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The importance of a good contract during development

During any construction project you will have to use a wide variety of companies and services to complete the job. Whether you’re building a luxury villa or a whole development of properties, you will have to agree terms with a large number of companies who are responsible for different aspects of the build.

Each of these businesses or tradespeople will have their own contracts and varying terms for payments, completion, working conditions etc. They can be quite favourable to the other party so a knowledge of what “could be” is vital. These contracts are usually filled with legal jargon and are complicated documents with lots of clauses. This can cause you to simply sign, without diving down into the small print, but this can trap you into conditions which are unfavourable to you and potentially jeopardise the success of your project.

Unfortunately, during our project rescue work, we’ve seen the impact that bad contracts can have on a development. This is why in this article we want to explain why it is important to really focus on the contracts, get specialist advice and make sure that the contracts you sign will deliver what you need.

Who do you need to have a contract with and why is it important?

As a minimum, you should have a contract signed with your architect, technical architects, builders and suppliers. In these contracts, the terms and conditions of the agreements you have made with these specialists should be clearly laid out. Time frames, deliverables, quality controls and costs should be specified to avoid misinterpretations and give you something to refer back to and keep people on track as the project progresses. Some will present you with a standard contract prepared by their College or professional body. These mainly protect the member you are hiring and locks you into certain terms and conditions. This should be complemented by a private commercial contract that you have implemented with them.

If you are building in Spain, there will be contracts which need to be signed for so many things. You will find that the contract process and format will not be the same as in your country and of course it will also be in a foreign language and referring to laws that you may be unfamiliar with.

Unfortunately, this opens you up to more misunderstandings and potential for things to get lost in translation. However, don’t worry, with the right specialist support you can make sure your project has the right contracts in place to ensure completion on time and on budget. Your project manager can handle all of this for you. They have their own contract templates and will work with your lawyer to refine certain aspects in your favour, so you don’t need to feel the pressure and you know that what you sign will protect your interests.

Contract pitfalls to avoid

When you’re compiling a contract, or reviewing it ahead of signing, make sure that the terms are not too favourable to the third parties and punitive to you. This is often the case where the supplier is trying to cover themselves for potential problems, without protecting you. Unfortunately, if you do not go through these contracts with a fine-tooth comb, or an expert eye, problems with the contract’s terms may not be clear. However, they will become all too apparent if the project hits delays, problems or non-compliances which tends to happen more often than not – so expert vision and assistance on this is paramount.

Common issues which can be overlooked in a contract include –

  • Giving the construction team the freedom to raise agreed prices during the job thereby jeopardizing your budget.
  • Applying charges for errors made by the architect – this can become a very costly addition to your project.
  • Allowing the team to “escape” from the agreed timeframe to complete the project, without penalties. Completing the project later than planned increases the costs, can lead to substantial damages and also cause reputational damage, especially if you have buyers waiting to move in.
  • Not specifying exactly what is covered in the services you are contracting and thinking that everything is included. This leads to nasty surprises and budgeting issues when you are presented with additional bills that you mistakenly thought were included in the initial quote.
  • Not including any penalties or incentives to favour compliance with the agreed delivery dates, be they interim or final.
  • Leaving the lawyer to deal with the contract without guidance. Most lawyers will not know all the ins and out of development process and a construction project unless they are specialised in it. It is therefore vital that a good Project Manager helps the lawyer with his drafting to ensure there is a healthy balance.

How can MDCI help?

As part of our project management service, we review contracts and negotiate terms on your behalf. Your project manager has an overall vision of how the project will be completed and what you as a client requires, plus a detailed understanding of the process required to get there. This means they are in a perfect position to identify problems with the contract and rectify them before they cause you issues. It is also easier for the project manager to know what to add into the contract to protect their client. As they are working for you as a client at all times and are independent from the architects, builders and suppliers, it is easy for us to negotiate and enforce terms of the contract for you.

Through many years of experience with project development and project rescue, we’ve seen our clients learn the hard way. We know that any contract that you sign must stand up in Spanish courts and protect your interests at all time. However, we also understand that without speaking the language, understanding the process and the culture, evaluating a contract and negotiating improved terms is almost impossible. That’s why we’re here to help and prefer to work on a project with our clients from the very beginning and ensure that every contract is watertight and will set you in good stead for project success.

MDCI have their own contract, which is the result of over 30 years of experience and the successful completion of over 100 projects. It includes all the key details and specifies every service and agreement discussed with suppliers. It ties those suppliers in to deliver what they promised for the price they agreed and in the timeframe discussed. Our contract aggressively protects your interests and puts you in the driving seat. It is the very foundation for a successful project and can be relied upon in Spanish courts if your suppliers fail to meet their obligations.

Contact MDCI to find out more about our project management services and how we can support you with the contract and negotiation phase of your project.

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