A construction contract is a written document between a client (property owner) and a general contractor specifying the details of a construction project. It includes the construction, renovations, alterations, or other work on the property owner’s home or land.

It outlines key terms and conditions, including the parties involved, the agreed-upon payments, the type of work the contractor will provide, the contractor’s legal rights, whether permits are necessary, and the project commencement and completion dates.

You can also specify how the worksite should be maintained, including the supervision of the workers, the storage of materials, and the disposal of waste.

Table of Contents

Construction Contracts by Function
Things to Consider Before Starting a Construction Project
How to Pay a Construction Contractor
How to Manage a Construction Project
Other Construction-Related Documents
Construction Contract Sample

Construction Contracts by Function

Quote

Use our construction quote template to outline the anticipated labor, material quantities and costs, and other project details.

Change Order

Use our construction change order to manage and track changes within a construction project.

Things to Consider Before Starting a Construction Project

Here are some key considerations before starting a construction project:

Project Scope and Objectives: Clearly define the construction project’s scope, including the deliverables and objectives. This way, the independent contractor ensures that they can deliver the appropriate final product according to the client’s preferences.
Financing and Budgeting: Assess the financial resources required and obtain adequate funding sources. Consider potential cost overruns and other contingencies to avoid delays during construction.
Site Selection and Evaluation: Select a suitable construction site, considering factors like soil conditions, environmental impact, zoning regulations, and accessibility.
Legal and Regulatory Compliance: Familiarize yourself with local regulatory, permit, and building code requirements to avoid legal issues, fines, and delays.
Risk Assessment and Management: Identify potential risks, such as labor shortages, material scarcities, weather impacts, and safety hazards. Perform thorough evaluations and feasibility studies to minimize risks. Also, ensure the contractor has comprehensive liability insurance coverage to prevent liability for contractual breaches, property damage, or personal injuries.
Stakeholder Communication: Set up effective communication channels with all stakeholders, including contractors, clients, regulatory bodies, and suppliers.
Timeline and Schedule: Establish a realistic construction timeline and set milestones to track progress. Allow some leeway for delays in case unexpected scenarios arise. When building a timeline, the contractor should consider factors like dependencies among project tasks, seasonal restrictions, and lead times for supplies.

How to Pay a Construction Contractor

Here are some of the ways a client can pay a construction contractor:

Lump Sum (Fixed-Price): In a lump sum contract, the contractor agrees to complete the project for a fixed price specified in the construction agreement. It is suitable for well-defined construction projects with clear plans and specifications.
Cost-Plus (Cost-Reimbursement): In a cost-plus contract, the owner reimburses the contractor for the costs incurred during construction plus an additional fee or percentage of profit. This payment method is useful when the project scope is uncertain or when the contractor expects changes to arise.
Time and Materials: Time and materials contracts are similar to the cost-plus ones but with a more straightforward fee structure. The owner pays the contractor based on the actual time spent and the construction materials used, along with an agreed-upon profit margin or markup.
Unit Price: In a unit price contract, the contractor receives their pay based on the number of specific items or units of work they complete. Unit prices are predetermined and specified in the contract.

Explore the pros and cons of each below:

Pricing Arrangements	Pros	Cons
Lump Sum	• The contractor can ask for a higher markup in anticipation of unforeseen events. • The contractor can have a larger profit if they overestimate the total cost.	• The contractor bears almost all of the financial risk. • The contractor's underestimation of the total costs will lower their profit. • If the contractor overestimates, they may have difficulty in being the lowest bidder for the contract.
Cost-Plus	• It results in an accurate accounting of overhead costs and general conditions. • It's useful when there is variability in the amount of materials or time.	• Costs can rise rapidly. • The owner must verify hundreds or thousands of claimed costs. • The owner may be more susceptible to a dishonest contractor or fraud.
Time and Materials	• It allows work to start quickly. • It provides clear documentation of associated costs.	• The client bears the risk of exceeding their budget. • The contractor may take more time to complete their work to receive more pay.
Unit Price	• It provides straightforward pricing per unit of work. • It's simple to manage scope changes.	• The final cost is unknown until the project finishes. • It creates an unbalanced bid due to the contractor's ability to raise and lower certain item prices.

How to Manage a Construction Project

Explore the critical phases of managing a construction project effectively.

Phase 1 – Design and Conception

This phase marks the inception of the construction project, where the parties develop the project’s initial ideas and concepts into a clear vision.

Key Activities:

Project initiation: Identifying the need or opportunity for the construction project.
Feasibility study: Assessing whether the project is viable regarding budget, resources, and overall goals.
Preliminary design: Creating high-level sketches and concepts.
Stakeholder engagement: Gathering input and feedback from potential users, investors, and other stakeholders.

At the end of this phase, you should have a well-defined project concept, a rough budget estimate, and a sense of whether the project should proceed.

Phase 2 – Pre-Construction

This phase focuses on planning and preparation before the actual construction work begins.

Key Activities:

Detailed design: Developing comprehensive construction plans, drawings, and specifications.
Permitting and approvals: Obtaining the necessary permits and approvals from regulatory authorities.
Budgeting and procurement: Finalizing the project budget and procuring necessary materials and services.
Contractor selection: Identifying contractors, subcontractors, and suppliers and establishing an entire agreement with qualified parties.
Construction schedule: Creating a detailed timeline for construction activities.

By the end of this phase, you should have a detailed project plan, a fully designed project, a budget, contracts in place, and all necessary permissions.

Phase 3 – Construction

This is the stage where the physical construction of the project takes place.

Key Activities:

Site mobilization: Setting up the construction site, including temporary facilities and utilities.
Construction work: Executing the project according to the construction contract agreement, including earthwork, structural work, and finishing.
Quality control: Regular inspections to ensure the work meets the specified quality standards.
Safety and site management: Enforcing safety protocols and managing day-to-day construction activities.
Progress reporting: Keeping stakeholders informed about construction progress.

With visible construction progress, the project should start taking shape during this phase.

Phase 4 – Performance and Monitoring

This phase is about monitoring construction progress, quality, and compliance with the project plan.

Key Activities:

Continuous monitoring: Tracking progress, costs, and quality throughout construction.
Issue resolution: Addressing any problems, change orders, or unforeseen issues that arise.
Documentation: Maintaining detailed records of construction activities and changes.
Communication: Offering regular updates to stakeholders about progress and any changes.

The main output is ongoing project performance data and documentation, which helps decision-making and issue resolution.

Phase 5 – Project Closure

This phase marks the end of the construction project and involves wrapping up all activities.

Key Activities:

Final inspections and approvals: Ensuring the construction meets all required standards and specifications.
Handover to the owner: Transferring control and responsibility of the facility to the owner or operator.
Closeout documentation: Completing all required documentation, including as-built drawings, operation manuals, and warranties.
Final payments: Settling financial matters, including any outstanding payments to contractors and suppliers. Contractors can use a construction invoice to collect payments.

The key outputs include a fully completed and operational construction project, all necessary documentation, and handover to the owner or operator.

Each of these construction phases is critical for completing a project. Effective project management, communication, and collaboration are essential to ensure the project meets its objectives, stays within budget, and complies with quality and safety standards.

Here are some other construction-related documents you may complete to specify the scope of a contractor’s services: