Understanding General Conditions: Construction Contracts and What Should Be Included
After years of working in construction, you’re well-versed in contracts.
But still, you’re not a lawyer.
Understating the ins and outs of the “general conditions” section of a contract and ensuring everything is accurate is essential to the success of a project.
We’ll outline:
- What is included in the “general conditions” of a construction contract.
- What categories complete a general conditions construction contract section.
- General conditions examples in cost-plus contracts and lump-sum contracts.
Flexbase: Billing Software That Ensures Contractors Get Paid Sooner
Flexbase is an app designed specifically for construction companies.
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Contractors can use our platform to:
- Create contractor invoices
- Send contractor invoices
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- Automate all the necessary documents in a payment application
- And more
Yes, including the ability to auto-generate progress payment requests for every part of a contract — general conditions included.
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All you have to do to start the payment process is:
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Simply verify the information, enter your client’s contact information, and it’s sent.
Need to add a message to your client? No problem. This is also a good opportunity to include any reminders about payment timelines, contract details, etc.
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We operate on a commission of 0.5%, but if you don’t get paid, you don’t pay.
What Are General Conditions of a Construction Contract?
You’ve heard the term a few times now but are likely still wondering, “What are general conditions?” Construction contracts include a general conditions section that includes costs that aren’t part of the finished physical product (ie. bricks or cement) but they are essential to completing the job.
For example …
- Tools
- Resources; and
- Equipment
… needed to build a project and that you can be compensated for, but that aren’t directly related to the physical construction activities should be laid out in the general conditions.
Think of the general conditions section as the backbone of the contract.
It includes the items that won’t form part of the actual construction work but outlines many of the details that allow the project to be completed without problems.
General conditions should be included in all construction contracts and are grouped generally into categories like:
- Site management
- Material handling; and
- Project management.
The roles and specific work descriptions of each party on the project are also included in the general conditions.
What Is the Purpose of General Conditions in a Construction Contract?
General conditions construction contract sections outline the …
- Rights
- Responsibilities; and
- Relationships
... of the owner, contractor, and architect.
The general conditions are aimed at providing a sound frame for the contract and promoting fairness among all parties involved on the project.
7 Categories That Fall Under General Conditions
#1: Duties and Responsibilities of the Parties Involved in the Construction Project
General conditions outline the duties and responsibilities of all parties involved on a project.
This section identifies:
- Each party
- Their role on the project
- Their rights and obligations
General conditions also outline notification requirements for each party.
When it comes to a contractor, general conditions may include:
- A comprehensive description of the work to be completed
- Bonds and insurance requirements; and
- Any warranties or guarantees.
#2: Time
Timing in a contract is often a large point of contention among parties. Laying out the details in the general conditions early can help mitigate these issues.
General conditions aim to identify:
- The date of commencement
- What constitutes “substantial completion”
- What happens (and who pays) in the event of delays
- If the contract allows for extensions
- Any project milestones and related payments
If issues around timing aren’t outlined in the general conditions, they can lead to lost time and money for contractors.
#3: Price and Payments
The pricing and payment section included in general conditions determines the full contract price as well as the payment structure.
It will clearly state:
- If there will be progress payments or a lump sum final payment.
- How progress payments will be scheduled.
- What the payment application process looks like.
- If there will be retainage.
- What happens if the owner decides the work is defective or insufficient.
The schedule of values will likely be referenced in the pricing and payment section to keep track of progress and to ensure milestones match the payment.
#4: Project Changes
How to handle any amendments to the contract will be outlined in this section of the general conditions.
Project changes may include:
- Change orders
- Change directives
- Minor changes
General conditions should outline how change orders must be agreed upon, executed, and billed.
Whether or not change directives can be made on the project should be clearly stated in the general conditions along with how they are to be managed if allowed.
To air on the side of caution, setting parameters for what is considered a “minor” change in the general conditions is recommended.
#5: Project Suspension and Termination
Any terms or conditions that would suspend or terminate the project contract will be listed in this section of the general conditions.
It’s important to fully understand this section as reasoning can vary from funding issues to delays in the project.
