It’s been said that a checklist creates laziness on the part of the user. Fill out the checklist and if the results look okay for whatever the checklist analyses, proceed and don’t do any further analysis.

Performing a thorough analysis of the commercial risks associated with a construction contract for a project requires some skill and the ability to understand and evaluate the proposed commercial terms and conditions in order to best protect the assets of the company. Each construction project will have a different mix of commercial risks associated with the project contract’s commercial terms and conditions.

There is no such thing as a standard construction project. There is also no such thing as standard commercial terms and conditions. As such, it is difficult to develop an all-encompassing and comprehensive checklist that would be appropriate for each and every construction project and set of commercial terms and conditions.

Having a thorough knowledge of the typical risks associated with commercial terms and conditions and having the ability to independently understand and analyze these risks for each contract is the best way.

Having said all that, a checklist is simply one tool to use in the contract analysis process. If it is used with some circumspection, it will at least highlight some of the most common or typical commercial risks associated with a construction contract. As long as a checklist is used in conjunction with independent evaluation and analysis of the commercial terms by the reviewer, then the risk review process can be more properly performed.

Here’s a brief 10 point checklist, with accompanying notes, to consider using as part of a contractor’s more comprehensive contact evaluation and analysis process:

　Notes:

1. Most claims and disputes arise out of poorly defined scopes of work.
2. Define scope at interfaces between contractors to avoid disputes.
3. Clarify what scope you are not going to perform.
4. Clarify what scope you expect to be performed by others.
5. Do a cash flow to make sure the agreed upon terms of payment create a positive cash flow for the project.
6. Always try to get a downpayment of some form of very early payment.
7. Do not agree to retention. Provide a warranty bond instead. Keep the cash.
8. These terms are unfair. Eliminate or put a maximum time period on receipt of payment.
9. Enough time to do the job? Really?
10. If LDs, is the schedule achievable and realistic? If not change.
11. Have some contingency in your schedule. Unforeseen delays always occur.
12. Is the amount of the insurance required realistic for the value of the job? If not, lower.
13. Providing the client additional insured status gives him full access to your insurance policy(ies) at no cost.
14. Contractual liability provides insurance coverage for your financial obligations under the indemnity clause in the contract. Can you live with the indemnity as written? Is the indemnity enforceable?
15. Broad form indemnities make you financially responsible for claims arising out of any degree of your client’s negligence.
16. Intermediate form indemnities make you financially responsible for claims arising out of any degree of your client’s negligence, except his sole negligence.
17. Limited form indemnities make both you and your client financially responsible only to the extent of you and/or your client’s negligence for claims.
18. Broad and intermediate form indemnities must have maximum financial limits.
19. Some states outlaw broad and/or intermediate form indemnities in construction contracts. Check first; don’t assume.
20. Indemnities should only be in effect for claims actually occurring while you are physically working on the construction site, no other time frames allowed.
21. All changes should have time and money considerations. Time only is unfair.
22. All changes in writing before proceeding. No exceptions!
23. The best way to resolve disputes is through negotiation.
24. Mediation is the next best way to resolve disputes.
25. Arbitration and litigation are poor, and costly, dispute resolution processes.
26. An on-demand bond is not an assurance of performance, or a "performance bond". These types of "bonds" can be easily cashed by the client.
27. A true assurance of performance, a "performance bond", is a guaranty provided by a surety company. These types of "bonds" cannot be easily cashed by the client.
28. Are liquidated damages necessary? Are they a penalty? Limit, limit, limit.
29. There should always be a mutual exclusion of consequential damages, and it must be in writing in the contract.
30. All warranties must have a definitive and well defined start time.
31. All warranties must have a stated duration, i.e. 12 months.
32. Exceptions to warranties must be stated. i.e. corrosion, wear and tear, improper use, etc.