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Clauses That Are Potential Pitfalls in Construction Contracts

The fate of construction projects can often hinge on the wording of the contract between the developer or property owner and the contractor. Fine print in a contract can facilitate or hinder the project itself and lead to legal entanglements.

If you’re a party to a Florida construction contract, you need to be wary of provisions that can cause projects to go off course. The following are among the most potentially troublesome clauses:

  • No damages for delay — Some construction contracts specify that a contractor or subcontractor may not seek additional payment for financial losses suffered due to construction delays. Although Florida courts have found “no damages for delay” clauses legal, they will not be enforced if delays are caused by a governmental entity’s fraud, bad faith or active interference with performance under the contract. In addition, a party to a contract who engages in fraudulent misconduct or willful concealment cannot take advantage of the clause.
  • Force majeure — This clause defines unforeseeable circumstances outside the parties’ control (also known as Acts of God) that can excuse delaying or terminating performance under a contract. However, a force majeure clause should be carefully worded. If it’s unclear, it can create unnecessary legal issues, and if it’s too broad, it can stop work unnecessarily.
  • Subordination of mechanics liens — Contractors, subcontractors, architects, engineers and suppliers have a legal right to impose liens on the property if the owner doesn’t pay them. A mechanics lien allows these parties to be paid from the proceeds received from the sale of the property. However, a construction contract or a lending agreement may give a mortgagee priority over mechanics lienholders, which can mean that in a foreclosure, they may not receive payment.
  • Mobilization costs — These are the costs of getting the project off the ground. The construction contract should specify whether the contractor will be reimbursed in the form of a flat fee or a percentage of the contract price, and whether payment will be made in advance or according to a schedule. It should also set out the conditions allowing requests for added reimbursement. Otherwise, the contractor may end up out of pocket for these costs, especially if the project shuts down unexpectedly.
  • Escalation — An escalation clause permits contractors to charge more when their costs increase, such as when there are disruptions in materials supply chains. Such a clause can benefit the property owner or developer by keeping the initial price estimates low, but it also introduces an element of uncertainty into the final cost of the project.

An attorney experienced in drafting and negotiating construction contracts can be of great assistance in protecting parties from these potential pitfalls at the onset of the project.

H. Clay Parker, Esq., with offices located in Orlando, represents property owners and contractors in construction projects throughout central Florida. Call 407-216-2504 or contact us online to schedule an initial consultation.

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