# What should be in a construction contract before you sign?

**Short answer:** A construction contract should define scope by naming the exact drawing set with dates and revision numbers, set a schedule with substantial completion defined, and spell out price structure, schedule of values, retention, allowances, change order authority, unforeseen conditions, insurance, indemnity, lien releases, warranty and dispute resolution before anyone signs anything.

## Key facts

| Fact | Value | Source |
| --- | --- | --- |
| General information only | Have your own attorney review any construction contract |  |
| Scope definition | An itemized drawing and specification list with dates and revisions |  |
| Payment mechanics | Schedule of values, progress billing, retention, allowance reconciliation |  |
| Most abused clause | Change orders authorized verbally in the field |  |
| Decide before trouble | Dispute resolution forum, venue and attorney fee treatment |  |

## 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](/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](/residential-development) project, in an afternoon.

## Frequently asked questions

### Should a homeowner insist on a fixed price rather than cost plus?

Not always. A fixed price suits a complete, well detailed drawing set and moves pricing risk to the builder, who prices that risk into the number. Cost plus with a guaranteed maximum suits projects where scope is still moving, and gives visibility into actual costs. The wrong pairing is a fixed price on incomplete drawings, which converts every gap into a change order.

### What is retention and how much is normal?

Retention is a percentage withheld from each progress payment and released after the work is complete, giving the owner leverage to get punch list items finished. Five to ten percent of each payment is the common range in private work. What matters more than the figure is the release trigger: it should be tied to a defined completion event and to delivery of final lien releases.

### Who pays when unexpected conditions show up during construction?

That depends entirely on the clause, which is why it is worth reading before signing. Well drafted language assigns concealed or unknown physical conditions to the owner, since the owner bought the site and the drawings, while requiring the contractor to give prompt written notice and price the impact before proceeding. Contracts that shift all such risk to the builder tend to arrive with a higher base price.

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Source: https://www.tricanagroup.com/insights/what-should-be-in-a-construction-contract-before-you-sign
Topic: Choosing a Builder
Author: Hagop Sargisian, Tricana Group
Area served: Los Angeles County, CA; Orange County, CA
Published: 2026-07-09T09:00:00-07:00