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BETTESWORTHConstruction
change orders

What to Check Before Signing a Construction Contract During Supply-Chain Uncertainty

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Before you sign, make the contract say who pays, who waits, who may change the specification, and what evidence is required. A “fixed price” label alone does not decide the outcome when prices rise, a factory stops shipping, or an approved product becomes unavailable. Read the pricing, escalation, delay, change-order, payment, termination and dispute clauses as one risk-allocation system.

The official material informing this checklist is mainly UK and U.S. public-procurement guidance. It is not a universal rule for private construction. First identify the governing law, project location, delivery method, project type and incorporated form (for example, the owner’s form, a design-build form or a negotiated bespoke agreement). Have a construction lawyer in the relevant jurisdiction review any clause whose effect is financially significant.

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1. Establish the contract’s legal and commercial setting

Write down the facts that determine how the words will be interpreted:

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  • Governing law, venue and dispute forum.
  • Project type, funding source and whether procurement rules apply.
  • Delivery method: design-bid-build, design-build, construction management or another model.
  • Every document incorporated by reference, including specifications, drawings, addenda, schedules, amendments and general conditions.
  • Whether the signer is the owner, prime contractor, subcontractor or supplier, and which upstream contract terms are flowed down.

A clause borrowed from a public contract may operate differently in a private agreement. Do not assume that a federal, state, UK or agency provision applies to your project merely because the wording looks familiar.

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2. Decide how the price can move

Identify the base pricing model

Confirm whether the deal is lump sum, unit price, cost-plus, target price or a hybrid. Then locate exceptions to the headline price: allowances, contingencies, provisional sums, taxes, freight, storage, tariffs, design development and owner-directed changes. A lump-sum number can still contain escalation or change-in-law relief, while a unit-price contract can leave quantity risk separate from material-price risk.

Structure Price certainty Market exposure Questions to ask
Lump sum High for defined work Often shifted to the contractor, subject to exceptions Which escalation, change and allowance clauses reopen the price?
Unit price Unit rates are clear; total cost depends on quantities May be fixed or adjustable by item Who bears quantity growth and index movement?
Cost-plus Lower owner certainty More market movement passes through, subject to the fee and controls Which costs are allowable, documented and audited?
Target price or hybrid Shared or bounded certainty Depends on pain/gain and adjustment rules How are savings, overruns, caps and approval rights calculated?

Test every escalation mechanism

An escalation clause is usable only when its operating details are complete. Check:

  • Covered materials, components, labor or freight, and any exclusions.
  • The index, publication or supplier evidence that establishes the change.
  • The baseline date and baseline value.
  • A threshold before adjustment begins, the measurement frequency and the calculation formula.
  • Caps, floors, deductibles and whether increases and decreases are treated symmetrically.
  • Required records, audit rights and the notice deadline.
  • Whether an adjustment changes only the affected item or the whole contract price.
  • What happens if the index is discontinued, revised, delayed or no longer represents the specified material.

For example, an index-based formula might compare the index at the baseline date with the index at delivery, but the contract must state the exact dates, weighting and rounding. Federal Highway Administration design-build guidance illustrates index-based payment adjustments; that mechanism is an example, not a universal private-project requirement. The UK Cabinet Office’s Risk Allocation and Pricing Approaches guidance, updated 30 September 2026, warns that transferring a risk can cause a supplier to add a risk premium. It also discusses indexation where risk is not wholly transferred. Coordinate escalation with contingencies, allowances, open-book evidence, contract duration and termination rights instead of treating it as an isolated paragraph.

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Plan for unavailable inputs

State what occurs if the named product cannot be obtained: documented equivalent, redesign, temporary work, resequencing, price adjustment, schedule extension or termination. Require evidence such as supplier quotations, allocation notices, order records and cancellation notices, while allowing commercially reasonable redaction of unrelated information.

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3. Allocate shortage and delay risk

Name the critical path dependencies

List long-lead materials, approved manufacturers, fabrication windows, owner-furnished items, permits, design releases and site access dates. Identify who must order, expedite, inspect and store each item. If the owner controls a selection or approval, set a response deadline and state the schedule consequence of a late response.

Define a qualifying supply interruption

Do not rely on “shortage” as an undefined label. Specify whether relief requires a national market disruption, a supplier allocation, a transport closure, an import restriction or unavailability despite reasonable procurement efforts. Require the affected party to show causation, current delivery information and mitigation, such as alternate suppliers, compliant substitutes or resequencing.

Separate time relief from money relief

Read notice, schedule updates, extension-of-time, cost, suspension and termination provisions together. A clause may grant additional days without compensating delay costs, or allow cost recovery only for events outside the contractor’s control. Confirm whether notice must be given within a strict number of days, to a named person and address, and before the effect becomes apparent. Record the event, affected activities, critical-path analysis, revised forecast and mitigation steps.

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A shortage does not automatically excuse performance or create a right to more money. The signed contract and applicable law control. Official UK and U.S. public-sector materials do not establish one cross-jurisdiction force-majeure rule for private projects.

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4. Control substitutions and change orders

Set an approval path

Specify who may issue a change and what makes authorization valid: signed change order, written directive, delegated authority or another stated process. Identify the information required before work starts—description, drawings, price, schedule effect, warranties, code compliance and testing.

For substitutions, require a written comparison with the specified product, including performance, dimensions, compatibility, maintenance, appearance, approvals and lifecycle consequences. State who pays for redesign, testing, mock-ups, removal or future maintenance. Do not let a field conversation silently amend the contract.

