How To Address The Legal Implications Of Possible Defects In Construction Contracts

One of the central questions in construction law is what happens if there are defects at the end of a project. Dealing with defects can be costly, and there's a risk that it might lead to claims or even lawsuits. A construction law attorney, however, will try to address these concerns in contracts by using several techniques.

Insurance or Sureties

The simplest instrument for handling potential defects is to put money up against the possibility. Insurance is a common tool on the engineering and architectural side of contracts, with many parties purchasing professional liability insurance to cover defects in plans.

Sureties are often the preferred tools for the contractors who execute the plans. A surety compels a contractor to either rectify problems or forfeit the surety. The issuer would pay the claimant, and then the issuer would also legally compel the contractor to make them whole on what they paid.

It's best to write the requirements for insurance or sureties into your contract. A contractor should have to obtain a certain amount of coverage to protect against possible defects.

Assignment of Liability

Notably, liability might not always sit with the responsible party. In construction law, this usually occurs because of assignment. For example, when a contractor hires a subcontractor, the subcontractor might only enter the deal if the contractor takes the assignment of liability.

A construction law attorney has to be careful about how a contract assigns liability. If you don't want a subcontractor to escape liability, you may have to include a clause covering third-party assignment rights.

Be aware, though, that some contractors will not accept jobs if they can't assign work to subcontractors. There's nothing wrong with that, but you should be fully aware of what you're agreeing to when you accept such terms.

Liens

As with most fields of law, folks in the construction world are often inclined to take counteractions. Contractors who feel defect claims aren't valid might impose what's called a mechanic's lien. This is a lien against the property until they are paid.

Until you resolve the question of defects, you might also be stuck dealing with a lien. Once you do resolve the issues, make sure the lien is stripped. Otherwise, you might encounter problems years down the road with the property's title.

Arbitration

To limit how far legal problems can go, many contracts include arbitration clauses. Make sure you're comfortable with the arbitration terms before you sign. For example, don't agree to binding arbitration if you want to have options if the process doesn't work out.

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