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The Most Commonly Misunderstood Construction Contract Clauses Part 1

The construction contract is without a doubt the most important indicator of how a project will turn out. It is a document capable of both leading to and resolving conflict. But despite its importance, many industry professionals struggle to understand the various components of a contract and how they will impact their projects. In this two-part article, a Houston construction attorney from Cotney Law will discuss the most commonly misunderstood construction contract clauses to look out for. Before you sign on the dotted line, be sure to have an experienced attorney review your contracts for accuracy and transparency. 

Incorporation Clauses

Incorporation clauses are provisions that make other unattached documents a part of the contract. Simply put, they’re a stand-in for other documents that are not currently provided. This is common on large projects with numerous subcontractors whom all have contracts that must refer back to the original contract between the general contractor and owner. Make no mistake, as long as a contract clearly describes the incorporated document, those who sign are legally bound by its contents, including extra terms that you add to a contract yourself. 

For this reason, it’s best to simply forgo incorporation clauses and have all relevant documents included. However, because that is not always possible, you should have a Houston construction attorney ready to review these clauses and all incorporated documents. 

Contingent Payment Clauses

There’s a lot of confusion surrounding pay-if-paid and pay-when-paid clauses. These are essentially timing mechanisms that state when a contractor is entitled to payment. Pay-when-paid clauses state that a subcontractor is entitled to payment once a contractor has been paid by an owner. Pay-if-paid clauses, on the other hand, state that a contractor is under no obligation to pay a subcontractor if they themselves haven’t received payment. If an owner refuses to pay or goes bankrupt, oh well. 

Like so many clauses, pay-if-paid clauses are designed to shift responsibility downstream to subcontractors and sub-subcontractors. While many states prohibit the inclusion of contingent payment clauses, they are enforceable in Texas as long as the language used throughout is clear. There are additional instances in which a contingent payment clause can become unenforceable, including if a subcontractor objected to its inclusion. Again, we recommend forgoing contingent payment clauses, especially those that are not in your favor. However, if such a clause must be included, be sure to consult our experienced Houston construction attorneys from Cotney Law to ensure that you are prepared for all possible outcomes. 

For more information on commonly misunderstood construction contract clauses, read part two

If you would like to speak with one of our Houston construction attorneys, please contact us today.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.