Preparation isn’t just about materials and timelines—it’s about managing risk in construction contracts. In this post, we’ll break down the key contract elements that can make or break your project
We’re all familiar with the famous Benjamin Franklin quote, “By failing to prepare, you are preparing to fail.”
Whether you’re a contractor or a subcontractor, you probably already know that construction projects come with a unique set of challenges, and with risks. From unexpected cost escalations to natural disasters, the risks are very real, and often, very unpredictable.
The focus often shifts toward project milestones when you’re writing a contract, but understanding and negotiating construction contracts and their relationship to risk is often where the line between profit and loss is drawn.
In this post, we’ll break down the most important contract elements that can either make or break your project, and explain how the team at Bachara Construction Law Group, a top construction litigation firm, can help you handle any kind of construction disputes in Florida.
The Importance of Risk Management in Construction Contracts
It would be great if the construction business was solely about bricks and blueprints, but the reality is that it’s also about managing risk, and a lot of it.
Every project you carry out will involve some sort of “risk shifting,” where certain responsibilities or risks are allocated to specific parties, like contractors, subcontractors, and even the project owner.
Contracts are designed to determine who absorbs the financial impact when things go wrong, whether that’s due to project delays, material defects, or changes in work sequences.
For instance:
- Cost Escalations: Who covers the increase if material prices surge mid-project?
- Errors or Delays: Who is liable if a subcontractor’s mistake causes a domino effect, delaying the entire project?
Without a clear understanding of this concept, you may find yourself bearing the brunt of cost and liabilities that easily could have been avoided with the right contract wording. A savvy contractor should include clauses in their contracts that push cost escalations onto the owner.
But if you fail to review your contract carefully, you could unknowingly accept risks that significantly affect your bottom line. That’s why it’s so important to work with experts, like the Bachara Law Group construction attorneys.
What Are Force Majeure Clauses?
Force majeure clauses sound complex (perhaps a lot like legal jargon), but they can save your business immensely in the face of the unpredictable.
A force majeure clause covers unforeseeable and extraordinary events, like hurricanes, pandemics, or extreme labor strikes, that prevent work from being completed. This clause can excuse both parties from costs associated with delays or damages caused by these events outside of your control, provided, of course, that the contract is written in your favor.
Consider this example from a case we worked on at Bachara Construction Law Group. A subcontractor working on a landfill project was required to dig a trench, but tropical storms completely flooded the site.
Due to the contract’s force majeure clause, they had to redo the work at no cost to the contractor or owner. The subcontractor had unknowingly accepted a significant risk by not scrutinizing the contract carefully. Fortunately, the general contractor released the subcontractor from the project and hired another subcontractor to do the work instead, but this is certainly not always the case.
Again, cases like this underline why working with a construction litigation lawyer with trial experience is so important when drafting contracts in 2025.
Why Force Majeure is So Important in 2025
While including force majeure clauses has always been commonplace in construction law, the COVID-19 pandemic brought them into the spotlight. Today’s contractors are far less willing to proceed without some sort of protection against supply chain disruptions and pricing escalations, meaning force majeure clauses have become a non-negotiable safeguard in the post-pandemic construction boom.
And while force majeure clauses may have risen from their status as a basic legal boilerplate to something that’s completely indispensable because of the pandemic, they’ll likely remain non-negotiable in the future.
Construction contracts drafted today frequently include supply chain challenges and pandemic-related delays as explicit force majeure circumstances. This shift ensures that the party responsible for such disruptions is clearly defined. They go beyond pandemics to address risks related to extreme weather events, geopolitical tensions, and global supply chain issues.
The takeaway is this: if you’re entering into a construction contract in 2025, whether as a contractor or a project owner, get a firm understanding of its force majeure clause. Ignoring the fine print could leave you holding the bag for issues completely beyond your control.
Managing Cost Escalation Risks
Cost escalation in construction refers to the gradual increase in project expenses during its lifecycle. This often arises from fluctuating prices of key materials such as lumber, steel, oil, and concrete.
