Construction Contract Drafting Strategies:

Crafting Enforceable Payment, Performance, Termination and Damages Provisions

Christopher G. Hill, Esq. The Law Office of Christopher G. Hill, PC 4870 Sadler Road, Suite 300 Glen Allen, VA 23060 (804) 205-5155 chrisghill@constructionlawva.com Blog: Construction Law Musings

Payment Terms

Its All About Expectations!

Method of Payment

Determines Types of Disputes Must be Clearly Defined Things to Consider

Common Methods of Payment

Lump Sum Cost Plus GMP Unit Price

Lump Sum
Clarity Specific Scope Contractor Assumes Risk (except COs) Profit Margin Less Transparent Works Well with Competitive Bidding

Cost Plus
Transparent Both Sides Benefit from Efficiencies Must Define Cost of Work Owner Assumes Risk of Unknown Variables Competitively Bid Subcontracts Limit on Self Perfomance
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Guaranteed Maximum Price (GMP)

All Risk on Contractor Maximum Amount Paid by Owner Absent CO Clearly Defined Scope of Work Consider Sharing Savings

Unit Price
Definition and Breakdown of Units Enough Info for Estimate Contractor Assumes Risk of Rising Costs, Etc Less Contractor Risk Owner Takes Risk of Total Quantities

Progress Payments
Schedule of Values Advance Payment Issues Timing Procedure

Progress Payments (2)

Submissions To Whom Architects Role Owner Control?

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Progress Payments (3)

Conditions Precedent? Inspection Lien Waivers Certification from Contractor Certificate of Payment Owner Approval of Application? PAYMENT FROM OWNER (if Sub)?

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Retainage
Withheld from Each Progress Payment Owner Protection Must Balance Protection and Price Usually 5 to 10 Percent From All Work incl. Subcontractors Check State Rules Release

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Withholding Payment
Be Careful When Doing So Only Where Contract Allows Undisputed Amounts Define Circumstances Carefully Statutory Schemes

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Final Payment
Same Concerns as Progress Payments Timing Conditions Precedent Waiver of Claims on Owner or Contractor Side?

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Conditions Precedent to Final Payment

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Late Payment/Non-Payment by Owner

Require Financial Info from Owner Information To Enforce Rights Interest Stop Work/Termination Use Sparingly

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Pay When Paid

Pay when Paid v. Pay if Paid: Pay when Paid: Subcontractor not paid until Contractor is paid by the Owner Restrict only timing Pay if Paid: Condition precedent to right to payment Many jurisdictions will not enforce

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Other Payment Terms

Assignment of Contract Bonus/Penalty Clauses

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