AI Review for Master Construction Contracts

What is a Master Construction Contract?

A Master Construction Contract is a master contract between a land owner or developer and a contractor for the provision of construction services. The agreement is used in the traditional Design-Bid-Build (DBB) method of construction and defines the rights and obligations of both parties.

Notably, an Master Construction Contract differs from a Master Design Build Contract in one key respect: the contract only provides for construction services as opposed to construction and design services. As such, an Master Construction Contract is somewhat less complicated than an Master Design-Build Contract in certain respects, though the DBB method of building may in fact be more complicated as third parties are necessarily involved but under separate contracts with the owner. Thus, you will note that many of the provisions of the Master Construction Contract are the same as or similar to the provisions in the Master Design-Build Contract, but adjustments have been made to reflect that design is not part of the services that will be provided under the contract.

For example, the intellectual property provisions will be different between the two contracts as in the DBB method of construction most of the designs will have been drawn up by a third party architecture or design firm hired directly by the owner. Similarly, the warranties offered by the contractor will not extend to defects in the project designs as the contractor is not responsible for their creation.

Key Considerations in Master Construction Contracts

According to the provided document, some of the key articles typically found in a Master Construction Contract include:

1. Payments: This article is generally extensive as the payment process in the construction industry is more complex than in many other industries. Typical provisions in this article include, for example, Schedule of Values, Payment Applications, Progress Payments, Retainage, Final Payment, and Use of Payments.
2. Changes in Work: This article, which may also address work suspensions, is key in this industry because of the substantial degree to which changes in construction plans and materials tend to occur during the building process. This article usually includes provisions addressing Change Orders, Construction Change Directives, Emergencies, Unknown Conditions, and Changes to Contract Time and/or Price.
3. Claims & Disputes: The article should define "Claims" and explain how Claims will be handled by the parties involved through a dispute resolution process that will, hopefully, help the parties avoid litigation.
4. Remedies: This article includes a variety of different remedies available to each party should the other party breach such as liquidated damages, the right to stop work, use of the contractor's equipment, etc.
5. Indemnification: This article is unique in the construction industry because of the inherent danger involved in construction work. As a result, it should specifically address bodily injury and death, safety hazards, and hazardous materials, as well as the impact of any statutes regarding workers' compensation, disability, and other mandated employee benefits. Parties should also consider any state anti-indemnity statutes.
6. Ownership of Work Product: This article addresses whether the owner or the contractor will own the work product, and to what extent the other party can use that work product.
7. Assignment: The owner will want to ensure that it can assign the contract to a lender and that the contractor contingently assigns its subcontracts related to the project to the owner to avoid project delays and continuity issues if the owner must terminate its contract with the contractor.

In addition to these key articles, a comprehensive Master Construction Contract should also include:

8. Scope of Work: A clear definition of the construction services to be provided by the contractor, including any specific exclusions or owner responsibilities.
9. Contract Documents: Identification of all documents that form part of the contract, such as plans, specifications, addenda, and change orders.
10. Contract Time: Specification of the start and completion dates for the work, as well as any milestones or phasing requirements.
11. Insurance and Bonds: Requirements for the contractor to maintain appropriate insurance coverage and provide any necessary performance and payment bonds.
12. Subcontractors: Provisions addressing the contractor's use of subcontractors, including any required approvals, flow-down provisions, and payment responsibilities.
13. Termination: Conditions under which either party may terminate the agreement, and the consequences of termination, such as payment obligations and ownership of work product.‍
14. Governing Law and Dispute Resolution: Specification of the governing law for the agreement and the methods for resolving disputes, such as mediation or arbitration.

