Considerations for Prefabrication Contracts

In most construction contracts, the parties are negotiating terms about construction that will happen at or on the construction site. But in many cases, construction of elements or parts of the project happen off site, and then are transported onsite. This is called prefabrication, and parties should be aware of issues that can come up.

What is Prefabrication?

Prefabrication is where certain structures being built are not built at the same location where the actual construction is being built. Rather, parts or structures are assembled, manufactured, or put together offsite, and then transported to the construction site where they are placed or made part of the on-site construction.

Construction of the prefabricated units may take place at an offsite location that is owned, controlled, or operated by one of the parties, but it may also take place at a third party location, and may even be put together by a third party that is not a party to the construction contracts.

Legal Issues in Prefabrication

Standard construction contracts often don’t address issues that can come up in prefabrication contracts. Some of these potential issues are addressed below.

Transportation – What if a prefabricated item is lost or damaged in the process of being transported from the offsite location to the construction site? Is there insurance for the loss? If a third party will be handling any part of prefabrication or the construction or transportation of the structure, is that third party sufficiently insured in case something is damaged in the course of transportation?

Temporary Storage – What if the prefabricated structures can’t be immediately placed at the construction site? Is there a place to store them, and what party bears the cost (or risk of loss, if there’s damage during storage)?

Warranties – You and the other party to the construction contract likely have a list of warranties and guarantees of a standard level of workmanship required for the project. But what about any third parties that are doing prefabrication? If they do a substandard job, does the contract allow for delays in fixing problems that are outside of the parties’ control? You may need to incorporate warranty language in your construction contracts into the prefabrication agreements.

Trade Secrets – if inspections of prefabricated units will take place, will those inspections entail the potential revelation of any trade secrets? If so, protective language needs to be included in your contracts.

Heavy Equipment – if heavy equipment, like a crane, is needed to physically place the prefabricated unit into the project, are there considerations in the contract for that?

Insurance – Does your or the other side’s insurance account for defects, delays, or damage, caused by problems or delays in constructing, transporting or placing the prefabricated units?

Don’t forget to include insurance coverage for consequential damages—in other words, a problem with a prefabricated structure can send the project into a tailspin, causing damages far beyond just the cost of (re)constructing the fabricated unit.

Call our Fort Lauderdale construction attorneys at Sweeney Law P.A. at 954 440-3993 to help you review your construction project’s essential documents, and draft agreements that cover all contingencies or potential problems.