A construction contract is an agreement between a client and a contractor that specifies the details of a construction project. The details in a construction contract should include all aspects of the project, including payment, the type of work being done, legal rights of the contractor, and more.
For some types of construction projects, you may need government permits in addition to the construction contract before contractors can begin working.
1. What is a Construction Agreement?
A Construction Contract Agreement is a written document between a property owner and a general contractor, specifying the construction, renovations, alterations, or other work to be done on the property owner’s home or land. This document outlines which parties will be engaged, the price to be paid, the rights of each party, and the date construction will commence and be completed.
A simple document will identify the following basic elements:
- Owner: The party hiring the general contractor to complete construction on his or her property.
- General contractor: The party responsible for the day-to-day oversight of the construction.
- License number: The general contractor’s state license board number, proving they are a licensed contractor
- Worksite: The address of the property where the construction is to be completed.
- Description of work: A detailed description of the work and construction to be done by the contractor. You can also attach project plans and specifications to the agreement.
- Contract price and payments: The total price to be paid for the work and how and when payments will be made.
- Contract documents: any drawings, blueprints, exhibits or other documents that will part of the contract
- Materials and labor: Which party will supply and pay for the cost of materials and labor.
- Starting and completion dates: The dates the contractor must start construction and have the construction substantially completed by.
- Licensing and permits: Which party will be responsible for obtaining any required licenses and permits.
- Subcontracts: Whether the contractor will hire subcontractors to help perform part of the contractor’s obligations
- Work changes: How any changes to the agreed upon work will be handled once construction has begun.
- Warranties: How long will the contractor warrant that his or her work is free from material defects.
These additional elements can also be included:
- Indemnification: The contractor promises to be responsible for any loss or damages incurred by the owner arising out of his or her work.
- Dispute resolution: Arbitration, mediation, and adjudication are common ways for parties to settle disputes under the contract instead of going through the courts.
- Termination: When the buyer or contractor can terminate the contract.
- Inspection: Allows the owner to examine the work done by the contractor at any time during construction to see if it conforms with the contract terms.
- Insurance: Owners and contractors are both responsible for obtaining insurance to protect against damages and defects, and claims and losses.
- Liquidated damages: An amount per day that the contractor must pay to the owner for each day past the agreed upon completion date that construction is delayed.
- Force majeure: Parties will not be responsible for non-performance due to unavoidable occurrences or circumstances beyond their control (e.g. hurricanes, earthquakes, shortage of materials, change in contract plans).
In addition, you can also specify how the worksite should be maintained, including supervision of the workers, storage of materials, and where waste can be dumped.
A Construction Contract Agreement may also be called:
- Construction Agreement
- Construction Contract
- Construction Management Agreement
- Service Agreement for Construction
- Construction Services Contract
- Contract for Construction
- Construction Contractor Agreement
- Contractor Agreement
Construction Contract Sample
Here’s what a typical construction contract agreement looks like:
|State of __________|
|CONSTRUCTION CONTRACT AGREEMENT|
This Construction Contract Agreement (this “Agreement”) is made as of the ___ day of ___________, 20___ by and between __________, a(n) ☐ Individual ☐ Business Entity located at __________, __________, __________ __________, (“Owner”) and __________, a(n) ☐ Individual ☐ Business Entity located at __________, __________, __________ __________ with contractor’s license number __________ (“Contractor”). Owner and Contractor may each be referred to in this Agreement individually as a “Party” and collectively as the “Parties.”
The Parties agree as follows:
- Description of Work. Contractor shall perform the following described work at __________, __________, __________ __________ (the “Property”), in accordance with Owner’s contract plans and specifications, this Agreement and any Change Order, as defined herein, (collectively, the “Contract Documents”): __________________________________________
_____________________________________________________ [Description of work] (the “Work”). Industry terminology used in any Contract Documents which are not defined shall be interpreted as having the same meaning as that recognized in the construction industry in the area where the Property is located.
