Do Construction Contracts Require Consideration?

Construction projects are often both large and intricate, involving a multitude of contracts. The contract laws of the United States require that certain types of contracts be in writing. For example, the statute of frauds, which has roots in the common law, requires that some contracts be in writing.

State laws have their own requirements. Most states generally require written contracts in matters involving:

• Marriage
• Real estate
• Estates/executors
• Goods for $500 or more
• Surety (an agreement to pay another person’s debts)
• Agreements for more than one year

Some construction projects take an extended period of time. As a result, in some instances, a construction contract may be required to be in writing if it takes more than one year to complete.

While the writing requirement does not apply to all contracts, they all must have consideration. Consideration is the value bargained for by the promisor or the parties to the contract. The consideration doesn’t have to be equally beneficial for each party, but it does have to be an exchange for the current bargain, meaning that past consideration is not valid.

While courts, adhering to public policy, will not usually invalidate or reform a contract just because one of the parties made a bad bargain, they will examine the terms of the contract to ensure each party received something of value.

Like all contracts, construction contracts require consideration to be legally enforceable if there is a contract dispute.

Examples of Consideration

A promise that is made without the expectation of anything in return is a gratuitous promise. Such a promise is not generally enforceable if there is a dispute or breach of contract because there is no consideration. The law can be complicated for most people to understand, so often times it’s helpful to see some examples of how the law operates. Below are some examples of how the concept of consideration works in the context of construction contracts and the agreed-upon scope of work.

Example 1:

I agree to pay you $2,300 to paint my house. My agreement to the payment terms of $2,300 is the consideration (what I give up to get what you promised) that makes this agreement a binding contract.

Example 2:

I promise to seal your driveway the next time I seal mine; you don’t agree to do anything for me in return. My promise to seal your driveway is unenforceable because you haven’t provided me with any consideration.

Example 3:

A general contractor agreed to buy a trash disposal system from a subcontractor when doing some construction work for a homeowner. Relying on the subcontractor’s bid, the general contractor got the contract. After the award, the subcontractor demanded a higher price, which the general contractor agreed to pay.

In this situation, the court found that the agreement to pay the higher amount was unenforceable because there was no consideration for the new agreement. Here, the terms of the contract, such as liquidated damages or a mechanic’s lien, can be invoked as a dispute resolution remedy.

As you can see from the examples above, consideration can be anything from money to an agreement to take – or not take – a particular course of action in return.

In the construction context, consideration may be an issue when a supplier forces a prime contractor to pay more than the existing contract amount for a given item.

Getting Legal Help

Business law can be complex. If you have questions or concerns about construction law, a change order, a waiver, or a construction contract your small business is considering, a business lawyer can provide essential legal advice. Consult with a local business and commercial attorney before considering a change order or signing a contract. You can also visit FindLaw’s Business Contracts and Forms section for standard forms, information, and resources related to this topic.