Checklist for a Good Master Construction Contract

To ensure that your Master Construction Contract is effective, comprehensive, and legally sound, use this checklist:

• Clearly define the scope of construction services
• Identify all contract documents
• Specify the contract time, including start and completion dates
• Detail the payment process, including applications, progress payments, retainage, and final payment
• Address changes in work, including change orders and directives
• Establish a claims and disputes resolution process
• Outline remedies available to each party in case of breach
• Include indemnification provisions tailored to construction risks
• Address ownership and use of work product
• Include assignment provisions for lenders and subcontracts
• Specify insurance and bonding requirements
• Address the use and responsibilities for subcontractors
• Outline termination conditions and consequences
• Specify the governing law and dispute resolution methods
• Ensure the agreement complies with relevant laws and regulations
• Have the agreement reviewed by legal counsel and construction industry experts
• Ensure the agreement is signed by authorized representatives of both parties

AI Contract Review for Master Construction Contracts

To give you a sense for the benefits of leveraging AI for legal documents trained by lawyers, we’ve selected some sample language our software presents to customers during a review. Keep in mind that these are static in this overview, but dynamic in our software - meaning our AI identifies the key issues and proactively surfaces alerts based on importance level and position (company, 3rd party, or neutral) and provides suggested revisions that mimic the style of the contract and align with party names and defined terms.

These samples represent less than 5% of the pre-built, pre-trained Legal AI Contract Review solution for Master Construction Contracts. If you’d like to see more, we invite you to book a demo.

ADDITIONAL OBLIGATIONS OF CONTRACTOR

For: Owner

Alert: May be missing a provision requiring contractor to ensure the safety of the site during the project.

Guidance: It is generally advisable for contractors to prioritize and maintain the safety of the construction site throughout the project's duration. This approach serves to protect the interests of all parties involved, including the client, by minimizing the risk of accidents, injuries, and potential legal liabilities that may arise from an unsafe construction site.

For example, in a construction project where the contractor is responsible for building a new office building, the client can be confident that proper safety measures are in place, reducing the risk of accidents and injuries to workers, visitors, and the general public, and minimizing potential legal liabilities and financial losses.

Additionally, it is critically important to consider relevant federal laws such as the Occupational Safety and Health Act (OSHA), which sets forth federal safety standards and regulations for construction sites, as well as any applicable state and local safety regulations. By incorporating these legal requirements into the Master Construction Agreement, the client can ensure that the contractor is held to the highest safety standards, further protecting the interests of all parties involved.

One significant exception to the primary legal principle is the ""Sole Negligence"" or ""Sole Responsibility"" exception. This exception arises when the contractor's duty to ensure site safety is limited or negated due to the negligence or actions of another party, such as the owner, architect, or another contractor. In such cases, the contractor may not be held fully responsible for safety-related incidents or accidents that occur on the construction site, as the responsibility is shared or solely attributable to the other party. This exception is often addressed in the indemnification provisions of the Master Construction Agreement, where parties allocate risk and responsibility for claims arising from the project.

Sample Language:

ADDITIONAL OBLIGATIONS OF CONTRACTOR

Compliance. CONTRACTOR shall perform the Work in compliance with all applicable laws, rules, regulations, and lawful orders of public authorities (“Applicable Laws”). CONTRACTOR shall obtain necessary permits, licenses, and inspections for the Work per Contract Documents requirements. If CONTRACTOR performs Work knowing it violates Applicable Laws, then it accepts responsibility for the costs of correcting such Work. CONTRACTOR shall notify OWNER if it becomes aware that any of OWNER’s instructions or the Contract Documents violate Applicable Laws, and the Parties shall execute an amendment or Change Order if and as necessary to conform the contract requirements to Applicable Laws. CONTRACTOR, with the assistance of OWNER, shall prepare and file documents required to obtain necessary approvals of governmental authorities having jurisdiction over the Project.

