Contractors and design professionals typically view construction contracts as a necessary evil—a complicated and time-consuming task that must be completed before getting down to business. Construction contracts can be several pages long or hundreds of pages, and in both cases signing the dotted line before reviewing the language creates incredible risk. Here’s what you need to know.
Scope of Services
The scope of services section of a contract can be exhaustive. Ideally, it should:
- Clearly identify each item and/or category of work the design professional or contractor will provide
- Clearly explain any assumptions on which the scope of work is based
- Specify exclusions from the scope of work
Standard of Care
Nothing is more important for a contractor than the standard of care. Standards of care may be established by the contract, by statute, or common law. Maryland common law defines specific standards of care for designers, but not for contractors. Typically, owners seek to heighten the standard of care in the contract with defect-free guarantees, and it is the responsibility of the contractor and designer to review the contract and make sure the language isn’t too strict (defect-free) or too vague (“to the owner’s satisfaction” or “first-class installation”).
Both design service contracts and construction contracts require the provider to have general liability, workers’ compensation, and automobile insurance. Contractors are also typically required to have operations insurance that protects their work for a designated number of years after the project is completed. Design professionals and contractors are advised to bring the owner’s insurance policy and the construction/design contract to an insurance broker and make sure the terms do not contradict one another.
Another issue is indemnity. Many construction contracts include a much narrower form of indemnification than what is permitted under Maryland common law. In other cases, the language is far too broad. Contractors and designers should have a lawyer and/or insurance broker review the language.
Instruments of Service
Instruments of Service, including designs, models, and sketches are protected from duplication by federal copyright law. That being said, confusion and legal struggles often result when an owner who pays for the designs decides to terminate the contract before it is completed. To avoid this legal gray area, make sure the contract clearly answers the following questions:
- Who owns the Instruments of Service?
- Who has a license to use the Instruments of Service, and how?
- What restrictions are placed on the use of the license?
- What happens to the license if the owner or design professionals terminate for cause or convenience?
- What indemnification rights should the design professional receive if the owner uses its Instruments of Service without retaining its services?
Title Services and Legal Consultations for Builders
Lakeside Title Company works with builders in Maryland, Washington D.C., Northern Virginia, and Southern Pennsylvania. We tackle all the title work, so you can focus on what you do best. For more information, please visit our homepage.
If you, a colleague, coworker, client, friend, or family member has a question for an attorney regarding your construction contract, Lakeside Title Company’s affiliated Law Firm, Deardorff, Rath & Pichon, LLC has you covered. Click here to contact Lakeside Title Company OR Deardorff, Rath & Pichon, LLC.
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