- Contract Price and Payments. Owner agrees to pay Contractor the total amount of $________ (the “Contract Price”). Payment of this amount is subject to additions or deductions in accordance with any mutually agreed to changes and/or modifications in the Work. Payment will be made by (Check one)
☐ cash ☐ personal check ☐ cashier’s check ☐ money order ☐ credit card or debit card ☐ wire transfer ☐ other: __________, according to the following schedule:
Deposit (Check one)
☐ A deposit is NOT required.
☐ $__________ deposit, due upon the execution of this Agreement.
Installments (Check one)
☐ There will be NO installment payments.
☐ Installment will be paid at set intervals. $________ due ☐ every week ☐ every month ☐ other: __________ from the completion of the Work.
☐ Installments will be paid upon the completion of the following milestones:
- $________ due upon __________ [Milestone]
- $________ due upon __________ [Milestone]
- $________ due upon __________ [Milestone]
$________ balance due upon completion of the Work.
- Certificate of Completion. Work under this Agreement shall begin on ___________, 20___, (☐ and shall be completed by ___________, 20___). Upon completion of the Work, Contractor shall notify Owner that the Work is ready for final inspection and acceptance and Owner shall make the final payment within __________ days after final inspection.
- Materials and Labor. Contractor shall provide and pay for all labor and equipment, including tools, construction equipment, machinery, transportation and all other facilities and services, and all materials necessary for the completion of the Work. All materials shall be good quality and new, unless the Contract Documents require or permit otherwise. Contractor may substitute materials only with the prior written approval of Owner. (Check all that apply)
☐ The following materials will not be included in the Contract Price and are the sole responsibility of Owner and will not be covered under warranty by Contractor: _______________________________.
☐ In addition, the Contract Price shall include the following fixtures: __________________________.
- Licenses and Permits. (Check one) ☐ Contractor ☐ Owner shall obtain all licenses and permits necessary for proper completion of the Work. (Check one) ☐ Contractor ☐ Owner is responsible for the cost of any necessary permits or licenses.
- Laws and Regulations. Contractor shall perform the Work in a workmanlike manner and in compliance with all applicable federal, state, and local laws, regulations and ordinances, trade standards, ethical guidelines and any safety requirements of Owner (the “Applicable Laws”). Contractor shall promptly notify Owner upon discovery of any variance between the Applicable Laws and the Construction Documents.
- Supervision of Construction. Contractor shall be solely responsible for and shall supervise and direct all construction under this Agreement. Contractor shall provide competent and suitable personnel to perform the Work and shall at all times maintain good discipline and order at the Property. Contractor will at all times take all reasonable precautions for the safety of its employees and the public at the Property. Contractor agrees to assume full responsibility for the acts, negligence, and/or omissions of its employees and any subcontractors and their employees.
- Record Documents. Contractor shall maintain in a safe place at the Property one record copy of all drawings, specifications, addenda, written amendments, and the like in good order and annotated to show all changes made during construction, which will be delivered to Owner upon completion of the Work. Owner shall have the right to inspect and review such documents upon notice to Contractor.
- Utilities. (Check one) ☐ Contractor ☐ Owner shall pay for all permanent electric, water, phone, cable, sewer and gas service as needed to perform the Work. (Check one) ☐ Contractor ☐ Owner shall pay for the installation, connection and removal of all temporary utilities on the Property during the performance of the Work. All temporary utilities shall conform and adhere to the Applicable Laws.
- Hazardous Materials. Except as otherwise provided in the Contract Documents, Contractor shall be responsible for all Hazardous Materials brought to the Property by Contractor. Hazardous Materials shall include radioactive materials, asbestos, polychlorinated biphenyls, petroleum products, crude oil, flammable materials, chemicals or solvents known to cause cancer or reproductive toxicity, pollutants, contaminants and toxic substances which are restricted, prohibited or regulated by any agency of government in its manufacture, use, maintenance, storage, ownership or handling. If Contractor discovers any Hazardous Materials on the Property, Contractor shall immediately notify Owner and may cease working until the material or substance has been rendered harmless. Owner shall defend, indemnify and hold harmless Contractor, any subcontractors, and their respective agents and employees from and against all claims, damages, losses and expenses, including attorney’s fees, arising out of or resulting from contact with the Hazardous Substance in performance of the Work resulting in bodily injury, illness or death, or injury or property damage, provided such claim, damage, loss or expense is not the result of any negligent act or omission by the party seeking such indemnity.