Diligence. CONTRACTOR shall furnish diligent efforts, judgment and all labor, supervision, materials, equipment, permits, shop drawings, tests, inspections, field dimensions and other necessary services to properly perform the Work so that job progress, sequence and timing conform to the Contract Documents, including the Construction Schedule issued by CONTRACTOR. If CONTRACTOR falls materially behind the currently approved Construction Schedule, OWNER may require CONTRACTOR to prepare and submit for approval, at no cost to OWNER, a plan for finishing the Work by the Substantial Completion Date. Failure to submit a plan meeting this requirement shall constitute grounds for termination of the Work Order under the terms of this Agreement.

Standard of Care. CONTRACTOR and its personnel shall perform all services under the Contract Documents consistent with industry standards of care and skill in the state where the Project is located. This includes good practices, methods, and acts reasonably expected to accomplish the work per the Contract Documents at a reasonable cost, safety, and efficiency. Construction activities shall be performed competently to meet Contract Documents and legal requirements. CONTRACTOR shall at all times maintain complete control over construction means, methods, sequences, and techniques.

Key Personnel, CONTRACTORs, and Suppliers. For performance of the Work, CONTRACTOR shall not employ personnel or contract with suppliers or contractors reasonably and timely objected to by OWNER, nor shall CONTRACTOR be required to contract with anyone about whom it has reasonably and timely objected. If CONTRACTOR decides to change any personnel or required suppliers or contractors identified in a Work Order, it shall notify OWNER and provide the name and qualifications of the substitute personnel, supplier, or contractor within [●●] ([●●]) days of such decision. CONTRACTOR shall furnish OWNER with a list of the names of persons and entities (including those fabricating special design materials or equipment) proposed for major portions of the Work that are not already identified in the Work Order within [●●] ([●●]) days of Work Order execution. OWNER may lodge a reasonable objection with CONTRACTOR to any of the aforementioned personnel, suppliers, or contractors in writing within [●●] ([●●]) days of notice, and failure to do so constitutes no reasonable objection. If OWNER reasonably objects, CONTRACTOR shall propose another non-objectionable person or entity. CONTRACTOR shall be responsible to OWNER for acts and omissions of the CONTRACTOR’s employees, consultants, contractors, and their agents and employees, and other persons or entities performing portions of the Work under contract with CONTRACTOR.

Inconsistencies. Before performing Work, CONTRACTOR shall visually inspect the site to become familiar with conditions and identify any document discrepancies, which will be promptly reported to OWNER. CONTRACTOR shall compare Contract Documents and report any errors, inconsistencies or omissions to OWNER in writing within [●●] ([●●]) days. Similarly, If part of CONTRACTOR’s Work depends upon construction or operations by the OWNER or a separate contractor, CONTRACTOR shall, prior to proceeding with that portion of the Work, prepare a written report to OWNER, identifying apparent discrepancies or defects in the construction or operations that would render it unsuitable for proper execution of the CONTRACTOR’s Work. CONTRACTOR shall comply with OWNER’s instructions regarding such issues but remain responsible for its own errors and omissions. If clarifications require additional cost or time, CONTRACTOR may submit a Claim in accordance with this Agreement. If CONTRACTOR’s failure to report discrepancies causes OWNER liability, CONTRACTOR shall pay the associated costs and damages to OWNER.

Communications. Unless the Contract Documents state otherwise or there is an emergency, CONTRACTOR shall direct all Project communications to OWNER.

Submittals. CONTRACTOR shall timely submit required shop drawings, product data, samples and similar submittals in the sequence needed to avoid Project delays. Submittals shall be in electronic form, if required. CONTRACTOR represents it has reviewed and coordinated submittals with Contract Documents and Work requirements. OWNER may rely on the adequacy and accuracy of required certifications. Submittal approvals shall not authorize changes without a Change Order, except when express written OWNER approval is given and memorialized in a Change Order, specifying any necessary adjustments to price or time, within [●●] ([●●]) days following approval by the OWNER. CONTRACTOR shall furnish progress reports as mutually agreed and evidence of payment for labor and materials when OWNER requests.

