What is a Master Construction Supply Agreement?

A Master Construction Supply Agreement is a master contract between a contractor or subcontractor and a supplier for the provision of construction materials and services, which often involve the installation of said materials. The agreement defines the rights and obligations of both parties.

The Master Construction Supply Agreement is specifically designed for the construction industry and differs from a general Master Supply Agreement in several key aspects. It includes construction-specific concepts such as liquidated damages, liens, retainage, and contractor materials. Additionally, unlike a one-off Construction Supply Agreement, the Master Construction Supply Agreement is a master form of agreement that utilizes Work Orders to facilitate an ongoing contractual relationship between the parties for multiple scopes of work.

The Master Construction Supply Agreement is a valuable tool for contractors and design-builders who prefer to work with the same suppliers repeatedly. This allows them to ensure consistency in the quality of materials and equipment and to benefit from volume-based pricing.

Key Provisions in Master Construction Supply Agreements

When drafting or reviewing an Master Construction Supply Agreement, it is important to consider the following key provisions:

1. Work Orders: As a master agreement, the Master Construction Supply Agreement should include an article addressing Work Orders and their required content. This ensures that each individual project or scope of work is clearly defined and documented.
2. Changes in Work: Given the frequency of changes in construction plans and materials during the building process, the Master Construction Supply Agreement should include a robust article on how changes in work will be handled. This may include provisions for change orders, pricing adjustments, and time extensions.
3. Pricing and Payment Terms: The Master Construction Supply Agreement should comprehensively address pricing and payment terms, covering aspects such as base prices, taxes, invoicing, payment schedules, interest on late payments, dispute resolution, retainage, release of liens, and the contractor's right to audit the supplier.
4. Delivery of Work: The Master Construction Supply Agreement should outline the general requirements for delivery dates and terms, which will be further specified in each Work Order. This article should also cover the transfer of title, risk of loss, and remedies for untimely performance.
5. Inspection and Acceptance: The Master Construction Supply Agreement should specify the timeframe and procedures for the contractor to inspect the supplied goods and services to ensure conformity with the Work Order specifications prior to acceptance.
6. Warranties: The warranty article in the Master Construction Supply Agreement should clearly define the warranties provided by the supplier, the duration of the warranty period, and any disclaimer language. It should also address the assignment of manufacturer warranties to the contractor.
7. Indemnification: Given the inherent risks in construction work, the indemnification article in the Master Construction Supply Agreement should specifically address bodily injury, death, safety hazards, and hazardous materials. Parties should also consider any applicable state anti-indemnity statutes when drafting this provision.

Arbitration: If the parties choose to include an arbitration clause in the Master Construction Supply Agreement, it should reference the current Construction Industry Arbitration Rules of the American Arbitration Association or other applicable rules.

Checklist for a Comprehensive Master Construction Supply Agreement

To ensure that your Master Construction Supply Agreement is comprehensive and effective, use this checklist:

• Include an article on Work Orders and their required content
• Address changes in work, including change orders and pricing adjustments
• Comprehensively cover pricing and payment terms
• Outline delivery requirements and specify further details will be in Work Orders
• Define inspection and acceptance procedures and timeframes
• Clearly state warranties provided by the supplier and address manufacturer warranties
• Tailor the indemnification article to address construction-specific risks
• If including arbitration, reference appropriate construction industry rules
• Specify insurance requirements for both parties
• Address intellectual property rights and ownership of work product
• Include termination provisions and the consequences of termination
• Specify the governing law and jurisdiction for the agreement
• Ensure the agreement complies with relevant state and federal laws
• 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 Supply Agreements

To give you a sense for the benefits of leveraging AI Contract Review Software 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 Supply Agreements. If you’d like to see more, we invite you to book a demo.

CHANGES TO THE WORK ORDER

For: Contractor

Alert: May be missing a clause requiring supplier to obtain contractor's prior written approval before implementing changes to a work order.

Guidance: In a Master Construction Supply Agreement, it is essential to outline a transparent process for managing changes to work orders. This process should require obtaining prior written approval from the contractor before implementing any changes. This approach ensures mutual agreement and minimizes the risk of misunderstandings or disputes that could result in project delays or cost overruns.

For example, if a supplier suggests using a different material than initially specified, the contractor should have the chance to review the proposed change, evaluate its impact on the project, and either approve or reject the change based on their assessment. This helps maintain the project's progress and ensures that any changes are made with the contractor's knowledge and consent.

