On behalf of Thaler Law on Wednesday, May 22, 2019.
In a construction deal, there are often several different parties involved. From designers to owners and contractors to sub-contractors, there are plenty of cooks in the kitchen. Because of this, establishing liability for different parts of the project is a crucial part of a well-conceived contract.
As a contractor, you should know what risks you should and shouldn’t be responsible for. This awareness and attention to detail can help you avoid disputes in the future.
Allocating risk
A contract for a potential project should properly assign risk to each party involved. The best way to do this is to allocate each risk to the party that will best be able to minimize the danger. For example, a general contractor may assume the risk for injuries on the construction site because they are in the best position to promote safety on site. However, it would not make sense for the same contractor to assume responsibility for any potential design flaws because the designer/architect would be the best party to ensure a sound blueprint.
Accounting for risk with indemnity provisions
An indemnity provision is one method for allocating risk. An indemnity provision states that one party agrees to pay for the losses of another party in specific instances outlined by the contract. A common indemnity provision would be for subcontractors to claim a responsibility for any operational errors that result in damage to the general contractor’s equipment.
Importance of a well-written contract
According to the National Real Estate Investor, one of the most common causes of construction disputes is contract errors and omissions. Drafting legally-binding, well thought out contracts can help protect your business as a contractor.