Construction projects are an immense undertaking that require close collaboration between an owner and a contractor. In a perfect world, owners would continually dish out money until the project was completed. Unfortunately, contractors and owners vie for profitability throughout the building process. Contractors don’t want to be underpaid, and owners don’t want to be forced to overpay for an underwhelming product.
How can we level the playing field for both parties? The simplest way is by utilizing various types of contractual provisions, like the Securing the Parties’ Performance Provision introduced in part one of this two-part series. If you are interested in incorporating the Securing the Parties’ Performance Provision into your next contract, consult a Miami contractor attorney from Cotney Construction Law.
What Are the Common Issues with the Securing the Parties’ Performance Provision?
From the owner’s perspective, the main issue with the Securing the Parties’ Performance Provision is that the contractor can terminate work on a project if they reach the credit limit. Legally, the contractor doesn’t have to resume work until the owner makes additional payments or other assurances to help repair the credit relationship.
An even more problematic scenario for the owner involves the contractor reaching the credit limit and then immediately enforcing a mechanic’s lien on the owner or expanding the credit limit because the provision wasn’t clearly detailed when the contract was signed. This can lead to the contractor partaking in extra, unapproved work, resulting in exorbitant costs for the owner. Although many of these issues can be settled outside of court, they will inevitably cause project delays as additional negotiations aim to plot the future of the project moving forward.
The Securing the Parties’ Performance Provision is intended to bolster confidence between the owner and the contractor, but unfortunately, due to the issues mentioned in the previous section, this isn’t always the case. To avoid the issues, it’s always a good idea to have your provision reviewed by an independent counsel so you can tailor the terms and conditions to best suit your firm’s abilities and the owner’s intentions. In addition, you should clearly outline information regarding when and how the credit limit can be changed as necessitated by the project. Owners are almost always wary of becoming the target of a mechanic’s lien. To exhibit your trustworthiness and inspire confidence in your owner, allow the owner to supplant a fulfillment clause in your provision to show them that you are willing to let them use the provision to their benefit, too.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.