plus Contracts

Here, pricing is based on the real costs of a construction job plus some extra fee. This extra could be a percentage of the costs or a set fee, and the contract might specify a minimum project cost or a fee cap.

Optimization Tip: Since the project scope is often not set in stone with these contracts, the final price tag depends on how things pan out. The lack of clarity makes a solid contract even more vital to protect both builders and owners – if the job’s quicker than expected, the builder might not make as much as hoped; and no one wants a final bill that’s through the roof. This is where crafting a great contract comes in.

Spend some time fine-tuning your contract drafting and negotiation by looking over past contracts and project outcomes. This helps you create the best agreement possible, especially when the project scope isn’t crystal clear. Having an organized contract library is super useful for this; if you’ve tagged your old contracts well (and they’re searchable), you’ll find the relevant ones in no time. Doing regular contract reviews after the fact can also show you what worked and what didn’t for next time.

  1. Time and Materials Contracts

Similar to cost plus contracts, time and materials contracts are used when the project’s scope isn’t clearly defined. In these deals, the price is just based on the real cost of materials and the time the builder and subcontractors put in. They’re usually chosen for shorter or smaller projects.

Optimization Tip: Like with cost plus contracts, these don’t have a set scope. But they should clearly outline labor rates (including admin work), max and min hours, material markups, and any limits. Since the project details won’t be specified in these contracts, you can save time by making standard time and materials contracts with pricing and other terms laid out. Doing this upfront means you don’t have to start from scratch or risk missing a crucial clause every time you enter such a deal – and it cuts down on the initial admin work, so you can get started on the job sooner.


So, there you have it! Keeping a keen eye on your contracts in construction can save you from a world of headaches, budget blowouts, and time-wasting surprises. Remember, the secret sauce to a smooth project is staying sharp with your contract game – it’s like having a roadmap in an often crazy construction world!