What is Contract Compliance for Construction... and Why is it Absolutely Necessary That You Start Doing it NOW?

Construction, we have a problem.?

According to a recent Procore study, 50% of projects in our $13T industry worldwide finish late or over-budget. This means that one or more stakeholders involved in the project will pay more money than they originally planned when signing up for the project.? Let me play this back:

At least half of the time, someone at the project who was excited to build the project now will pay MORE out of their bottom line to complete that project.

That is A LOT of risk!?

The million (or billion) dollar question is: Who gets stuck with this tab? The answer is 100% correlated with the terms of the contract. Specifically, (1) how it was negotiated and (2) how the team administered the contract, including related documents like notices, change orders and payment applications.??

For example, you could pay a lawyer a lot of money to do an AWESOME job negotiating your contract and getting you a good term that says you get entitlements to cost and time should a rain event occur. Well done! But if the team that runs the project doesn’t give notice the right way, or forgets to substantiate their claim, or just doesn’t realize this basic entitlement, it's all for nothing. You could be the lucky winner of the “pay more to complete” sweepstakes!?

This means that you must ensure that the contract is well negotiated AND that the team follows its terms during construction. You need to ensure that you have best practices around contracting. That starts with bidding a job and negotiating the contract (i.e. understanding what the contract says), but it certainly also means that your project teams also know the deal and can make good decisions to protect your bottom line.??

We call this “contract compliance” and we know from our deep experience that it is?fundamental for good project outcomes. It is so fundamental that we are actually called CONTRACTORS. It is indeed at the core of making money on a construction project.???

Why Has Contract Compliance Been Such a Big Problem for Our Industry?

(And why is no one else talking about it?)?

Throughout the project lifecycle and beyond, contractors are exposed to various risks through construction contract documents. Many of them bid or sign up for jobs without understanding the risk. Others pay for expensive resources to help them understand these risks.?However, whether you are big or small, you had someone negotiate the deal or not, project teams MUST understand how the work they do correlates to the contract and the various implications when things change on site.?Project operators are NOT usually a part of the negotiation of the contract. They need to dig in and learn for themselves.?

However, these contracts are dense, complex, and fraught with vast potential for misunderstandings, and then, there are all the “contract documents” that stem from the main contract: payment apps, notices, lien waivers, specifications, change orders, just to name a few.?The typical project team is NOT made up of contract professionals, nor does the team have time to navigate the intricacies and digest the breadth of these complex documents.? Until now, navigating this difficult web relied on labor-intensive searches for answers, or decisions based on intuition or experience rather than strictly adhering to the contract provisions. While these methods are common, they prove to be inefficient and pose substantial risks. In some cases, the team can turn to legal or back-office resources for assistance, but these resources do NOT work in the job trailer.? At best, this results in prolonged waiting periods and a sense of disempowerment when the team needs to keep up with the speed of the project, plus real-time issues arise every day that require a much nimbler response.??

In other words, even in situations where you may have some good back-office resources, you are left to rely on very expensive overhead resources who cannot reasonably meet the demands of dynamic day-to-day issues.?And if you don’t have access to such resources, and your teams are not properly armed with contract knowledge, you are open to unnecessary liability because the project team can get overwhelmed by the onerous contract and/or not realize its implications during critical workflows (i.e.?“Whoops, we didn’t give notice the right way, and now the Owner is denying our claim”).?We have all been there, and it is NOT okay.?

So, what can you do about it??

Our industry must adopt best practices around contract compliance.?The massive pain associated with contract compliance is reminiscent of other challenges that our industry has met head on, such as instilling best practices and standardization around safety.??

At one time, it was just accepted that our industry was unsafe because the costs associated with achieving a safe workplace were viewed as too high to justify a safer work environment. Our industry showed great resolve and decided enough was enough.?Safety became a priority, innovation followed, and commonly accepted investments, like requiring hardhats and safety boots, became normalized as the standard and accepted best practice.???

As such protective equipment (and other novel methods) started to be implemented, it was obvious to industry stakeholders that the new methodologies showed great improvement over the old methodologies. The cost incurred justified the potential outcome:?an industry where everyone’s personal safety and health became the priority. It really became a binary issue. Are you doing the right things to protect the people on your job site? No qualifications about “how much it costs” are needed. It’s a simple yes or no, and our industry has done a fantastic job shifting our culture.?

Analogously, we can no longer accept the status quo around contract compliance being a huge source of pain and exposure to risk. Innovation has brought forth obvious improvements, and this means we now have a more efficient way to allow for more contract compliance in our industry.??

Our industry needs to say enough is enough and standardize this innovation to ensure project teams are regularly applying best practices around contract compliance.?Document Crunch exists to ensure contract compliance throughout the entire project life cycle. We wrote the playbook, and we want to share it with you.?

Click here to get the 5 Step Crunch Playbook for Contract Compliance, and don’t forget to subscribe to our monthly company newsletter here.??

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