Decide whether work may proceed before agreement

The Federal Transit Administration advises that agreeing price and schedule before issuing a change order is generally preferable, while recognizing that construction sometimes must proceed before compensation is finalized. Your contract should therefore provide a controlled exception: identify the person who can direct interim work, the records required, a not-to-exceed amount or time limit, and the method and deadline for later valuation. Also state what happens if the parties cannot agree—continued performance, suspension, expert determination, mediation, arbitration or termination.

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Address unknown conditions explicitly

State who bears unexpected subsurface, concealed-condition and existing-structure risk, what investigation was allowed, and how notice and verification work. FTA guidance notes that contractors commonly bear unexpected subsurface-condition risk unless the contract provides otherwise; that public-procurement example is not a universal allocation.

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5. Make payment support procurement and cash flow

Define the payment workflow

Match progress payments to verifiable work or procurement milestones. The contract should state invoice format, supporting records, certification, review time, payment deadline, disputed amounts and the consequences of late payment. Clarify whether stored materials can be billed before installation.

Protect payment for stored or off-site materials

If the owner will pay for materials on hand, specify identification to the project, title transfer, insurance, inspection rights, segregation, location, security, risk of loss and removal or refund if the contract ends. For off-site goods, require evidence that the seller has been paid or that the owner receives enforceable title free of liens.

Read retainage and final payment carefully

Record the retainage percentage or calculation, partial-release events, punch-list treatment, correction obligations and release conditions. Check whether final payment requires a broad waiver of claims, sworn statements, lien releases, as-builts, operation manuals, warranties or consent of sureties. Public procurement examples show that these mechanics are contract-specific; do not transplant a federal or agency rule into a private agreement without checking applicability.

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6. Test the schedule and delay remedies

Define dates and dependencies

Confirm notice to proceed, start, milestone, substantial-completion and final-completion dates. Tie them to dependencies such as site possession, permits, design approvals, utility relocation and owner-furnished equipment. Require a baseline schedule, regular updates, critical-path records and prompt notice of possible delay.

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Examine liquidated damages

Check the amount, start and stop triggers, grace period, cap, extensions, concurrent-delay treatment and interaction with other remedies. U.S. Federal Acquisition Regulation Subpart 11.5 states a federal policy of using liquidated damages when timely performance is important and actual damages would be difficult or impossible to estimate accurately or prove. That policy is not a universal rule for private or non-federal contracts. Have local counsel assess enforceability.

Review suspension and termination

Identify suspension rights, cure notices, termination for cause or default, termination for convenience, payment for completed work, ordered materials, cancellation charges, demobilization, subcontractor claims, data handover and transition assistance. State who owns materials after termination and how the parties value work in progress.

7. Build a responsibility matrix

Before signing, make a one-page matrix and ensure every row has an owner, a trigger, evidence and a consequence:

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  • Material-price increases and decreases.
  • Shortages, allocation and freight disruption.
  • Tariffs, taxes and changes in law.
  • Owner-furnished items and late approvals.
  • Labor availability and subcontractor failure.
  • Design errors, coordination and redesign.
  • Site and concealed conditions.
  • Storage, insurance, theft and risk of loss.
  • Schedule extensions, added costs and liquidated damages.

An unassigned risk is not eliminated; it is more likely to become a dispute. UK Cabinet Office guidance cautions that an inappropriate balance can produce a risk premium, poor performance or even supplier collapse. Treat that as commercial guidance, not as a legal rule.

8. Compare alternatives before choosing a clause

Decision Compare Choice is clearer when you can answer
Price structure Base-price certainty, market exposure, procurement control, auditability and mitigation incentive Who benefits or loses when the market moves?
Escalation evidence Named index versus documented invoices; threshold; frequency; cap/floor; treatment of decreases Can both sides reproduce the calculation from records?
Shortage relief Qualifying event, proof, mitigation, time-only versus cost-and-time relief What must be shown, by when, and what remedy follows?
Schedule remedy Extension eligibility, notice, causation proof, liquidated-damages trigger and cap Can the critical-path effect be demonstrated?
Substitution process Approval authority, technical standard, price, schedule and warranty effects Who can say yes, and is the decision recorded before installation?

9. Complete the final pre-signing check

  1. Mark every clause concerning price, indexation, allowances, changes, delay, force majeure, payment, retainage, termination and disputes.
  2. Trace each clause to its defined terms, schedules, specifications and incorporated documents; resolve conflicts using the contract’s order-of-precedence rule.
  3. Insert the missing triggers, formulas, thresholds, deadlines, evidence standards, approval rights and remedies.
  4. Reconcile the promised schedule with quoted lead times, procurement windows and approval periods.
  5. Confirm insurance, bonds, warranties, title, lien releases and storage requirements for materials bought before installation.
  6. Route the final form through the project manager, commercial lead, scheduler and jurisdiction-appropriate construction counsel.
  7. Keep a signed, dated version and a register of notices, approvals, indices, quotations and schedule updates from day one.

Questions to resolve before signing

  • Who pays if material prices rise after signing? The answer is the combined effect of the pricing, escalation, allowance, change-in-law and change-order provisions, interpreted under the governing law—not the words “fixed price” alone.
  • What if a material is delayed or unavailable? Follow the defined notice, proof and mitigation process, then apply the stated time, cost, substitution, suspension or termination remedy.
  • Can the contractor substitute materials? Only if the contract permits it and the designated authority approves compliance, performance, warranty, price and schedule effects in writing.
  • Does a shortage automatically extend the deadline? No. Eligibility, causation, notice and mitigation requirements, plus the governing law, determine whether an extension is available.

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