While there might not be specific statutes or laws that directly address this issue, general principles of contract law, such as the duty to perform in good faith and the requirement for clear communication between contracting parties, are relevant in this context. One notable exception is the ""doctrine of commercial impracticability"" under the UCC Section 2-615, which allows a supplier to be excused from performing under the contract if performance becomes commercially impracticable due to unforeseen circumstances. However, this doctrine is subject to certain limitations and conditions, and its applicability depends on the specific facts and circumstances of each case.

To ensure that both parties' interests are protected, it is recommended to include specific provisions in the Master Construction Supply Agreement addressing change control and the potential applicability of the doctrine of commercial impracticability or other relevant exceptions.

Sample Language:

CHANGES TO THE WORK ORDER

CONTRACTOR may modify Work Orders at any time through written changes or additions. SUPPLIER must submit written requests for Work Order modifications. In all cases, SUPPLIER must obtain CONTRACTOR’s prior written approval before implementing any changes to a Work Order, including those affecting cost, quantity, delivery, and completion schedule. SUPPLIER shall not be compensated for any change that is made without CONTRACTOR’s prior written consent. Unless otherwise set forth in the Work Order, all pricing is fixed during the term of the Work Order. If any dispute arises between CONTRACTOR and SUPPLIER regarding performance of the Work, or any change in the Work, SUPPLIER shall timely perform the disputed work and shall give written notice of a claim for additional compensation for the work within ten (10) days after commencement of the disputed Work. SUPPLIER’s failure to give written notice within a ten (10) day period constitutes an agreement by SUPPLIER that it will receive no extra compensation for the disputed Work. No changes in the Work covered by this Agreement shall exonerate any surety or any bond given in connection with this Agreement or any Work Order.

DELIVERY OF WORK

For: Supplier

Alert: May include a clause stating that the title to the work shall be transferred from supplier to contractor upon written acceptance by contractor.

Guidance: In the context of a Master Construction Supply Agreement, it is essential to establish a clear and legally enforceable transfer of title from the Supplier to the Contractor upon delivery. This arrangement offers legal certainty and protection for the Supplier, minimizing potential disputes and liabilities related to the ownership and responsibility for the work after delivery.

For example, when a Supplier delivers custom-made construction materials to a Contractor for a large-scale project, the transfer of title upon delivery ensures that the Contractor assumes responsibility for any issues or defects that may arise during the installation or use of the materials. This allows the Supplier to concentrate on their core business operations.

To ensure compliance with applicable laws and further benefit the Supplier, parties should consider the Uniform Commercial Code (UCC) in the United States, which governs the sale and transfer of goods, including construction materials. The UCC provides guidance on the transfer of title and risk of loss.

One significant exception or doctrine that applies to the primary legal principle of transfer of title is the ""Risk of Loss"" provision under UCC § 2-509. This provision determines which party bears the risk of loss or damage to the goods during the transfer process, depending on the terms of the agreement and the nature of the transaction. It is essential for parties to clearly define the transfer of title and risk of loss in their agreement to avoid potential disputes and liability.

Sample Language:

DELIVERY OF WORK

1. Provision of Work. SUPPLIER shall deliver Goods to CONTRACTOR pursuant to the specifications of the applicable Work Order. SUPPLIER shall endeavor to complete all Services in a timely manner in accordance with the applicable Work Order.

2. Transfer of Title and Risk of Loss. Unless otherwise stated in the applicable Work Order, title to Work and risk of loss shall pass to CONTRACTOR upon SUPPLIER’s delivery of such Work.

REMEDIES FOR NONCONFORMING WORK

For: Contractor

Alert: May be missing a clause specifying the remedies available to contractor for nonconforming goods.

Guidance: In a Master Construction Supply Agreement, it is vital to outline the remedies available to the contractor in the event that the supplied goods do not meet the agreed-upon specifications, quality, or other requirements. This clarity ensures that the contractor is aware of their rights and options in case of nonconforming goods, helping to prevent disputes and protect their interests.

By establishing a clear framework for addressing nonconforming goods, the contractor can minimize potential losses, maintain project timelines, and ensure the successful completion of the project. For instance, if the contractor orders specific steel beams that do not meet the required strength specifications, the agreement should allow the contractor to seek remedies such as requiring the supplier to replace the nonconforming goods, obtaining a refund, or seeking damages for any additional costs incurred.

It is crucial to consider relevant statutes or laws, such as the UCC, specifically Article 2, which governs the sale of goods and provides guidance on remedies for nonconforming goods. Incorporating the relevant provisions of the UCC into the agreement can help ensure legal enforceability and compliance with applicable laws.

One significant exception or doctrine that applies to the primary legal concept of remedies for nonconforming goods is the ""perfect tender rule"" outlined in UCC § 2-601. This rule allows the buyer to reject the entire delivery, accept the entire delivery, or accept any commercial unit or units and reject the rest if the goods delivered fail to conform to the contract. However, this rule is subject to certain exceptions and limitations, such as the parties' agreement to the contrary, the right to cure nonconformity, and the doctrine of substantial performance.