#6: Claims and Disputes
Construction work can be messy and leave lots of room for miscommunications and disputes.
This portion of the general conditions outlines how any claims or disputes should be handled in the event they come up.
Look for or include plenty of details in this section to avoid lost time and money.
Questions like …
- When a disagreement arises, what types of notices are required?
- Are there time limitations for claims filed against the owner?
- If there is a non-payment issue, should the contractor suspend his work or continue working to remain on schedule?
… can help provide clarity when and if disputes arise.
#7: Insurance and Bonds
Any insurance requirements for each party that is to be obtained will be outlined in this section of the general conditions.
This section will also state what happens in the event insurance cannot be provided or obtained, including breach of contract.
Any bonds that are required of the contractor (performance, payment, or otherwise) will be outlined as well.
What's Included in General Conditions Costs?
Direct project overhead costs that are incurred specifically on a particular project are included in the general conditions construction contract section.
These general condition costs incurred at the jobsite for supervision and administration of the overall contract include:
- Jobsite trailer and utilities
- Small tool charges
- Superintendent salaries/costs
- Safety costs
- Site administrative costs
- Project accounting
- Field computer and BIM services
- Dumpster
- Clean-up
- Job signs
- Photographs
- Site security personnel and cameras
- Webpage and web camera
- Mobilization
- Street cleaning
- Portable restrooms
These costs are typically billable to a specific job on a cost-plus contract.
How Are General Conditions Calculated?
General conditions are broken up into fixed and variable costs.
Construction general conditions items include fixed costs like job signage or mobilization and don’t change in cost if the job is delayed or extended.
Variable costs, like trailer rentals or other temporary facilities, would increase if the job was extended.
General Conditions in a Standard Form Cost-Plus Construction Contract
A cost-plus contract is one where, upon completion of the project, the contractor is compensated for all expenses related to the project in addition to an agreed-upon sum at the end of the project.
The cost (to complete the project) - plus an additional sum upon completion.
There are a few different pros and cons of a cost-plus contract, depending on the size of the construction project.
On the average commercial job, the construction general conditions cost could fall between 6% and 12%.
With a large scale commercial project, that value of that 6-12% could easily be a large enough sum to warrant:
- Extreme detail in the general conditions.
- The time needed to track and record these costs accurately.
Simply because of the complexity of the project, larger-scale projects can require the precision cost-plus contracts can provide.
With a cost-plus contract, the contractor must track general condition costs and supply these to the owner in both monthly and final payment applications.
Contractors must also …
- Estimate
- Track; and
- Support
… these costs for any change orders or claims processed.
For contractors that use AIA forms, it is crucial to fully understand what expenses need to be tracked and supported for progress and final payments as in this sample AIA A201 general conditions of the contract for construction.
Instead of spending valuable time performing administrative tasks and double-checking your receipts and records, let Flexbase help.
We can provide you with the forms you need for your cost-plus contract (fully compliant with your state’s laws and regulations). With Flexbase, you can complete your cost-plus contract and streamline the billing process as a whole.
Contractors working on smaller-scale projects don’t have the same benefits of using a cost-plus contract.
The additional work needed to …
- Accurately track and record all of the general condition costs on a monthly basis
- Complete audit costs; and
- Handle disputes over whether “grey area” costs are compensable
… may not be worth the time.
Instead, opting to negotiate a lump-sum contract may work more in their favor.
General Conditions in a Lump-Sum Construction Contract
Lump-sum contracts are generally better suited to general conditions in smaller construction projects.
The biggest benefit of lump-sum general conditions lies in its simplicity.
Contractors and other parties on the project don’t need to track or present individual general condition costs in:
- Their monthly or final payment applications.
- Any change orders or claims.
Lump-sum contracts further eliminate the possibility of any disputes, miscommunications, or oversights on general condition costs.
The biggest drawback of a lump-sum general conditions strategy is the potential for errors in estimating and planning.
When you opt for a lump-sum contract, you effectively relinquish control over the general condition costs in favor of efficiency and minimal administrative work.
How Flexbase Takes the Guesswork Out of Progress Payments for General Condition Costs by Streamlining Your Entire Invoicing Process
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