A good example is the steep increase in lumber costs during the initial phase of the pandemic, where prices tripled seemingly overnight. The imposition of tariffs is the new uncertainty in construction pricing, so be sure your contract protects you from cost increases due to tariffs!
When you fail to address cost escalation, it can erode your profit margins and turn a project loss into a complete financial disaster. Rising costs for resources or labor during extended project timelines often eliminate the balance contractors rely on as they’re still attempting to adhere to the responsibilities outlined for them in their contracts.
Transferring Cost Risks Through Contracts
Because of the risks outlined above, you need strong, proactive contract clauses to make sure you’re keeping yourself protected in the face of uncertainty.
The good news is that contractors today have a stronger position (due to high consumer demand) to negotiate risk-shifting mechanisms, like escalation clauses. These clauses allow contractors to pass some or all of the cost increases back to the project owner.
A material price adjustment, for example, is a clause that adjusts the project’s overall budget as material prices fluctuate beyond a certain threshold. There are also index-based rates, in which costs are indexed to a published rate, like the price of steel, to guarantee fair adjustments over time.
For example, your contract might specify that if steel prices increase by more than 5%, the contractor is entitled to additional payment for the difference.
Again, owners now face significant challenges pushing back on such provisions. With demand at record highs and construction businesses in the driver’s seat, owners must either accept these terms or risk project delays due to a lack of willing bidders.
Supply Chain Pricing Clauses
Supply chain issues have long been more than just fringe concerns, but now, they’re contract fundamentals. As a project owner, it’s wise to scrutinize pricing transparency all the way down the supply chain, and for good reason.
Say, for example, a general contractor subcontracts window manufacturing to a supplier who sources frames through a third-party vendor. Each tier adds a significant markup, leaving project owners unknowingly overpaying for the same goods. Without clear supply chain pricing clauses, owners lack the clarity to either identify or challenge excessive markups.
As a contractor, these clauses add transparency so there are no questions later on about pricing increases or supply chain problems. Since owners can see what they’re paying across the supply chain, it gives you more leverage when you need to increase costs as material costs fluctuate throughout the course of a project.
The Importance of Insurance Protection
You might think insurance is just another box to check as you prepare to complete a project, but as either a contractor or a project owner, it can quite literally be your lifeline.
Every contractor and subcontractor should have a CGL policy (commercial general liability policy). It’s designed to cover the costs if your work causes damage to other parts of the project. Be mindful, though—CGL policies often include exclusions, so make sure your policy covers the specifics of your work. It’s wise to work with an insurance broker or agent who has experience in this type of contract.
Similarly, if you’re a project owner, you’ll want to pay for a builder’s risk policy. This insurance protects against damage to the project during construction, like fires, storms, or vandalism. Homeowners’ policies won’t cut it—it’s builder’s risk or bust.
Imagine that you’re halfway through the construction of your new home when an electrical fire burns the entire project to the ground. Without a builder’s risk policy, you’re left pointing fingers—was the fault with the contractor, the subcontractor, or even the power company? With builder’s risk coverage, you’re financially protected while you figure it out.
The takeaway? Don’t gamble with your investment. Instead, secure the right insurance.
Additional Insured Status (“AI”)
One more pro tip for general contractors is this: always ask to be added as an “additional insured”, or AI, on your subcontractors’ policies.
AI provisions simply mean you’ll also benefit from the subcontractors’ coverage. For example, if you have 10 subcontractors, each with $1 million in CGL coverage, your protection grows exponentially. That’s the kind of coverage that can make the difference in high-stakes projects.
Protect Your Interests, No Matter the Project
Construction contracting isn’t just about drafting blueprints and managing timelines, but instead, requires a deep investment and understanding of how to manage risks. Whether you’re a contractor, subcontractor, or project owner, partnering with an experienced construction litigation attorney ensures you’re prepared for every possibility.
Need help protecting your interests in your next construction project? Contact Bachara Construction Law Group, Florida’s leading construction litigation attorneys.
Whether you need contract review, negotiation, or representation, we’ve got your back. We’re skilled in contract negotiation for construction firms and are proud to serve as a construction project legal advisor for your next opportunity, whether you’re a GC, subcontractor, or project owner.