Understanding Take or Pay Agreements in Construction

Michael Fitzpatrick Architects is committed to bespoke design, energy efficiency and sustainable construction. These three elements are very important in today’s building industry and every architect has adjusted their plans so that they can accommodate green building. Planners are also taking steps to help facilitate the construction of buildings that meet as many energy guidelines as possible. The key to ensuring the success of contemporary projects is future planning.

Entire buildings need to go through four stages of development before completion. This includes a preliminary period when the plans are developed and signed off on, long before the first shovel breaks ground. It is essential to have a solid understanding of legal contracts at the time of development. This involves determining how best to structure a comprehensive take or pay agreements (TPA). These agreements are particularly useful because they establish fixed obligations for both parties. In comparison to other contracts, these TPAs are often more flexible.

Contractual obligations for “take or pay agreements” involve: Some contracts will not contain a specific reference to a timeline when the final deposit is going to be paid. Instead, they will highlight the estimated duration of the project. This aspect of the contract helps with establishing the timeframe for payments. The general practice is to encourage suppliers to offer discounts if certain milestones can be met. In addition to this practice, an average rate of exchange will be used for payments.

Agreements to perform work, “take or pay agreements” by definition, tend to favour the business. However, they also allow other parties to get an idea of what is required. “Take or pay agreements” are a way to ensure that everyone is aware of what is happening and able to access the right decision makers at the right time. Depending on specific parameters of a project, “take or pay” clauses might be a great way to deliver products and services for large contracts.

When it comes to building structures, it will be particularly useful to consult with suppliers so that they can play a role in delivery. A project can be adversely impacted if a supplier is not able to deliver something on time. On the other hand, a “take or pay agreement” can help project managers with avoiding or managing such issues. Being able to allocate tasks so that everyone has a set responsibility will help to avoid situations where more than one party feels responsible for a small issue. It also allows for having the right conversations with the right people.

Architects want to be willing to establish positive working relationships. Premature payment can be a bit of a deterrent. As it is going to take up a lot of time and effort, it makes sense to establish long-term agreements and build a reputation for being co-operative payers. If the intent is to eliminate the need for renegotiating agreements, then agreeing on binding contracts is sensible. The choice to have a TPA is a complex one. This is due to the fact that multiple outside influences impact project timelines. Architects and other industry partners are being affected by new environmental considerations, by rules around resource conservation and by other key legislative elements. Architects are finding it particularly beneficial to maintain long-term agreements with suppliers.