Safety. CONTRACTOR recognizes the importance of performing the Work safely to prevent damage, injury or loss to people at the site, to the work itself, and to adjacent property. CONTRACTOR assumes responsibility for implementing and monitoring all safety precautions and procedures related to the Work. Prior to construction, CONTRACTOR shall designate a Safety Representative to supervise safety implementation and monitoring. This representative shall conduct routine inspections, hold weekly safety meetings, and ensure compliance with all legal and OWNER-specific safety requirements, including disease prevention, provided they do not violate Applicable Laws. CONTRACTOR shall promptly report in writing any safety-related injury, loss, damage or accident to OWNER’s Representative and authorities as legally required. Prior to bringing hazardous materials on site, CONTRACTOR shall notify OWNER in writing in time for other parties to comply with laws. If precautions cannot adequately prevent foreseeable injury or death from encountered hazards at the Project site, CONTRACTOR shall immediately stop work, promptly notify OWNER in writing, and only resume work once the hazard is removed and OWNER agrees in writing. CONTRACTOR shall be entitled to appropriate time and price adjustments for related demobilization and remobilization costs to the extent provided under the Contract Documents. CONTRACTOR's responsibility for safety does not relieve its subcontractors of their own contractual and legal obligations related to complying with laws and regulations and implementing safety precautions and programs.

Site Conditions. CONTRACTOR shall keep the Project site clean of its own waste and rubbish, but is not responsible for conditions caused by other parties. If CONTRACTOR does not perform required clean-up, it shall reimburse OWNER its share of clean-up costs. CONTRACTOR shall take necessary precautions to protect all on-site work from damage. CONTRACTOR shall provide the OWNER and its separate contractors and consultants access to the Work in preparation and progress wherever located, but neither Party, nor its contractors or subcontractors, shall alter construction partially or fully completed by the other Party without prior written consent, which shall not be unreasonably delayed or withheld. 

Plans on Site. CONTRACTOR will maintain at the Project site a copy of all relevant plans, addenda, Change Orders, supplemental drawings, written directives, approved submittals, inspection reports, and an updated Construction Schedule, which shall be available for review by authorized personnel at all reasonable times.

Tests and Inspections. Tests, inspections, and approvals of Work portions shall be made as required by the Contract Documents and Applicable Laws and without unreasonable delay. Unless otherwise provided, CONTRACTOR shall arrange such procedures with an independent testing entity acceptable to OWNER and give OWNER timely notice of when and where testing or inspections will occur so OWNER may be present. Unless otherwise stated in the applicable Work Order, such testing and inspections shall be at OWNER’s expense, unless they reveal failure of the Work to comply with the requirements established by the Contract Documents, in which case such costs shall be paid by CONTRACTOR. Required certificates shall be secured by CONTRACTOR and delivered to OWNER unless otherwise specified.

ADDITIONAL OBLIGATIONS OF OWNER

For: Contractor

Alert: May be missing a provision requiring that owner ensure that its workers do not interfere with contractor's completion of the work.

Guidance: In a Master Construction Agreement, it is essential to define the owner's responsibility to prevent its separate contractors from interfering with the contractor's work. The non-interference concept aims to ensure smooth and efficient project execution, minimizing potential conflicts, delays, and additional costs.

For instance, in a construction project where the owner's separate contractors are on-site performing maintenance tasks and accidentally damage the contractor's materials, the non-interference language holds the owner accountable, making it responsible for the resulting delay and additional costs.

A significant related concept to non-interference is the ""Good Faith & Fair Dealing"" doctrine, which requires that each party to a contract to deal with the other in good faith and not prevent the other party from performing its obligations under the contract as that undermines such party's ability to realize the benefit of the contract. 

Other concepts fundamental to contract law are fairness and efficiency, which generally dictate that a responsibility should be allocated to the party best placed to take on such responsibility. Because it is the owner, and not the contractor, that is in privity of contract with the separate contractors, the owner is also best placed to control how they interact with the contractor via its contracts with such separate contractors. On the other hand, the potential remedies available to the contractor, if any, are significantly less direct.