- Warranty. Contractor warrants that the Work shall be in accordance with the Contract Documents, applicable law and trade standards and free from material structural defects, improper workmanship or defective materials. Contractor shall replace, correct or repair any Work not in accordance with the Contract Documents, applicable law and trade standards or any defects caused by faulty materials, equipment or workmanship for a period of __________ year(s) from the date of completion of the Work. Nothing in this Section 11 shall be construed to place a time limit with respect to any other obligation Contractor may have under this Agreement.
- Condition of the Property. Contractor agrees to keep the Property and adjoining driveways free and clear of waste material and rubbish. Contractor shall confine the storage of materials and equipment and the operations of employees to the Property, and shall not unreasonably encumber the Property with materials or equipment. Contractor shall be fully responsible for any damage to the Property or areas contiguous thereto resulting from the performance of the Work. At the completion of the Work, Contractor shall remove all waste materials, rubbish and debris from and about the Property as well as all tools, appliances, construction equipment and machinery, and surplus materials, and shall leave the Property clean and ready for occupancy by Owner.
- Inspection. Owner shall have a right to inspect the Work at any time and request that Contractor promptly correct any Work that is defective or does not conform to the Contract Documents. If required, the Work shall be inspected and certified by the appropriate state or local agency or health officer at each necessary stage.
- Right to Stop Work. If Contractor fails to correct any defective Work or repeatedly fails to perform the Work in accordance with the Contract Documents, Owner shall have the right to order Contractor to stop performing the Work, or any portion thereof, until the cause for such order is eliminated.
- Subcontracts. Contractor shall furnish to Owner a list of names of subcontractors proposed to perform principal portions of the Work. Contractor shall not employ any subcontractor to whom Owner reasonably objects. A subcontractor, for the purposes of this Agreement, shall be a person with whom Contractor has a direct contract for work at the Property. All contracts between Contractor and subcontractor shall be in accordance with the terms of this Agreement and the Contract Documents.
- Work Changes. Owner reserves the right to order changes to the Work in the nature of additions, deletions or modifications, without invalidating this Agreement, and agrees to make corresponding adjustments in the Contract Price and time of termination if applicable. All changes will be authorized in a written “Change Order” signed by Owner and Contractor, which shall be incorporated by reference herein.
- Other Contractors. Owner reserves the right to enter into other contracts in connection with the Work. Contractor shall cooperate with all other contractors so that their work shall not be impeded, and shall give them access to the Property as necessary to perform their contracts.
- Indemnification. Contractor agrees to defend, indemnify and hold harmless Owner and its agents and employees, from and against all claims, actions, liabilities, suits, demands, injuries, obligations, damages, losses, settlements, judgments, fines, penalties, costs and expenses, including reasonable attorneys’ fees, arising out of any negligent act or omission by Contractor, a subcontractor or anyone directly or indirectly employed by them in the performance of the Work resulting in bodily injury, illness or death, or for property damage, including loss of use, unless caused by the sole negligence or willful misconduct of Owner.
- Contractor’s Insurance. Contractor agrees to maintain at its own expense during the entire period of construction at the Property:
- General Liability Insurance. Such general liability insurance as will protect Contractor from claims for property damage and bodily injury, with limits of liability not less than $__________ for each occurrence.
(Check all that apply)
☐ B. Workers’ Compensation Insurance. Such workers’ compensation and employee insurance as
required by law.
☐ C. Automobile Liability Insurance. Such automobile liability insurance with limits of liability not less than $ __________.
☐ D. Other Insurance. __________.
Contractor shall name Owner as an additional insured (☐ except for the workers’ compensation insurance). Proof of such insurance shall be filed by Contractor with Owner within a reasonable time after execution of this Agreement.
- Waiver of Subrogation. Owner and Contractor each waive any and all claims or rights to recovery against the other Party for any loss or damage to the extent such loss or damage is covered by insurance or would be covered by any insurance required under this Agreement. Owner and Contractor shall cause each insurance policy carried by Owner or Contractor relating to the Property to include or allow a full waiver of any subrogation claims.
