When two parties enter into an economic transaction, it’s highly recommended to have a written contract. This especially applies to construction projects, which can be very complicated by nature. With a construction contract template in place between you and the other party, you can define the obligations of each party while determining the risks of your project. A construction agreement can also exist if both parties agree to have the work done and the contractor begins working. In such a case, the construction contract already exists, even if it comes in written form or not. Still, having the details in writing is better.

Construction Contract Agreements

What is a construction contract agreement?

A construction contract sample is an agreement between two parties, the client and the contractor. It specifies all of the details of the construction project. These details usually include all of the parts of the project like the payment, the type of work, legal rights, and more. But there are some kinds of construction projects that may require government permits along with the construction permit before the contractor can start working.

This document is important if you enter into a project that involves the building, altering, or renovation of a structure or a building. If you don’t have an agreement you want to construct your dream house, you might have to wait longer because of factors like unreasonable delays or costs that are excessively high. This is why you have to make sure that you have a written agreement to serve as the blueprint of your project and for specifying all of the details until the project’s completion.

Construction Contract Templates

Types of construction contracts

There is no standard contract for construction that you can use for different types of construction projects. But there are different formats you can use depending on your preferences and the requirements of your project:

  • Lump-sum or fixed-price

This type provides a fixed price to complete a project. It may include clauses for liquidated penalties or damages in case the contractor doesn’t finish the job on the scheduled date.

  • Cost plus

This type includes the costs of labor and materials. The “plus” refers to a fixed percentage or fee that may include a set maximum price to give a cap to your project fees. This contract helps protect the contractor, especially for projects where there is some level of uncertainty.

  • Material and time contracts

Similar to the previous one, this type is also beneficial for projects with some level of uncertainty. The difference is that you will pay daily or hourly fees for additional work done without a fixed percentage or fee. But the contractor may also provide a set maximum price so you will have peace of mind about the overall cost.

  • Unit-pricing

This type is often used by contractors when bidding, especially for federal projects. It keeps you in the loop if the contractor will charge a specific amount without mark-ups for specific materials needed for the project.

What is included in construction contract?

It’s a standard practice of most contractors to already have a template that they use as the basis of their work building contracts. These templates outline their SOPs, terms, rates, and conditions. Depending on the type of project, each contract will differ slightly, with modifications for the cost, the scope of work, and more. Although there can be some slight differences for each contract, most should include the following basic elements:

  • Contractor’s name and contact details. Include the license number of the contractor along with their email address, company address, and phone number.
  • Client’s name and contact details. Aside from your email address and phone number, the contract should also list the address of the property where the contractors will work. You should also specify that you are the owner of the property.
  • A legal description of the property. Use the property description in the deed on record. You can get this from the clerk’s office in your country.
  • Description of the project. You need to include details of what the project is about along with the most important description of the work that the contractor needs to do. You can present this in paragraph or bullet list form.
  • Price details. Detail the type of contract price you have agreed upon along with the total amount of the contract. Also, include any possible deductions or additions to the contract and how you will release these payments. You should always negotiate prices first, then establish these before creating or signing the contract to avoid any disagreements, legal disputes, or confusion.
  • Payment terms. Describe the amount that you will pay to the contractor and specify if you will pay on a monthly, milestone, or weekly basis. Specify the percentage of the amount that you will retain on each payment application. You should also define when the due dates of all the payments along with details about the penalties for late payments, whether there will be any interests, and other invoicing or payment terms.
  • Timeline or schedule. This refers to the total number of days needed to complete the project or how you will schedule the entire project. Describe either business days or calendar days when creating this section.
  • List of documents. Enumerate all of the contract forms and documents needed including exhibits, drawings, supplemental conditions, specs, and more.
  • Scope of the project. Usually, the scope is something quantifiable, which means that you can measure it. Provide a description of all the construction activities that the project will need for its completion.
  • Construction responsibilities and conditions. Define your responsibilities as the owner and the responsibilities of the contractor. Include who will be in charge of providing payments, information, documents, and other deliverables. Lay these out in detail so that your project can move forward as scheduled. Also, include specific terms for penalties, liens, arbitration, and withholding rules along with specific instructions on how to proceed with disputes or process claims.
  • Order changes. There are times when you, the contractor, or both of you would want or need to deviate from the conditions in your contract. You may allow this provided both parties submit a written document approved by and signed by both.
  • Warranties. Most of the time, contractors would provide a warranty that their work is completely free of defects. You may include this information in your contract too.
  • Contract laws. Include all of the applicable legal requirements like liens requirements, governing laws, arbitration procedures, claims procedures, substantial completion requirements, insurance, liquidated damages, and final completion. Also, state the procedures for how to suspend or terminate the work and your agreement with the contractor.
  • Signatures and date. It isn’t necessary to have your agreement notarized unless your state requires it. After finalizing the contract, both parties must affix their signatures on the document before any work starts. By signing, it indicates that both parties agree to the terms of the project. Should either party break the terms of the agreement, the contract will include any procedures on how to address the dispute including legal action, if required.

