Construction contract negotiations have always played an important role in the property development process and are significant in resolving the divergent interests of stakeholders. I use the same checklist to make sure that I prioritize the right issues in the negotiation.
Cost: What is the likely cost implication of this clause, or if I agree to change this clause or condition in the contract what is the risk that it will cause a cost increase? If there is a likely to be a cost increase, by agreeing to changing a condition in the contract then what is the likely magnitude of the potential cost—is it $10,000 or $50,000 or more?
Time: This relates solely to the construction program and your development program. As each issue in the contract negotiation is raised, you can review each issue’s likelihood of impacting the timing of the project.
It’s important to note that this relates to both the construction program and also development program, meaning that you need to consider what the potential time implication will do to your development program (ie: sales and marketing, settlements, registration of titles).
Again, it’s important that you also review the magnitude of the potential time implication and its likelihood of occurring.
Another time element that is almost always discussed during the contract negotiation stage is contractual timeframes within the contract.
The contract is full of specific timeframes that administrative duties must be completed within. For example, there are timeframes for assessing progress claims, variations, extension of time claims and also sometimes to answer RFI (to name a few).
When contractual timeframes come up in the negotiation it is important that you hold firm on a reasonable time period but also seek legal advice as timeframes not only need to be reasonable but also within the current legislation (mainly relating to progress claims and payment of invoices)
Quality: What works really well for me is breaking up Quality into two sections:
- Clauses in the contract that impact the quality of the finished product. This includes responsibility and processes around defect mitigation and the defect liability period.
- Quality assurance in regards to having the correct documentation (ie: latest design documentation and reports), insurances, intellectual property clauses, dispute resolution processes etc included within the Construction Contract.
After reviewing all the key issues in the negotiation with the above process you will be able to easily identify what issues are the most important and what issues you will be willing to negotiate/compromise— and what issues you will need to hold firm on.