Sample Language:

REMEDIES FOR NONCONFORMING WORK

1. Nonconforming Goods. CONTRACTOR may, at its sole discretion and at SUPPLIER’s sole expense, require SUPPLIER to promptly repair or replace the Nonconforming Goods and reimburse CONTRACTOR for all reasonable costs incurred by CONTRACTOR in connection with the inspection, receipt, transportation, care, custody and disposal of such Nonconforming Goods within thirty (30) days of notifying SUPPLIER of such nonconformity. 

2. Nonconforming Services. CONTRACTOR may, at its sole discretion and at SUPPLIER's sole expense, require SUPPLIER to promptly re-perform the Nonconforming Services or utilize the services of an alternate supplier to re-perform them within thirty (30) days of notifying SUPPLIER of such nonconformity. In either case, SUPPLIER shall also reimburse CONTRACTOR all expenses of and associated with the re-performance of Nonconforming Services within thirty (30) days of nonconformity notification. 

3. Impaired Use. If CONTRACTOR is unable to use the Work Product, as defined herein, because of a claim that such use infringes or violates any intellectual property rights, SUPPLIER will, at its expense and CONTRACTOR’s option: (a) procure for CONTRACTOR the right to continue using such Work Product; or (b) replace or modify the portion of the Work Product that is infringing so that it becomes non-infringing. If neither option is available to CONTRACTOR through the use of commercially reasonable efforts, CONTRACTOR will return such portion of the Work Product that is infringing to SUPPLIER, and SUPPLIER will refund all monies paid for such Work Product. 

4. Non-exclusive Remedies. The remedies set forth in this Article for SUPPLIER’s delivery of Nonconforming Goods and Services are in addition to any other remedies available to CONTRACTOR under this Agreement, at law, or in equity. CONTRACTOR’s action to correct defects shall not relieve SUPPLIER of any obligations or liability hereunder or under the Uniform Commercial Code.

Best Practices for Implementing Master Construction Supply Agreements

To maximize the benefits of your Master Construction Supply Agreement, consider the following best practices:

1. Collaborate with Suppliers: Work closely with your suppliers to develop an Master Construction Supply Agreement that meets the needs and expectations of both parties. Foster open communication and a partnership mindset.
2. Customize for Each Supplier: While using a standard template can be a good starting point, tailor each Master Construction Supply Agreement to the specific supplier, materials, and services involved. Consider the unique risks, requirements, and industry standards applicable to each supplier relationship.
3. Integrate with Project Management: Ensure that your Master Construction Supply Agreement integrates seamlessly with your project management processes. This may involve developing standardized Work Order templates, change order procedures, and invoice approval workflows.
4. Train Your Team: Provide training to your procurement, project management, and field staff on the proper use and administration of Master Construction Supply Agreements. Ensure that everyone understands their roles and responsibilities in implementing and enforcing the agreement.
5. Regularly Review and Update: Periodically review your Master Construction Supply Agreements to ensure they remain current with changing laws, regulations, and industry practices. Update the agreements as needed to reflect lessons learned and to incorporate any necessary improvements.
6. Monitor Supplier Performance: Use the Master Construction Supply Agreement as a tool for monitoring and evaluating supplier performance. Establish key performance indicators (KPIs) and regularly assess suppliers against these metrics. Address any performance issues promptly and collaboratively.
7. Maintain Accurate Records: Keep detailed records of all Work Orders, change orders, invoices, and other relevant documents under each Master Construction Supply Agreement. Accurate recordkeeping is essential for effective contract administration and dispute resolution.

Conclusion

The Master Construction Supply Agreement is a powerful tool for contractors and subcontractors to streamline their procurement processes, ensure consistent quality, and foster long-term relationships with suppliers. By defining the rights and obligations of both parties and establishing a framework for ongoing collaboration, the Master Construction Supply Agreement can help reduce risks, improve efficiency, and ultimately contribute to the success of construction projects.

To create an effective Master Construction Supply Agreement, it is essential to include key provisions addressing Work Orders, changes in work, pricing and payment terms, delivery, inspection and acceptance, warranties, indemnification, and dispute resolution. The agreement should be tailored to the specific needs of the construction industry and the unique characteristics of each supplier relationship.

By following best practices for implementing and administering Master Construction Supply Agreements, construction companies can unlock the full potential of these agreements and build strong, mutually beneficial partnerships with their suppliers. With the right approach, the Master Construction Supply Agreement can be a catalyst for success in the dynamic and challenging world of construction.