Sample Language:

ADDITIONAL OBLIGATIONS OF OWNER

Communications. OWNER shall promptly provide CONTRACTOR all information impacting contract performance, including hazardous materials exposure on site, observed faults or defects in CONTRACTOR’s Work, the addition of separate contractors to the Project, and all claim information relating to CONTRACTOR’s Work, OWNER’s financial ability to pay for the Work, and information or services under OWNER’s control relevant to CONTRACTOR’s performance, and shall transmit to the CONTRACTOR, with reasonable promptness, all submittals, transmittals, and written approvals relative to the Work. OWNER shall not directly instruct CONTRACTOR’s staff, sub-subcontractors, or suppliers without authorization from CONTRACTOR. OWNER shall also provide any lien information requested by CONTRACTOR within [●●] ([●●]) days. Except to the extent OWNER advises CONTRACTOR to the contrary in writing, CONTRACTOR shall be entitled to rely upon the accuracy and completeness of the foregoing information shared by OWNER. 

Legal Authorizations. OWNER shall promptly obtain easements, zoning variances, and legal authorizations or entitlements regarding site utilization where essential to the execution of the Project and shall cooperate with CONTRACTOR in securing building and other permits, licenses and inspections. 

OWNER-Provided Services. OWNER shall, upon CONTRACTOR’s request, furnish all design, architectural, geotechnical engineering, or other consulting services reasonably necessary for the performance of CONTRACTOR’s Work. In such event, CONTRACTOR shall specify the required services, which may include architectural drawings, soil bearing value determinations, percolation tests, hazardous materials evaluations, ground corrosion and resistivity tests, and operations to anticipate subsoil conditions. The design, architectural, geotechnical engineering, or other consultants shall prepare and submit all appropriate reports and professional recommendations.

Use of CONTRACTOR’s Equipment. OWNER and its agents, employees and suppliers shall use the CONTRACTOR’s equipment only with the CONTRACTOR’s express written permission and in accordance with any terms for such use. OWNER shall indemnify CONTRACTOR as provided in this Agreement for any loss or damage arising from such use, except when caused by the negligence of CONTRACTOR’s employees operating the equipment.

Inspection of Work. Promptly after CONTRACTOR notifies OWNER the Work is substantially complete, and if OWNER knows of no impediment, the Work shall be inspected for compliance with the Contract Documents. If the Work does not qualify as substantially complete, OWNER shall provide a written list of incomplete or deficient items for CONTRACTOR to address before requesting re-inspection. If the Work is found substantially complete, CONTRACTOR shall prepare a Certificate of Substantial Completion for OWNER's signature establishing: the Substantial Completion Date; responsibility allocations for insurance, security, maintenance, utilities, and damage; and the time for CONTRACTOR to complete accompanying Punch List items. Upon CONTRACTOR’s notice that the Work is ready for final inspection and OWNER’s receipt of a final payment application, OWNER shall attend such inspection.

OWNER’s Separate CONTRACTORs. OWNER is responsible for all work performed at the Project site by separate contractors under OWNER’s control. OWNER shall contractually require its separate contractors to cooperate with, and coordinate their activities so as not to interfere with, CONTRACTOR in order to enable CONTRACTOR to timely complete the Work consistent with the Contract Documents.

Safety. OWNER shall require its tenants and separate contractors to comply with Applicable Laws and eliminate or abate hazards per CONTRACTOR’s request. To the fullest extent permitted by law, OWNER shall indemnify CONTRACTOR against claims and damages arising from hazards caused by OWNER’s tenants and separate contractors. OWNER shall be responsible for eliminating hazards created by its separate contractors or tenants. CONTRACTOR shall receive appropriate time and price adjustments for related demobilization and remobilization costs as provided under the Contract Documents.

