A contractor in the context of construction may be defined as any person who in any capacity undertakes, offers to undertake, purports to have the capacity to undertake, or submits a bid to, or does himself or by or through others, perform construction. Construction may be defined as the performance of building, altering, repairing, adding to, subtracting from, improving, reconstructing, moving, excavating, wrecking or demolishing any building, highway, road, bridge, or other structure, project, development or improvement to real property, or to do any part thereof, including the erection of scaffolding or other structures or works in connection therewith.
The business of building or construction contractors is one that state legislatures regulate in the interest of the public welfare. For example, a legislature may provide that building permits be issued only to duly licensed general contractors. The purpose of a contractors’ licensing act is threefold:
- to protect the public against the consequences of incompetence and dishonesty by those who provide building and construction services;
- to require contractors who want to engage in particular types of construction work to meet certain standards of responsibility, such as experience and ability; and
- to create a market in which consumers may contract with competent, reliable construction contractors who have passed the scrutiny of a licensing division, thus preventing the exploitation of the public by incompetent and dishonest contractors who are unable or unwilling to obtain licenses.
A contractor’s license may be revoked for the violation of the provisions of a statute, such as the abandonment of a construction project that the licensee has undertaken, or the failure to complete a project for the agreed price. A construction contract must fulfill the same requirements as any other type of contract in regard to matters such as offer and acceptance, sufficiency of consideration, legality, and form.
A building and construction contract generally provides not only for the construction of the project, but also for many matters that are incidental to the project. For example, such a contract may provide for the carrying of liability insurance, workers’ compensation, and fire insurance. A building and construction contract will typically specify the duties, responsibilities, and liabilities of each of the parties, as well as those of any employed architect or engineer. Of course the amount and method of compensation is an important part of such a contract.
A building and construction contract often incorporates by reference the plans, drawings, and specifications and therefore does not need to be a long and complicated document. Such a contract should describe the project, identify the parties, set the price and the method of payment, designate the time for completion, and specify the other documents involved, incorporating them into the contract by reference.
By virtue of express statutes in most states, mechanics and material men or persons who furnish materials for the erection of houses or other buildings, are entitled to a lien on the houses and buildings erected and to the land. This lien is used to enforce payment in order to clear the title to the property, because property with a lien on it cannot be easily sold until the lien is satisfied (paid off).
In some states, a claim must be filed in the office of the clerk of the court or a suit brought within a limited time. On the sale of the building these liens are to be paid pro rata. In some states no lien is created unless the work done or the goods furnished amount to a certain specified sum, while in others there is no limit to the amount. In general, none but the original contractors can claim under the law; however, in some jurisdictions, sub-contractors have the same right.