- Time of Essence. All times stated in this Agreement or in the Contract Documents are of the essence. Contractor agrees that such times are reasonable for performing and completing the Work.
- Liquidated Damages. (Check one)
☐ Owner is entitled to liquidated damages. In the event the Work is not completed by the date set forth in Section 3 of this Agreement, plus any extensions thereof as allowed in this Agreement, Owner shall suffer damages uncertain in amount and difficult to measure and prove accurately. Owner and Contractor agree that in lieu of actual damages, and not as a penalty, for delay in the performance of the Work, Contractor shall pay Owner the sum of $__________ for each calendar day completion of the Work is delayed. Contractor agrees that the liquidated damages specified herein are reasonable in amount and are not disproportionate to actual anticipated damages. Owner shall have the right to deduct any liquidated damages from any amount due or that may become due to Contractor. Liquidated damages shall be the sole and exclusive remedy for Owner for delay in completion of the work past the agreed upon date.
☐ Owner is NOT entitled to liquidated damages.
- Extension of Time. The times stated in this Agreement may be extended for such reasonable time as Contractor may determine when performance of the Work by Contractor is delayed by a Change Order, labor disputes, fire, unusual delay in deliveries, abnormal adverse weather conditions, unavoidable casualties, or other causes beyond Contractor’s control or which justify the delay.
- Early Termination for Breach of Contract.
- Contractor’s Termination. Contractor may, on __________ days’ written notice to Owner, terminate this Agreement before the completion of the Work when for a period of __________ days after a progress payment is due, through no fault of Contractor, Owner fails to make the payment. On such termination Contractor may recover from Owner payment for all Work completed and for any loss sustained by Contractor for materials, equipment, tools or machinery to the extent of actual loss thereon, plus loss of a reasonable profit.
- Owner’s Termination. Owner may, on __________ days’ notice to Contractor, terminate this Agreement before the completion of the Work, and without prejudice to any other remedy Owner may have when Contractor defaults in the performance of any provision of this Agreement, or fails to carry out performance of the Work in accordance with the provisions of the Contract Documents.
Excess Payment (Check all that apply)
☐ If the unpaid balance on the Contract Price at the time of the termination exceeds the expense of finishing the Work, Owner shall pay such excess to Contractor.
☐ If the expense of finishing the Work exceeds the unpaid balance of the Contract Price at the time of termination, Contractor shall pay the difference to Owner.
- Disputes. Any dispute arising from this Agreement shall be resolved through: (Check one)
☐ Court litigation. The dispute shall be resolved in the courts of the State of __________.
☐ If either Party brings legal action to enforce its rights under this Agreement, the prevailing party will be entitled to recover from the other Party its expenses (including reasonable attorneys’ fees and costs) incurred in connection with the action and any appeal.
☐ Arbitration. The dispute shall be resolved through binding arbitration conducted in accordance with the rules of the American Arbitration Association.
☐ Mediation. The dispute shall be resolved through mediation.
☐ Mediation then arbitration. The dispute shall be resolved through mediation. If the dispute cannot be resolved through mediation, then the dispute will be resolved through binding arbitration
conducted in accordance with the rules of the American Arbitration Association.
- Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together, shall constitute one and the same document.
- Headings. The section headings herein are for reference purposes only and shall not otherwise affect the meaning, construction or interpretation of any provision of this Agreement.
- Notices. Any notice or communication given or made to any Party under this Agreement shall be in writing and delivered by hand, sent by overnight courier service or sent by certified or registered mail, return receipt requested, to the address stated above or to another address as that Party may subsequently designate by notice and shall be deemed given on the date of delivery.
- Assignment. No Party hereto shall have the right to assign its rights or delegate its duties hereunder without the written consent of the other Party, which consent shall not be unreasonably withheld.
- Binding Effect. This Agreement shall be binding and enure to the benefit of the Parties and their respective legal representatives, heirs, administrators, executors, successors and permitted assigns.
- Governing Law. This Agreement and the rights and obligations of the Parties hereto shall be governed by and construed in accordance with the laws of the State of __________, without regard to its conflicts of laws provisions.
