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Ten Things to Think About Before Signing a Construction Contract

Team of one women architect and two men architects on a construction site. Men are shaking hands. Shot from above.

A well-drafted construction contract clearly sets out the work to be done, the price to be paid for the work, and the terms and conditions of payment. The contract should also allocate various foreseeable risks that may arise between the parties.

The Importance of a Construction Project Contract

At some point, you may wonder whether you should sign the contract in front of you. These documents are a good thing that should be designed to protect both you and the other party.

Ideally, construction contract documents allow the parties to:

  • Define everything in specific terms
  • List the extent of their obligations to each other
  • List the construction materials and work to be done
  • List payment terms

When the contract is signed, it generally cannot be changed unless both parties agree. As a result, it is vital to protect yourself before signing a contract. You need to understand exactly what it is you are committing yourself to do. Consult an attorney before signing a contract to protect your investment.

Identifying Construction Risks in a Contract

When the parties allocate potential risks, the contract may become more complex but it reduces the potential for disagreements in "gray areas" that are not addressed.

Both parties should take the time to read and understand the lengthy document. Failure to read a written agreement is not a valid defense in a contract dispute.

Considerations As You Create Your Contract

Use the following list as a general guide. Always make sure construction contract terms are workable for you. Terms should include a specific definition of the construction project, along with the cost and type materials, the date the contract will be complete, and at what stages of construction the funds will be disbursed.

If the terms are not agreeable, you can negotiate terms that are more reasonable or have a lawyer on hand for dispute resolution.

1. Time Frame

The agreement should have a time frame for when work is to begin and the deadline for when the job is to be completed. Both parties should carefully consider the scope of work before setting a completion date.

If you are the contractor performing the work, make sure that you are allowing yourself enough time to complete the job.

If you are the party paying for construction, make sure that the construction schedule conforms to your needs.

2. Prices

The contract should clearly state at what phases of construction will money be paid. Be wary of the use of subcontractors. Subcontractors hired by the person contracted to perform the work should be listed on a filed Mechanics Lien Waiver.

Make sure you know what the additional fees are and ask for an estimate. Additional work would be for add-on items and usually must be cosigned by both parties or initialed.

3. Payment Method

Determine the terms of payment, how much will be paid upfront as a deposit, and under what terms the full amount is due. You may also be able to negotiate installment payments if you cannot afford a lump sum. If there is a final payment date, discuss the date in advance.

4. Payment Penalties

Determine whether there are late payment penalties and if they are reasonable.

5. Material Terms

If you and the other party have an understanding of the construction materials, make sure that the particular terms are in a written contract.

For example, if you have agreed to use a particular tile for the bathroom, then it should be in the contract. This will help you make your point should the buyer demand that the dresses were supposed to be made of silk.

6. Transaction Rules for Particular Industries

The construction industry has rules for how transactions are governed. If you see something in a contract that does not make sense, ask. Some contracts make assumptions about following a particular industry procedure. If they assume you know, they won't explain the process in the contract. Always make sure you know what the industry procedure is before you sign.

7. Inability to Agree

Sometimes, you need to have work started immediately, but cannot come to an agreement on the final terms. You need to make sure that you are signing a construction contract that is not going to be enforceable as a permanent agreement.

You can accomplish this by adding language like "this interim agreement is in effect only until a more permanent agreement can be negotiated by both parties."

8. Resolution of Anticipated Disputes

No matter how careful you are or how good of a relationship you have with the other party, a dispute may arise. Many contracts include an arbitration clause, which means that a dispute must be settled in arbitration as opposed to in court.

Arbitration is generally less costly and less formal than court. Still, if you sign the contract with the clause intact, you have probably waived your right to take the matter to court.

9. Anticipated Problems

Your contractor may have prior bad experiences. This often leads to adding particular methods of resolution to the contract.

Those ideas may be perfectly agreeable, but they could also be unfairly beneficial to the other party. Analyze whether these terms will benefit you.

10. Attorney's Fees

Determine whether you will be charged for the other party's attorney's fees if you breach the contract. Construction contract conflicts may result in litigation, which can be costly.

Get Legal Advice Before You Sign a Construction Contract

Construction contracts require careful consideration. Problems frequently arise in the construction process, and the construction contract determines how these issues are resolved.

A local construction law attorney can give you peace of mind and help you make the right decisions.

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