Flexible Construction Contracts: Building Room to Breathe in a Downturn
Protecting Builders from Market Volatility Without Breaking the Bank
Don’t Let Your Contracts Box You In
When the market softens, the last thing you want is to be locked into a rigid construction contract with no room to breathe. Schedules shift. Material prices spike—or drop. Buyer traffic slows. But if your trade agreements don’t allow for flexibility, your hands are tied.
Good construction contracts aren’t just about pricing and performance. They’re about building in the right to adapt—without blowing up your job or derailing relationships.
Why It Matters More in a Slowdown
In a hot market, delays and inefficiencies can be glazed over with sales velocity. But in a downturn, every line item matters. That’s when you start feeling the pinch of poorly written scopes and inflexible contract terms. A few scenarios we see all the time:
- You need to pause or re-sequence the job, but your agreement doesn’t allow it
- A key material is backordered or overpriced, but your sub won’t approve a substitute
- You want to scale down the scope or defer work, but there’s no clear off-ramp
- You’re forced to terminate, but without a convenience clause, you’re paying full freight anyway
When margins are thin, that kind of rigidity can make or break a project, or a business.
Clauses That Create Flexibility
Here’s where the legal structure really matters. A few terms worth baking into your contracts before things tighten up:
- Schedule Adjustments: Make sure your agreements allow for extensions—weather, labor delays, permitting, or market conditions. Even in fixed-schedule scopes, add language that gives you the unilateral right to pause or revise timelines.
- Material Substitutions: Include a clause that allows the builder to approve reasonable alternates. This protects you if a specific product becomes unavailable or unaffordable. Spell out the process so it’s not a fight every time.
- Scope Revisions and Downsizing: Use language that lets you reduce or defer scope without triggering breach claims. This is key for model homes, amenities, or phasing work in uncertain markets.
- Termination for Convenience: Always reserve the right to walk away. Whether it’s pausing a job, scrapping a deal, or restructuring the project, you want the ability to exit cleanly—with clear limits on compensation owed.
- Escalation and Pricing Adjustments: Fixed-price contracts sound good until commodity prices swing. Consider clauses that allow for shared risk above a threshold, or that tie pricing to indexes with caps.
Force Majeure: Define Clearly, Limit to True Infeasibility
A force majeure clause can give you breathing room when the unexpected hits—but only if it’s written clearly and tied to actual risks that could render your project infeasible to continue. In Georgia and under federal law, a force majeure clause is generally enforceable if it allocates risk for performance failures caused by unforeseeable and uncontrollable events like hurricanes, acts of war, regulatory shutdowns, pandemics, or extreme labor or material shortages.
In addition, just because something is inconvenient or more expensive doesn’t mean it qualifies as force majeure. Georgia law is strict: performance must be truly impracticable—not just harder or costlier.
Bottom line: If you want relief for weather, pandemic-related shutdowns, regulatory delays, labor strikes, or material shortages, you need to say so—specifically and explicitly—in the contract. A solid force majeure clause should:
• Define qualifying events clearly (not just “Acts of God”)
• Require written notice within a specific number of days
• Clarify that the event must make performance infeasible, not just more expensive
• Include a duty to mitigate and resume performance promptly
• State whether the clause suspends payment obligations or just delays delivery
• Provide termination rights after prolonged delay
Don’t count on courts to fill in the blanks. In Georgia, you only get what your contract gives you—and no more.
Default and Cure
Be clear on what constitutes a “material default”—missed deadlines, failure to correct defective work, or refusal to follow site instructions should all be defined. Your contract should also spell out exactly how much notice the subcontractor is entitled to and how long they have to cure the problem.
If a sub walks off the job or drags their feet, you need clear written authority to replace them, backcharge them, or terminate the agreement. And if the issue is serious enough to land in arbitration or court, you must follow the contract's default and cure process to the letter. Skipping steps or failing to give proper notice can hand the sub a technical defense—or worse, delay your ability to mitigate damages.
Indemnity and Insurance Must Work Together to Create a True “Umbrella”
Many builder contracts include broad, catch-all indemnity clauses. That’s great in theory—but it only works if the subcontractor’s insurance policy actually covers the scope of that indemnity (or if the sub has deep pockets, which is rarely the case).
The problem? Many contractor GL policies exclude exactly the kinds of risks you care about: claims for defective workmanship, mold, or even load-bearing wood framing and residential construction in general. And even when coverage exists, the policy limits may be far too low for the size and scope of your project.
So even if you have a strong, legally enforceable indemnity clause, you could still end up paying lawyers to “win” a judgment against a subcontractor who can’t pay—and who can’t reimburse you for the legal fees it took to get there.
Contingent Payment Clauses: Know What Will Actually Hold Up
In Georgia, “pay-if-paid” clauses are generally enforceable—but only if they are clear and unambiguous. These clauses shift the risk of nonpayment from the builder to the subcontractor: the sub doesn’t get paid unless and until the builder gets paid by the owner.
But if the clause isn’t worded precisely, courts may interpret it as a “pay-when-paid” clause, which only delays payment for a reasonable time and does not eliminate the obligation to pay. Georgia courts have emphasized that unless the clause explicitly states that payment by the owner is a condition precedent, the builder might still be on the hook.
Also, Georgia’s Prompt Payment Act imposes time limits on payments to subcontractors that can interact with these provisions. Even if you have a valid pay-if-paid clause, failure to follow the statute’s timing and notice requirements could create liability anyway.
Bottom line: If you’re using a contingent payment clause in Georgia, be intentional. Draft it clearly. Use “condition precedent” language. And understand how it aligns—or conflicts—with your other payment and notice obligations.
Conclusion
When you lay out clear terms for adjustment, substitution, and exit, you reduce the chance of conflict and give yourself options when the unexpected hits. That’s what smart builders do – build contracts that protect your business behind the houses.