- Severability. If any provision of this Agreement is held to be invalid, illegal or unenforceable in whole or in part, the remaining provisions shall not be affected and shall continue to be valid, legal and enforceable as though the invalid, illegal or unenforceable part had not been included in this Agreement.
- Entire Agreement. This Agreement contains the entire agreement between the Parties hereto with respect to the subject matter hereof, and supersedes all prior negotiations, understandings and agreements.
- Amendments. This Agreement may not be amended or modified except by a written agreement signed by the all of the Parties.
- Waiver. No Party shall be deemed to have waived any provision of this Agreement or the exercise of any rights held under this Agreement unless such waiver is made expressly and in writing. Waiver by any Party of a breach or violation of any provision of this Agreement shall not constitute a waiver of any other subsequent breach or violation.
- Survival. The obligations of Contractor expressly identified in this Agreement, or those by operation of law, shall survive the completion of Work or termination of this Agreement.
- Industry Language. The language used for terms of this Agreement, unless otherwise defined, shall be construed according to the customary meaning within the construction industry in the area where the Project is located and for the type of Work being performed.
- Independent Contractor. Contractor acknowledges that it is an independent contractor and is not an agent, partner, joint venture nor employee of Owner. Contractor shall have no authority to bind or otherwise obligate Owner in any manner nor shall Contractor represent to anyone that it has the right to do so. Contractor further agrees that in the event that the Company suffers loss or damage as a result of a violation of this provision Contractor shall indemnify and hold harmless Owner from any such loss or damage.
- Rights of Third Parties. Nothing in this Agreement shall create or give to any third party a claim or right of action against Contractor or Owner.
- Confidentiality. (Check one)
☐ As a result of Contractor’s participation in the Work, Contractor will have access and contribute to information and materials of a highly sensitive nature, including Confidential Information. Contractor hereby warrants that Contractor and its employees and agents shall not (without in each instance obtaining the Owner’s prior written consent) disclose, make commercial or other use of, or give or sell to any person, firm, or corporation, any Confidential Information received directly or indirectly from Owner or acquired or developed in the course of the performance of this Agreement unless: (1) required to do so pursuant to Applicable Laws (and then only after Contractor has given Owner prompt written notice of the legal compulsion and, at Owner’s expense, provided by Owner with cooperation in any attempt Owner may make to gain a protective order acceptable to Owner); or (2) it is rightfully in the possession of Contractor from a source other than Owner prior to the time of disclosure of the information to Contractor under this Contract; or (3) it was in the public domain prior to the time of Contractor’s receipt; or (4) it became part of the public domain prior to the time of Contractor’s receipt by any means other than an authorized act or omission on the part of Contractor; or (5) it is supplied to Contractor after the time of Contractor’s receipt by a third party who was not under any obligation to Owner to maintain such information in confidence; or (6) it was independently developed by Contractor prior to the time of its receipt from Owner. All Confidential Information, regardless of form, shall be the property of Owner and shall be returned to Owner upon its request, or in any event, at the completion or earlier termination of this Agreement.
☐ Contractor will NOT have access and contribute to Confidential Information.
- Other. __________
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above.
|Owner Signature||Owner Full Name|
|Owner Representative Signature||Owner Representative Name and Title|
|Contractor Signature||Contractor Full Name|
|Contractor Representative Signature||Contractor Representative Name and Title|
Certificate of Completion
Contractor Name: __________
Property Address: __________, __________, __________ __________
Contract Date: ___________, 20___
Completion Date: ___________, 20___
2. When Do You Need a Construction Contract?
You should use a Construction Contract Agreement if you are on either end of the process of building, renovating or altering a building or structure. Perhaps you’ve finally decided to build your dream home and start living happily ever after. Happily ever after might have to wait because of unreasonable contractor delays or unexpected, excessively high costs.
Or maybe you are a local contractor looking to grow your business and take on bigger construction projects. Either way, you’ll want to make sure you have an agreement in writing to act as the blueprint until construction is completed to iron out the wrinkles.
