4 tips to avoid contractual pitfalls between contractors and suppliers

Monica Gameng   |   November 25, 2015

Construction companies have two main priorities when it comes to business growth strategies - securing the work, and satisfying the client. However, when you concentrate on any one issue above all else, you can miss small yet important details. This is often the case between contractor and supplier relationship breakdowns. 

Overlooking important details on contractual terms could lead to a messy dispute between the contractor and the supplier, that’s why construction companies hire lawyers to look over the terms written on the contract and to negotiate with the other party which will ultimately lead to a middle ground that both sides will agree upon.

Below we list different ways to avoid pitfalls between contractors and suppliers: 

  1. Have a copy of all documents


As a contractor or supplier, the contract that is presented to you might not contain all the project specifications and obligations related to your work, that’s why it’s important to obtain the prime contract – a type of contract that documents all the requirements, obligations and limitations of all the people involved – and all other documents related to the project in order for you to fully know and understand all work provisions and how you are bound by the contract.

  1. Clearly define terms and project scope in contracts

In the construction industry, there are some terms which are hard to understand or clients might not be familiar with some of the terms found in a contract, that’s why it’s important to clearly define terms when writing a contract. If terms are unclear to either a client or the contractor, misunderstandings are bound to happen which, in turn, will lead to a dispute.

The same goes for the project scope. Clearly defining the scope of a project in the contract will help both client and contractor know what they can and can’t do while working on a project.

  1. Define your indemnification clause

An indemnification clause is part of a contract which states that you or your client (or both parties) promises to compensate for any type of loss, injury or liability that may arise out of the contract. There are three forms of Indemnification clause – limited, intermediate and broad.

A limited indemnification clause will state that you will only be held liable to any loss or injury only to the extent of your own fault. On the other hand, an intermediate indemnification clause will state that you will be responsible in compensating for any loss or injury except for when it is caused by the other party’s negligence. Lastly, a broad indemnification clause will state that you or the other party will solely be responsible to compensate for any loss or injury regardless of who is at fault.

Clearly defining the form of indemnification that you will uphold will help you limit your responsibility as a contractor or as a client whenever an unfavourable event occurs. This will also help avoid any legal dispute if (and only if) one or the other denies any compensation for an injury or loss while working on a project.

  1. Get it in writing and put it in writing


Any point that states how you are bound to a contract should be written down and documented. The most important thing to get in writing are change orders. Any change made – agreed upon by you and the other party – should have a documentation that you or the other party can refer to in the future. Taking action of any change in the project without a signed change order is risky because if something goes wrong, the other party can dispute that you acted upon the change without any authorisation – which will ultimately lead to a law suit. To avoid a legal dispute in the future, document all changes made to the project you are working on.

Another way to avoid a legal dispute between you and the other party is to put every detail of the project in writing. Details to include should be the limitations of your contract, the obligations of the people involved in the project, the complete project scope, and other terms and conditions of the contract. The more detailed the contract is, the easier it is to understand what both parties’ (contractors and suppliers) conditions are that should be followed by one or the other.

Contract disputes are the most common pitfalls between contractors and suppliers, and oftentimes it is unavoidable due to differences on how each side understand what was written on the contract presented to them. Thoroughly checking what is written in the contract before signing it will ultimately help you avoid breaching an agreement that you and the other party have settled on.

Happy clients mean that they will be back to hire from you and even help spread the word about the great job you did for them. With a comprehensive contract, your clients are very likely to be satisfied with your services. To get these work opportunities in the first place, we've created a free infrograph to help attract clients. Check it out below by clicking on the button! 

Monica Gameng
As Felix's Marketing Assistant since 2015, Monica is responsible for researching and sharing new and progressing projects within the construction and mining sectors in Australia. It's no surprise that Monica has her finger on the pulse of Australian major projects given she has produced more than 1,000 posts. She truly is an industry expert.
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