How to Write a Construction Contract

Writing Your Construction Contract

Write the title and a little preamble. Your title should describe the purpose of the contract. The preamble should simply state basics like: the date the agreement was entered into, the parties’ names, the project, the work site location, and work commencement and end dates. For example, say: This Home Improvement Contract (the “Contract”) is hereby entered into on July 1, 2014 by and between Dave T. Painter (“Contractor”) and Jane Smith (“Owner”) for the purpose of setting forth the terms and conditions agreed to by and between Contractor and Owner concerning the performance of home improvement work upon the Owner’s property located at 555 Main Street, Sunnytown, CA, 55555, commencing August 1, 2014 and ending on or before September 15, 2014.

Describe the work that will be done. State the exact description of work you'll perform. You should also describe the materials, tools, and equipment you'll use to complete the project. Be as specific as possible. For example, use: Contractor agrees to perform the home improvement work described as follows: repair drywall and paint interior walls with premium quality, semi-gloss indoor latex paint of the owner’s color choice using rollers and brushes, repaint exterior walls using premium quality beige outdoor paint using a paint sprayer, and re-paint or touch-up interior and exterior white trim pieces. This project will take an estimated 8 gallons of interior paint and 6 gallons of exterior paint, as well as 2 gallons of gloss white trim paint. More paint may be necessary for additional coats, depending upon existing wall color. An estimate for the cost of supplies including paint and painting equipment is attached, but actual costs may vary.

Include financial information. You'll want to state the amount of money the owner or client has agreed to pay you for performing the work. Be sure to include the contract price, non-refundable deposit, schedule of progress payments, final payment, and interest. For example, state: Subject to additional charges pursuant to any Change Orders (described below), Owner agrees to pay Contractor the sum of $4,000 plus the cost of materials for completing the Work (the “Contract Price”). Upon execution of this Contract, Owner shall pay to Contractor $1000 as an advance on the Contract Price as a non-refundable deposit in the event this Contract is terminated for any other reason than the default by Contractor. There are a few main types of construction contracts: Lump sum: the construction company gets one large lump payment and covers all expenses. Unit price: provides an estimate of cost based on individual aspects of the job. Cost plus fixed fee: the construction company gets paid for all project-related costs plus a predetermined, fixed fee, regardless of the length of time required. This often encourages quicker completion. Cost plus percentage of cost: the contractor’s costs will be covered and then paid a percentage of all costs. This does not encourage a contractor to keep costs low. Special contracts: the parties involved may come up with their own contract terms

Include payment due dates and fees. Be clear about payment installment dates. If you charge late fees, explain how much and when you will charge. Also include how changes in expected costs will be handled; will the contractor absorb the costs, or will the other party pay the increase? Outline how additions or deductions to the agreement as a whole will be handled. For example, say: Payment is due by Owner to Contractor for the entire unpaid balance of the Contract Price less the non-refundable deposit. Final payment by Owner to Contractor is deemed a final waiver of all claims by Owner against Contractor. If the Contract Price is not paid upon completion of the Work pursuant to the term and conditions of this Contract, interest shall accrue at a monthly rate of 5 percent.

Provide a project description. The project description should be a “blurb” or brief description of what the project will be. This need not include every detail of the proposed project; rather, it should just be a brief overview.

Describe how any changes to the work order will be handled. Include terms and provisions to protect you from unexpected work and additional costs. State an understanding of change orders and claims. For example, use: Contractor has the right to present Owner with a Change Order in the event that any instruction (including the blueprints and/or plans and specifications incorporated in this Contract), act or omission of Owner (or Owner’s representative) increases the costs to Contractor, requires Contractor to provide additional labor, tools, materials, and/or equipment), or changes the Scope of the Work described in this Contract. All extra work or changes to the Scope of the Work requested by Owner shall be in a writing dated and signed by Owner and Contractor, including the change in the Scope of Work and the amount to be added to the Contract Price.

Decide how to resolve disputes and claims. Choose a preferred forum or jurisdiction to resolve disputes and claims about your performance or completion of the job. Or, you and your client can include a provision that requires resolution in binding arbitration. If you do this, you and your client will be waiving your rights to file a lawsuit. But, you may be able resolve any contract disputes faster, privately, and inexpensively. Both you and your client must agree to do this. For example, state: Any controversy, dispute, claim and/or lawsuit arising out of or relating to this Contract that cannot be resolved between the parties shall be filed in Sunny Town, California.

Include coverage information. State that you'll carry general liability insurance and worker’s compensation insurance as required by law. List where you received your licensing and offer the owner a right to request a performance and payout bond. For example, say: Contractor shall carry general liability insurance and workers’ compensation insurance as required by law for the protection of Contractor and Owner during the performance of the Work. Contractor is a licensed general contractor in the State of [insert your state], [insert name of licensing agency], [insert address of licensing agency], [insert contact number or website of licensing agency].

Create a signature line. The signature line should include space for each party to sign with his or her typed or printed name, address, and telephone number below the signature. You may want to include space for an email address for notification purposes.

Meeting State Requirements

Check your state law for required inclusions. Many states require certain notices and disclosures be provided to consumers. You may need to state these in the contract itself. Check your state’s code for any clauses you need to include your construction contract. You can locate your state’s code using the Internal Revenue Service’s State Government Websites page. Required clauses in construction contracts may include: Warranties. Many states require construction contracts to contain warranties about the labor and/or materials to be used. Notice of right to cancel. Twenty-seven states require construction contracts to notify homeowners of their right to cancel the contract within a certain period of time, usually three days. This notice may be included in the contract or given to the consumer alongside the contract. Resolution of disputes. Contracts for construction in some states must contain a clause spelling out the available methods of dispute resolution, in case the parties to the contract disagree on something. Other inclusions. Other required clauses may include liens requirements, claims procedures, arbitration guidelines, insurance requirements, final completion, and liquidated damages.

Provide a projected construction schedule. Your contract should include a schedule that specifies the number of days the project should take to complete and how the work will be divided each day. This should be an honest estimate, but you may want to include information about how variance from the schedule will be handled. For example, you could state: Work will be performed over a period of 14 days. See detailed breakdown below for daily work schedule. If additional work is required, work may be performed on the weekends or at the end of the 14 day period.

Determine other standard clauses you may need. For example, if you are working on a house located on a flood plane or an area that experiences severe weather, you might include a clause noting that your schedule is contingent on these conditions. Standard clauses might include: Foreseeable contingencies. Some states also need you to list any foreseeable contingencies to completing the work by the approximate end date. These might include certain weather conditions or suppliers being late with delivery of supplies. Successors and assigns. A successors and assigns clause lets one or both parties assign the contract to another. For example, a company turning over the work to another company makes the contracts binding on one or both parties' successors, or heirs. Severability. A severability clause states that if one clause of the contract is found unenforceable by a Court, all the other clauses remain in effect and enforceable. You may not need to change them, but if so, change them as little as possible.