Introduction
In the dynamic world of construction, commercial projects play a significant role in shaping our urban landscapes. These projects range from office buildings, restaurants, and retail centers to hotels and industrial facilities. At the heart of every successful commercial construction venture lies a well-structured and comprehensive general commercial contractor. This article provides a detailed overview of a general commercial contract in the construction industry, exploring its key elements, importance, and best practices.
Understanding a General Commercial Contractor in Construction
A general commercial contractor performs work that is non-residential. This can be projects such as retail, office buildings, restaurants, medical facilities, gymnasiums, stadiums, and so on. The scope of work is so broad that often times contractors will break the commercial work up into segments within their company. Examples of these sections can be a ‘healthcare division’ or an ‘industrial division’.
Commercial construction often involves a large amount of concrete and steel framing. Whereas many residential construction projects involve wood framing. Wood framing can only be used for a limited number of stories according to code books. High-rise office buildings and large commercial structures will be constructed with concrete and steel. Metal framing is the typical choice for wall framing as well, not wood.
Commercial construction is appealing to most due to its structural stability, high dollar value, quality contractors and subcontractors, and many other reasons. The NASCLA exam will grant you the ability to become a commercial general contractor in numerous states.
General commercial contracting in construction refers to the process of creating legally binding agreements between multiple parties involved in a commercial construction project. These contracts establish the rights, responsibilities, and obligations of each party. This ensures a clear understanding of project deliverables, timelines, costs, and other critical factors.
Key Elements of a Commercial Construction Contract
Understanding the elements of a commercial contract is important to the success of your general commercial contractor business.
Establishing Terms
Parties Involved: A commercial construction contract typically involves multiple parties, including the owner, general commercial contractor, subcontractors, suppliers, architects, and engineers. Clearly identifying and defining the roles and responsibilities of each party is essential for effective project management.
Scope of Work: The contract should outline the specific scope of work, including project specifications, architectural drawings, and any other relevant documentation. It should also detail the project schedule, milestones, and completion dates.
Payment Terms: Clearly defining payment terms is crucial to avoid disputes. The contract should include provisions for progress payments, retainage, change orders, and penalties for delays or non-performance. Timelines of progress payments should be clearly defined. Every party should have a clear understanding of when to expect payments.
Drawing Changes and Clarifications
Change of Scope: When performing a general commercial contracting projecting, there will typically be changes made during the project. It is important to clearly define the timelines for change or work, timelines for payments due to change of work, and timelines for notification of change of work. A good idea is to also clearly define a timeline for notification of pricing from the subcontractors due to change of work. The general commercial contractor does not want to inform the owner of the property weeks later that the subcontractor does not have interest in performing the change of work. This should be done in a timely manner.
Assumptions and Clarifications: There will be questions when initially reviewing a set of drawing plans. A good recommendation is to start an RFI log during the preconstruction phase. However, another important piece of a contract can be the assumptions and clarification section. This is to define potential assumptions made by the general commercial contractor on the drawings. If there is an exterior wall that does not have a waterproofing detail, what will the general commercial contractor pick up? Fluid applied air barrier? Tyvek wrap? There is a question here with a large cost difference. If you define how you picked up waterproofing at this wall in the contract, it will help the job go more smoothly.
Insurance
Insurance and Indemnity: General commercial contracting projects involve inherent risks. The contract should address insurance requirements for all parties involved and include provisions for indemnity and liability limits.
Unit Rates
Unit Rates: Typically, a general commercial contractor will have unit rates for various things. These can vary anywhere from unit rates for cubic yards of unsuitable soil haul off to daily rates for equipment use/rental. It is also beneficial to have unit rates from subcontractors. Having an hourly labor rate from all of the subcontractors in the contract will make the change order process go much more smoothly.
Closeout and Dispute Resolution
Closeout Documentation: A contract should clearly define the closeout procedure, submittals required for closeout and the process that will be taken during closeout. What if your project gets temporary certificate of occupancy before the certificate of occupancy? How will the owner’s move-in during this time period look? It is important to establish these procedures up front so that everyone has a clear understanding.
Dispute Resolution: A well-drafted contract should outline a dispute resolution process, such as mediation or arbitration, to resolve conflicts between parties efficiently and avoid costly litigation. Also, understanding construction law in general will give you a step ahead of the competition.
Importance of General Commercial Contracts in Construction
Risk Management: Commercial contracts serve as a risk management tool by clearly allocating responsibilities and liabilities. By establishing contractual obligations, parties can anticipate potential issues and mitigate risks, ensuring a smoother construction process. In general commercial contracting each party should clearly understand what their scope of work is. Noticing any scope gaps at the beginning of the project is helpful.
Legal Protection: Contracts provide legal protection for all parties involved. In the event of a dispute, a well-structured contract serves as a reference point, protecting the interests of the project participants and facilitating fair resolutions.
Cost Control: Clear payment terms and mechanisms in commercial contracts enable effective cost control. They establish payment milestones, allow for adjustments due to change orders, and outline penalties for delays.
Project Coordination: A comprehensive contract helps in coordinating various parties involved in a construction project. By clearly defining roles, responsibilities, and expectations, the contract promotes collaboration, minimizing conflicts and delays.
Best Practices for Commercial Contracting in Construction
Engage Legal Professionals: Working with experienced legal professionals specializing in construction contracts is essential. This ensures the contract is thorough, compliant, and aligned with local regulations.
Clarity and Specificity: You should draft contracts with clarity and specificity to avoid misunderstandings. Clearly define key terms, obligations, and expectations, leaving no room for ambiguity.
Flexibility: While it is crucial to be specific, allowing for reasonable flexibility in the contract accommodates unforeseen circumstances and prevents unnecessary disputes.
Review and Negotiation: All parties involved should carefully review and negotiate contract terms before signing. This ensures that the contract reflects the interests and requirements of all stakeholders.
Document Management: Maintaining a well-organized and updated record of all contractual documents, including change orders, correspondence, and approvals, is vital for effective contract administration.
Conclusion
In the world of commercial construction, a well-structured general commercial contractor and a comprehensive commercial contract is the foundation of successful project execution. By establishing clear obligations, responsibilities, and terms, commercial contracts help manage risks. This protects the interests of all parties, and promotes a collaborative environment. Adhering to best practices in commercial contracting ensures that construction projects are executed smoothly, within budget, and to the satisfaction of all stakeholders involved.