Security. OWNER shall be responsible for Project site security (including fencing, alarm systems, security guarding services and the like) at all times during the term of the Work Order to prevent vandalism, theft and danger to the Project, the site, and personnel. OWNER shall coordinate and supervise ingress and egress from the site so as to minimize disruption to the Work.

PAYMENT AND PERFORMANCE BOND

For: Owner

Alert: Consider adding language requiring contractor to provide owner with a payment and performance bond that covers its obligations under the agreement.

Guidance: The key legal principle in the given suggestion highlights the significance of requiring contractors to supply payment and performance bonds to owners within a Master Construction Agreement. These bonds act as financial guarantees for the contractor's obligations, ensuring the protection of the owner's interests.

In practical terms, this provision reduces potential financial losses and risks linked to the contractor's non-performance or non-payment of its employees, subcontractors, and suppliers. It guarantees that the project is completed as agreed upon and that the owner's interests are secured.

Relevant statutes or laws to consider in this context include the Miller Act (40 U.S.C. §§ 3131-3134) for federal construction projects and the various state Little Miller Acts for state and local construction projects. These laws generally mandate contractors to provide payment and performance bonds for public construction projects, ensuring the protection of the public entity's interests.

Sample Language:

PAYMENT AND PERFORMANCE BOND

Prior to the commencement of the Work, CONTRACTOR shall deliver to OWNER a payment and performance bond covering CONTRACTOR’s faithful performance of its obligations under this Agreement (the “Payment and Performance Bond”). The Payment and Performance Bond shall be in a form and issued by a surety reasonably acceptable to OWNER. No payment shall be made by OWNER prior to the receipt of the Payment and Performance Bond.

Best Practices for Using Master Construction Contracts

To make the most of your Master Construction Contracts and ensure their effectiveness, follow these best practices:

1. Conduct Thorough Contractor Selection: Carefully vet potential contractors, reviewing their experience, financial stability, safety record, and references. Choose a contractor with a proven track record of successfully completing similar projects.
2. Define the Scope of Work Clearly: Ensure that the scope of work is clearly defined and comprehensive. Include detailed specifications, drawings, and performance requirements to minimize misunderstandings and disputes.
3. Establish Clear Communication Channels: Set up regular meetings and reporting requirements to keep all parties informed of project progress, issues, and changes. Foster a collaborative and transparent working relationship with the contractor.
4. Manage Changes Proactively: Anticipate and plan for potential changes in the work. Use the change order process outlined in the agreement to address any necessary modifications to the scope, schedule, or budget.
5. Monitor Progress and Quality: Regularly inspect the contractor's work to ensure that it meets the quality standards and specifications set forth in the agreement. Address any deficiencies promptly.
6. Maintain Detailed Records: Keep comprehensive project records, including contracts, change orders, payment applications, correspondence, and meeting minutes. These records can be invaluable in the event of a dispute or claim.
7. Address Claims and Disputes Promptly: If claims or disputes arise, follow the resolution process outlined in the agreement. Seek to resolve issues collaboratively and escalate to formal dispute resolution methods, such as mediation or arbitration, only when necessary.

Conclusion

Master Construction Contracts are essential for land owners and developers engaging contractors for construction services in the traditional Design-Bid-Build method. By clearly defining the roles, responsibilities, and obligations of both parties, Master Construction Contracts provide a framework for successful project execution and risk management.

To ensure the effectiveness of your Master Construction Contract, it's important to include comprehensive articles addressing payments, changes in work, claims and disputes, remedies, indemnification, ownership of work product, and assignment. The agreement should be tailored to your specific project requirements, reviewed by legal and industry experts, and actively managed throughout the construction process.

By following best practices for contractor selection, scope definition, communication, change management, quality control, record-keeping, and dispute resolution, you can maximize the benefits of the Design-Bid-Build approach and ensure the successful completion of your construction project.