What should be in a construction contract before you sign?

Before anything else: this is general information#

What follows describes how construction contracts usually work and what experienced parties look for. It is not legal advice, and no article can be. Have your own attorney read any contract before you sign it. A few hours of review is cheap next to a clause you discover in month eight.

Knowing what each clause does gets you more out of that review. Any builder worth hiring will walk their agreement through with you, which is fair to ask of a firm you meet through a page like about.

Scope is a document list, not a paragraph#

The single most common defect in a construction contract is a scope written as prose. "Construct a new single family residence per plans" names nothing that can be checked later.

A usable scope attaches an exhibit that lists every drawing sheet by number, title, date and revision, along with the specifications, the geotechnical report, and any addenda. When someone later argues about whether the upgraded window package was included, the answer is whichever revision was attached.

The same exhibit should carry exclusions in plain language. Landscape, audiovisual, security, appliances, permit fees, utility connection charges and offsite improvements are the usual candidates. An exclusion list is not a difficult contractor; it is one who has been burned by an assumption before.

Time: the dates that carry consequences#

A start date, a duration, and a completion date are the easy part. Three items around them do the real work.

Substantial completion has to be defined. The definition should be functional rather than aesthetic: the point at which the owner can occupy or use the work for its intended purpose, usually tied to the certificate of occupancy. That date typically starts the warranty period, shifts insurance responsibility and triggers retention release. Leaving it undefined guarantees a fight.

Excusable delay needs a list. Weather beyond normal expectation, permitting delays outside the contractor's control, owner-directed changes and force majeure typically extend the schedule without cost. Contractor inefficiency does not. Write which is which.

Liquidated damages, if any, need a cap. A per day figure with no ceiling is a term that gets negotiated. If late delivery costs the owner real money each day, say so, and expect it in the price.

Money: structure first, then mechanics#

The price structure#

Fixed price, cost plus a fee, or cost plus with a guaranteed maximum. The mismatch to avoid is a fixed price against unfinished drawings, which looks like certainty and functions as a change order pipeline.

Schedule of values#

The contract sum should be broken into line items that map to real work, submitted and accepted before the first billing. Without it, an invoice for thirty percent of the contract is an assertion rather than a claim you can verify against the site.

Watch for front loading, where early line items such as mobilization carry more value than the work they represent, leaving the owner paying ahead of progress.

Retention#

A percentage withheld from each payment and released after completion, ordinarily five to ten percent in private work. The release mechanism matters more than the number: tie it to a defined event rather than to the contractor's sense that the job is done, and require final unconditional lien releases from everyone who worked.

Allowances#

Allowances are placeholders for items not yet selected: tile, plumbing fixtures, lighting, appliances. Two rules make them behave. First, each must state whether it covers labor and installation or only the material. Second, write down the reconciliation method: overruns become change orders, and underruns return to the owner as a credit rather than quietly staying in the contract sum.

Allowances set unrealistically low are the most common source of budget drift on residential work. An allowance for a whole house of plumbing fixtures that reads like the price of one good faucet is a marketing device, not an estimate.

Changes and who is allowed to authorize one#

A change order clause should answer three questions: what counts as a change, how it gets priced, and who can approve it.

Pricing method belongs in the contract, not in a negotiation held later under time pressure. Agree in advance on markup for the contractor and subcontractors, on how labor rates are calculated, and on whether overhead sits inside the markup or is billed separately.

Authority is the part people skip. Name the individuals who can authorize a change on each side, and state that field direction from anyone else does not bind the owner. Verbal changes agreed with a superintendent on a Tuesday afternoon are where most disputed billings begin.

Require written authorization before the work proceeds, with a narrow carve out for genuine emergencies. Retroactive change orders arriving as a bundle at the end of the job are nearly impossible to evaluate.

The clauses that decide who owns a surprise#

Concealed and unforeseen conditions. Buried foundations, contaminated soil, undocumented framing behind a wall, a utility nobody mapped. Standard language puts these on the owner while requiring prompt written notice and a priced proposal before the contractor proceeds. Contracts that push all of it onto the builder price it into the bid instead.

Insurance and indemnity. Require general liability with stated limits, workers compensation, auto and often builders risk, plus additional insured status for the owner by endorsement. Have counsel read the indemnity language closely, because California limits how far certain indemnity provisions reach in construction contracts and the enforceable scope is narrower than the drafting suggests.

Lien releases. Condition every progress payment on conditional releases from the contractor, subcontractors and suppliers for the prior billing period, with unconditional releases following payment. This keeps a paid owner from being liened by an unpaid subcontractor, and it only works if it is enforced from the first payment rather than remembered at the end.

Warranty and dispute resolution#

The warranty clause should state its duration, what it covers, how a claim is made and the response time. A one year general warranty on workmanship is common in private residential work, with longer manufacturer warranties passed through on systems such as roofing and equipment. It should also require manufacturer warranties, operating manuals and closeout documents at completion rather than on request months later. A contractual warranty period is not the same thing as the window California law allows for construction defect claims, which runs considerably longer, and your attorney can explain how the two interact.

Dispute resolution gets decided while everyone still likes each other, which is why it belongs in the contract. Settle the forum, whether mediation comes first, whether arbitration is binding, who administers it, where it happens, and whether the prevailing party recovers attorney fees. That last term changes the economics of a small dispute more than anything else in the document.

A last pass before the signature#

Clause	The question it has to answer	Warning sign
Scope	Which exact drawings and specs, by date and revision	Prose description with no exhibit
Schedule	What substantial completion means and what extends it	A single duration with no defined finish
Payment	What each billing buys, verified against the site	No schedule of values
Allowances	Material only or installed, and how overruns settle	Round numbers with no basis
Changes	Who authorizes, at what markup, in what form	Verbal field direction accepted
Conditions	Who carries a concealed condition	Silence, or total risk shifted to one party
Releases	Conditional and unconditional lien releases at each payment	Releases mentioned only at the end
Disputes	Forum, venue, and attorney fee treatment	Left blank or unread

Read the whole agreement once with a single question in mind: if this relationship went badly, what would this page tell each of us to do? Terms that give a clear answer are good terms, whether or not they favor you; terms that produce a shrug are the ones to fix first. An owner who walks their attorney through the scope exhibit, the allowance list and the change order authority has covered most of what actually goes wrong on a residential development project, in an afternoon.