Construction contract review requires constant cycles of negotiation. Agreements between contractors, subcontractors and owners that describe the work to be carried out and payment terms are essentially reviewed three times, at the bid (pre-contract) stage, the negotiation (pre-execution) stage, and again during performance, with contract amendments continuing as the project is underway.
This three-fold review is time-consuming and requires a significant investment up-front from contractors and sub-contractors who are bidding on a project. This means that efficient contract review is of prime importance for the construction industry.
This article explains the three phases of construction contracting, efficiency pitfalls and how AI contract review software may help improve the process.
Bid Stage
This is the first stage of the contract process for the construction industry. The client’s contract administrator puts out an RFP – or request for proposals – that outlines the project and its conditions. This stage is vital because it allows some consensus prior to a complex contracting process and paves the way for a document that is acceptable to both parties.
Bidding contractors must review the RFP diligently to ensure the project is a fit and that they can properly execute. As part of submitting their bid, contractors need to arrive at a reasonable price within the acceptable terms, with a cost estimate based on the project plans and provided information.
How quickly and effectively contractors can assess whether bids are a fit and submit winning bids has a significant impact on their work pipeline, revenue and profitability. Therefore, the ability to review RFPs and other bid materials quickly but effectively in the pre-contract stage is imperative.
Negotiation Stage
Once selected for the job, a construction company works with the owner to negotiate the contract. During this stage, contractors also solicit bids from subcontractors by distributing bid invitations, creating additional contracts for one job.
The negotiation stage covers the factors that go into the contract, including cost, scope, timeline, and other expectations.
Many redlines and iterations of the contract may occur as the parties negotiate key terms from their respective positions. For example, items of concern to the client might include recovery of consequential damages due to contractor delay, insurance coverage, or dispute resolution provisions. A contractor might want to ensure that the client bears the cost of any changes in materials prices or that the contractor is not liable for any delays due to force majeure or other events out of their control.
With so many contract iterations, it is critical for companies to quickly identify salient negotiation points so they can communicate clearly and efficiently.
Performance Stage
The need for contract review in construction continues even once the contract is signed. The primary objective of this stage is to compare the projected performance with actual performance on the work site. In this stage, the client monitors the job’s progress, timeline, and budget to keep the job on the right track.
Because variables often change once the project has started, the contract should have flexibility.
As the contract is reviewed and re-reviewed, various addenda to the contract are often attached. Addenda and contract revisions can make the contract lengthy and the task of negotiating new amendments even more onerous.
Multi-Stage Contracts Are Time-Consuming
Large enterprise construction organizations have many contracts at various stages, from bid to execution. Overseeing the key stages of contract review can be time-consuming as organizations may have numerous contracts in different stages.
This makes AI contract software like BlackBoiler important in speeding up the contract process. This software also streamlines bidding and shortens deal cycles, thereby unlocking revenue.
BlackBoiler assists legal teams in increasing the efficiency and speed of contract negotiations. Its automated Contract Markup technology accelerates deals, minimizes costs and frees up the resources for other challenging tasks. To set-up a demo, click here.
