A construction contract is vital whether you are the contractor or the client business or homeowner. The contract should list both parties’ rights and duties and include the terms that protect both parties from legal liability. As a client ordering significant construction, building a house, or refurbishing a flat, you want to ensure that the contractor has the required licenses and insurance. 

A solid construction contract allows you to include all relevant requirements for your contractor and also include clauses that will protect the contractor from liability, thus making it as acceptable for them as possible. This guide shows you the different types of construction contracts available and what you should include in making your construction contract as solid as possible. 

Types of Construction Contracts

The way a construction contract is structured depends on the specifics of the job. As a result, there is no one-size-fits-all standard with construction contracts. However, a construction contract will generally fall into any of the following categories: 

Fixed-price or lump-sum contracts

As the name implies, a fixed-price or lump-sum contract rolls the entire project’s cost into one sum, which you as the client will be responsible for paying. Sometimes, however, you may want to include incentives for finishing the project earlier or penalties for finishing later than the deadline. You may also want to include liquidated damages if the contractor fails to meet their obligations. Liquidated damages estimate intangible or hard-to-define losses a party to a contract suffers when the other party breaches the contract. Typically, you should specify the sum payable for the breach of contract. 

Cost-plus contracts

A cost-plus contract lists all the costs associated with the project, such as materials and labor costs. As the client, you will be required to pay for all the costs and an additional fee to cover the contractor’s overhead and profit. This additional fee could be a fixed fee or a percentage of the total project cost. Cost-plus contracts typically favor the contractor, but you can work it into your favor as well by requesting a guaranteed maximum price so that the project fee has a cap. 

Time and material contracts

A time and materials contract is similar to a cost-plus contract in that it is ideal for projects with a degree of uncertainty. With a time and materials contract, however, you will be required to pay hourly or daily to the contractor, without the additional fee that cost-plus contracts require. In addition, however, you will be required to agree to pay for any additional costs that may come up while working on your project. These costs are classified within the contract as direct, indirect, markup, or overhead. You may also request that the contractor put in a guaranteed maximum price so that you have peace of mind about the overall project cost. 

Unit-pricing contracts

Unit pricing contracts break down the project’s costs into specific and measurable units required for the project. The breakdown is done by considering the type of tasks or scope of work and the materials needed to complete the job. 

What should you include in your construction contract?

While a general construction contract can have many different clauses based on the type of work you are contracting out, a solid contract should have some basic provisions such as: 

1.    Identifying and contact information 

Here, you should state your name and the contractor’s name, and contact information. For the contractor, include their license number, insurance information, phone number, email address, and company address. 

For you, the client, state your name, business name (if applicable), phone number, email address, and the property’s address where you want the construction work carried out. 

2.    Describe the project 

Describing the project includes stating a title for the project that reflects the project you are undertaking. For example, if you are refurbishing a flat, the title for the contract should be “Flat Refurbishing”. 

It would be best if you also described the scope of the project in the contract. Here, it would be best if you were as detailed as possible. List out every work that you expect the contractor to carry out while refurbishing the flat. Your description might look like this: 

“The General Contractor will perform flat refurbishing work including: 

• Removing the existing windows and replace them with heated windows 

• Tearing out the wallpapers to reveal the original walls 

• Removing all the kitchen floor and wall tiles 

• Retiling kitchen floor and wall” 

Ensure that you list out everything you want the contractor to do. Also, if it applies, outline any permits or licenses that are required to complete the project. Also include blueprints and any other specifications the job requires. You can have the contractor check with your state to see what licenses are needed and ensure they have them. Also, confirm that the contractor is carrying secure liability, worker’s compensation insurance, and any other relevant one. 

3.    Costing and payment schedule 

This is one of the most important things to include in your construction contract. Before drawing up the agreement, the contractor must have sent you a cost estimate that you must have approved. So, include that estimate in the contract and add a payment schedule for the project. 

It would be best to consider paying the contractor a non-refundable deposit to start working on your project. Include this payment in the contract and then design a payment schedule that works for you. For example, you could pay based on project milestones or weekly or monthly. Whatever schedule works for you, list the payment dates and the amounts to be paid. 

4.    Projected timeline and completion dates 

The contractor should tell you how long they expect to work on your project. Include this in your project, inserting the date the contract takes effect, the project start date, and the estimated completion date. You should also include what happens if, for some reason, the contractor cannot complete the work by the estimated completion date. For example, you may require that the contractor communicate the expected changes to the date with a minimum of 24 hours’ notice and offer a new completion date. 

5.    Stop-work and stop-payment clause 

A stop-work clause gives the contractor the legal right to stop the project if the client does not meet up payment obligations. A stop-payment clause provides the client with the legal right to withhold payments if the contractor defaults in either meeting deadlines or the standard of quality. Including both clauses in your contract makes the contract more acceptable to you and the contractor. 

6.    Unforeseen circumstances and Acts of God 

Sometimes things do not progress according to plan due to circumstances that are out of you and the contractor’s control. Therefore, it is crucial to account for things like this when writing the contract. With an Act of God clause, you can do this as the clause outlines how you and the contractor will move forward in the event of a hurricane, flood, or widespread unavailability of materials. 

7.    Change orders 

It is not uncommon for things to change while the project is going on. You might even decide to make changes to the project’s scope as you watch things evolve, or your contractor might suggest changes based on how the project progresses. A change order agreement allows either of you to make changes to the original contract with a written document signed by both parties. With a change order agreement, you can easily amend the terms of your contract if you need to do so.  

8.    Warranties 

You should request a warranty from the contractor stating that they will stand behind the quality of their work and that if an issue arises with the quality of the project, they will take responsibility and fix things. Typically, contractors give a one-year warranty, and your contractor should give you no less. 

9.    Protection from liens by subcontractors 

The contractor must guarantee that you will not be a recipient of a mechanic’s lien from any of the subcontractors they use. 

10.  Dated signature from both parties 

You and the contractor must append your signature and the date, as contracts are not legally binding unless both parties sign.

11.  List of supplements

Supplements are documents that add context to the contract or help explain in detail certain aspects of the agreement. Common supplements in a construction contract include: 

• Detailed description of project/work order 

• Survey plan of the construction site 

• Architectural drawings 

• Technical specifications of work to be performed