Top Contract Compliance Pitfalls Construction Companies Should Avoid

Construction projects are complex, and contract compliance is a major part of keeping everything on track. But let’s be honest. Contract terms can be tricky, paperwork can pile up fast, and miscommunication happens. Failing to stay on top of contract requirements can lead to financial losses, project delays, and even legal trouble.

Contract Compliance Issues in Construction

To help you avoid these common mistakes, let’s walk through some of the biggest contract compliance pitfalls construction companies face and how to avoid them.

Misunderstanding Contract Terms

Contracts can be dense, packed with legal jargon and fine print. Not fully understanding the terms (especially clauses related to penalties, deadlines, or payment schedule) can put your company at serious risk.

Take the time to review contracts thoroughly before signing and if something isn’t clear, ask for clarification from a legal expert. Project managers must be familiar with key contract terms and expectations to avoid issues. Set up a checklist for each contract, highlighting deadlines, penalties, and any unique requirements. Doing so will make it easy for everyone to be on the same page.

Inaccurate Record-Keeping and Documentation

Managing job costs, tracking change orders, and maintaining accurate time entries are necessary to stay compliant. Poor documentation can lead to disputes, payment issues, and financial discrepancies.

A reliable project management system helps track all costs, change orders, and estimated costs to complete. Keep all documentation organized and accessible, so you can quickly resolve disputes if they arise. Implement a time-entry system that ensures accuracy and accountability for labor costs.

RELATED CONTENT: BIZ TIP

SOLVING COMMON JOB COST ACCOUNTING ISSUES IN CONSTRUCTION

OPEN IN NEW WINDOW

Poor Subcontractor Compliance Management

Managing subcontractors is a key part of project oversight. If subcontractors aren’t following their agreements, it can create problems for your entire project.

When working with subcontractors, clearly define expectations in subcontractor agreements, and ensure they understand their responsibilities. Regularly check in on subcontractor compliance; don’t simple wait until an issue arises. A designated project manager should oversee subcontractor performance and make sure contract terms are being followed.

Payment and Billing Compliance

Construction contracts often outline specific billing schedules, retainage terms, and payment milestones. Failing to follow these terms can result in withheld payments or penalties. This is especially true for municipal or government jobs.

To avoid issues in this area, create a billing schedule based on the contract terms and stick to it. If you are working on government contracts, make sure you understand any unique compliance requirements, such as prevailing wage laws or reporting obligations.

RELATED CONTENT: BIZ TIP

THE IMPACT OF RETAINAGE: ACCOUNTING TIPS FOR CONSTRUCTION CONTRACTORS

OPEN IN NEW WINDOW

Insufficient Risk Management Planning

One of the biggest risks in construction is underestimating job costs. If you’re not actively monitoring your estimated total job costs, you could be setting yourself up for financial losses.

It’s important to continuously track project expenses against your budgeted costs and hold regular project reviews with your project managers to assess cost overruns early. Using historical data from past projects can help improve cost estimates for future jobs.

Lack of Communication Between Key Team Members

Breakdowns in communication between project managers, accounting teams, and company leadership can lead to costly mistakes. If project managers aren’t keeping accounting in the loop, financial records may be inaccurate, and critical budget issues may go unnoticed.

Establish clear communication protocols between project managers, accounting, and company leadership. Project management software that integrates with your accounting system can improve transparency and avoid communication issues.

RELATED CONTENT: EGUIDE

TOP 5 BUSINESS IMPACTS FOR CONSTRUCTION COMPANY LEADERSHIP

OPEN IN NEW WINDOW

Be Proactive

Contract compliance isn’t just about avoiding penalties. It’s about keeping your projects running smoothly, staying profitable, and maintaining strong client relationships.

By staying proactive and addressing these common pitfalls, your construction company can avoid costly mistakes and set itself up for long-term success.