This agreement allows the parties to put into writing the exact nature and details of the work to be performed, and the responsibilities of each party throughout the course of construction. In addition, it also details the payment terms of the project. In general, there are three different types of pricing arrangements:
Lump sum: Also known as the traditional “fixed price” contract, it is the most common pricing arrangement for construction contracts. In a lump sum contract, the parties agree on a fixed price, based on the contractor’s appraisal of costs of a complete and final design. Lump sum contracts take into consideration all materials, subcontracts, labor, indirect costs, profit, and more.
Cost or cost-plus: In a cost-plus contract, the owner reimburses the contractor for all costs incurred during the construction such as materials and labor. The owner also pays an agreed-upon profit margin, usually a flat fee or percentage of total costs.
Unit price: A unit price arrangement involves the parties placing a price on every unit, or relevant piece of work, such as, by item, by cubic yard, by linear foot, or per hour.
|Lump Sum||-Contractor is able to ask for a higher markup in anticipation of unforeseen events|
-Contractor has larger profit if overestimates total cost
|-Contractor bears almost all of the financial risk
-Contractor’s underestimation of total costs will lower profit
-An overestimate may lower chances of being lowest bidder for the contract
|Cost/Cost-Plus||-Accurate accounting of overhead costs and general conditions|
-Used when there is variability in amount of materials or time
|-Costs can rise rapidly
-Owner must verify hundreds or thousands of claimed costs
-Owner more susceptible to dishonest contractor and fraud
|Unit Price||-Accurate estimation of overhead costs and general conditions|
-Used when there is variability in amount of materials or time
|-Final cost unknown until the completion of the project
-Creates an unbalanced bid due to contractor’s ability to raise and lower certain item prices
The construction process also involves many moving parts, and clearly defining which party is responsible for what role allows for the process to go more smoothly. A few of the necessary parts that can be expressly assigned to either party include:
- Obtaining permits – new construction and additions to existing buildings often requires approval by the local authority and obtaining a permit.
- Providing materials – materials for construction can include cement, drywall, wood floors, or paint.
- Buying fixtures – remodeling and construction often involves new fixtures such as a stainless steel stove, Sub-Zero refrigerator, or fancy new chandelier.
- Paying for utilities – sometimes temporary utilities such as generator power, drinking water, and sewage are needed for construction.
3. The Consequences of Not Using a Construction Contract
Say your contractor and his team suddenly stopped working, and he or she is demanding excessive payment for materials and labor not originally agreed upon. Or, your client, the owner, is refusing to pay you after completion of the project. Either way, you’ll want to make sure you have an agreement in writing to protect your rights. If you don’t have an agreement, you risk wasting time and money, not to mention the quality of the construction.
The success of construction depends on clearly defined expectations and schedules. Mistakes or delays affect both owners and contractors negatively, causing owners additional costs because they are unable to use the property for the intended purpose at the intended time, and causing contractors additional costs for labor and equipment.
Owners can protect against delays in construction with a liquidated damages clause in their agreement. Liquidated damages are a set amount per day that the contractor will pay to the owner for each day that construction is delayed. Rather than litigating damages in court, the owner and the contractor can agree in advance on a liquidated damages amount.
In order for liquidated damages to be upheld, the owner’s damages must be uncertain or difficult to determine ahead of time. In addition, the liquidated damages must be a reasonable amount and cannot be a penalty. And the delay in construction cannot be due to circumstances beyond the contractor’s control, such as changes in the work or extreme weather.
Here are some common causes of delays in construction:
- Adverse weather
- Material shortages
- Changes in design
- Restrictive regulations
- Transportation delays
- Delays in obtaining permits
- Labor strikes
Including a liquidated damages clause is not without risks. The amount agreed upon may not be enough to cover the full amount of damages that the owner suffered. Or it may be greater than the amount a court would have ordered. However, with a liquidated damages clause, the owner can be assured that he or she will recover some amount for delay in construction, and the contractor can limit his or her exposure.
A simple Construction Contract Agreement could help prevent and resolve some of these issues:
|Commencement and completion delays||Payment delays|
|Imbalanced risk allocation||Imbalanced risk allocation|
|Poor performance||Additional labor costs|
|Unsatisfactory or wrong work||Additional material costs|
|Work changes||Work changes|
|Loss of use of home||Lost profits|
|Early termination||Early termination|
4. Free Construction Contract Template