Construction Contract Samples

How do you write a construction contract?

Whatever type of construction contract example you will use for your project, there are some steps you can follow while writing this document:

  • Include basic information. Include both the identifying information and contact details of both parties.
  • Project title and description. Include your project’s title along with the scope of the project. If applicable, the project description must include an outline of any licenses or permits needed to complete your project successfully.
  • Timeline and date of completion. You need to be very clear on how long you expect the contractor to work on the project. Make sure to specify the date the project will start and the estimated date of completion. Use clear language when describing what happens should the contractor fail to complete the project as scheduled.
  • Cost estimates and payment schedule. The cost estimates and payment schedule are some of the most important things that you should clarify in your contract. Before you write the contract, you need to ask for a copy of the cost estimates to ensure you both agree with the amounts. Then you can include those cost estimates in your contract along with a payment schedule. In terms of payment, it’s highly recommended for contractors to request a non-refundable deposit before they begin with the project. After this payment, you can create a comprehensive payment schedule based on the milestones of your project. It’s also a good move to include a statement about any late payments.
  • Stop-payment and Stop-work clauses. Having these clauses in your contract will give you the legal right to put a halt to the project if something doesn’t go as planned. The contractor can do the same if you fail to pay your dues. As the client, you will also have the right to withhold payments if the contractor fails to achieve the agreed-upon project milestones or they haven’t done the work at the quality level you have agreed on. This is why you should include both clauses.
  • Act of God clause. There can be some inevitable circumstances that might prevent the contractor from completing your project on time. You should also take these circumstances into account when writing the contract. Including an Act of God clause will outline how you and the contractor will keep going if you encounter any of these unfortunate circumstances. It could be a tornado, hurricane, earthquake, or even a widespread shortage of the materials you need. Make sure to account for all possible issues that may happen throughout the duration of your project.
  • Change order agreement. Often, changes could occur in the course of your project. For instance, you might decide that you want to expand your project’s scope. Having a change order agreement will allow for either party to change, add, or deviate from the original contract with a written agreement that’s signed by both parties. Including this in your contract will allow you to make revisions to your project scope or terms if anything changes as your project moves forward.
  • Warranty. A good contractor always reminds their clients that they will stand behind the quality of their work. This means that if there are any issues that will arise regarding the quality of the contractor’s work, they will take responsibility, and fix those issues. With a warranty, you will have peace of mind as the contractor will guarantee their work for a set amount of time. Usually, this lasts for a year. Most clients don’t want to work with contractors who don’t offer some type of warranty.
  • Signatures and dates. Until you and the contractor signed the document, it isn’t legally binding. So you must make sure that the construction agreement is duly signed and dated by you and the contractor.

Contracts For Construction Work

What happens if you don’t have this document?

Having a construction contract means that you and your contractor are in agreement with all of the terms and conditions. When you both agree, you can move forward with the project. But what will happen if you don’t have this document? Take, for instance, a contractor and his team who suddenly stopped their work and they demand excessive payment for labor and materials, which you didn’t agree on originally.

Or a client who refuses to pay after the project is already finished. Without an official agreement, either party will risk wasting money and time. As a client, you might not get the quality of work you’re expecting either. But having a written agreement will protect your rights and the rights of your contractor.

The success of a construction project will depend on clearly defined schedules and expectations. Any delays or mistakes can affect both of you negatively. For the contractor, it may cost them to shoulder additional expenses for equipment and labor. As the owner, you won’t get the chance to use the property for the purposes you intended.

You can even protect yourself against construction delays if you add a liquidated damages clause in your contract. Liquidated damages refer to the set amount each day that a contractor will pay you for each day that project gets delayed. Instead of fighting over the damages in court, you and your contractor can agree on a liquidated damage amount even before the project starts.

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Tagged:AgreementBusinessConstructionConstruction Contract AgreementsContract
TemplateLab May 4th, 2022