Construction Contract Template

The construction agreements aim to make the working relationship between the contractor and the owner as comprehensive as possible and make it easy to refer to the contract in case of any impending disputes or discord. That’s why all the details and nitty-gritty of the work should be included in your contract documents.

When You May Need a Construction Contract?

A construction contract may be required when building, renovating, adding, or altering a building or any infrastructure. Construction contracts aim at protecting the rights of both the contractor and owner of the project. The client is protected from any unnecessary delays and overheads and receives an efficient project delivery. With the help of the contract, the owner guides the contractor in carrying out the work according to their wishes and helps them handle any unforeseen and unexpected issues before the completion of the construction.

The contractor, in their turn, is protected from any compensation amendments and can be sure they receive the amount of money specified in the agreement. In addition, the contractor can use the document as proof if the other party breaches it in any way.

What Are the Main Elements of a Construction Contract?

Some of the essential elements of a construction contract are:

1. Names, addresses, and signatures of both parties. These are the essential requirements to make the agreement legally binding. In the absence of contact information, the contract will unlikely hold water in a court of law.
2. Scope of work. The contract should include a detailed roadmap of the scope of work supposed to be undertaken by the contractor for the owner. It should also explicitly include the material to be used, schedule, quality of work, and other specifics pertaining to the project.
3. Property address. The property address where the contractor will perform their services should be stated in the document.
4. Project costs and payment. The payment should be predetermined between the parties as this may be one of the main areas of contention later on. The payment terms should be clearly outlined in the legal agreement.
5. Schedule of work. It is imperative to set clear and reasonable deadlines and include the start date, completion date, and any other schedule-related stipulations.
6. Authority. The duties and responsibilities of each party should also be mentioned following the scope of the work.

Although not essential, the following additional elements can be included in your construction agreement:

1. Dispute Resolution. Negotiation, mediation, and arbitration are the most common ways to settle disputes outside the court of law. You are recommended to include these provisions in your document.
2. Indemnification. This shifts the responsibility on the contractor to bear all expenses for any loss or damage incurred during the construction process.
3. Insurance. Owners and contractors should be responsible enough to obtain insurance for the construction work to protect against any damages, defects, claims, and losses.
4. Force Majeure. This clause ensures that the parties are not held responsible for unforeseeable or unavoidable circumstances beyond their control (like an earthquake, hurricane, tsunami, etc.)

How a Construction Contract Works

It is imperative to work out the details before getting construction done on your property or site. There are various steps involved in planning a construction project, and you should take all that into account before making a legal agreement with the contractor.

Step 1. Outline the budget and scope

You need to decide the budget for your project and determine the scope of work that the contractor will implement on the property. You also have to create a schedule that would help you know the tentative completion of the construction.

Step 2. Get local building permits

Any construction needs to be approved by the local government in the region. Prepare the final plans for your construction, fill out all necessary forms, and outline the details while requesting building permits.

Step 3. Find a contractor

While getting all the necessary permits, you should begin searching for a contractor that will best suit the work you wish to get done.

Step 4. Create and sign the document

After you have found the contractor, it would be best to go over the terms and conditions of the legal document and get a contractual agreement that will bind both parties and encapsulate all the duties, responsibilities, scope of work, payments, etc.

Filling Out the Construction Contract Template

If you need to get a high-quality construction agreement, you are encouraged to use our template. Filling out the construction contract template following our instructions will result in your very own customized and free construction contract.

Step 1. Identify the parties

All parties involved in the legal agreement should be identified. Ensuring that each party mentions their correct name and address is imperative.

Step 2. Describe the scope of work and services

The following clause in the legal agreement is the scope of work and services provided by the contractor. It should also specify if the contractor is allowed to subcontract.

Step 3. Define the roles, duties, and responsibilities

This legal clause needs to be very comprehensive as it sets out both parties’ rights, duties, and responsibilities. You must clearly state the partner’s roles and outline both individual and shared obligations. The parties should also strategically plan the project’s implementation to have a smoother experience.

Step 4. Indicate the payment and schedule

The parties should agree on a payment structure that will be conducive to each party. You can indicate the start date, end date, the period for which the work should be carried out, or any other specificities. The owner can also include the termination terms and conditions and add any other clause that the party may find pertinent.

Step 5. Describe the usage of materials and labor

Describing the materials means the total material used in the execution of the construction project. In contrast, labor means all the human labor and expenses employed to complete the construction. Many construction contracts are based on the expenses afforded on the material and labor, which makes it a fundamental part of the construction contract documents.

Step 6. Add a dispute resolution clause

This is an optional clause nowadays as disputes arising from the construction agreement are resolved quickly and in a more economical way. This should contain the resolution mode (arbitration, mediation, or negotiation), the governing law, the seat for arbitration, and how it shall be governed.

Step 7. Sign and date the document

The signatures of both the owner and the contractor and the date of the agreement must be present in the construction agreement. It will be a testament that the parties agree to the terms and conditions mentioned in the construction agreement.

Consequences of Not Using a Construction Contract

Having a written construction contract is beneficial for both parties. A verbal construction agreement also exists, but it is not advisable. One of the biggest challenges faced in the deficit of a written construction contract is that each party’s respective memory often alters the terms of the agreement. It leads to changes in terms of the legal agreement over time, and it becomes challenging to conclude if a dispute arises.

Moreover, the parties can also be dishonest in the absence of a written contract as a large sum of money is usually at stake. The truth is usually altered according to the convenience of the people to improve their respective position.

Therefore, it is always advisable to have a written construction contract. It prevents any confusion and unnecessary disputes and provides a roadmap and deadline for the successful completion of the construction project. You are free to use our template to get your agreement as extensive as possible.

Main Types of Construction Contracts

There are different types of construction contracts based on the services, scope of work, payments involved, and needs of the parties. The most commonly used types of construction agreements are as follows.

Lump-Sum Contract

These are also known as fixed-price contracts and are the most basic construction documents. These documents outline one fixed price for all the work carried out by the contractor. The lump-sum one covers all the materials and labor involved. There are some pros and cons of using a lump-sum contract, such as the following.

The pros of a lump-sum contract are:

1. Simplified Bidding. Having a fixed-price contract rather than submitting multiple bids for the construction services simplifies the selection process for the owner.
2. High-Profit Margins. When the fee for the project is fixed, the contractor can pick and choose the materials and labor accordingly in order to finish the job under budget and pocket the savings.

The cons of a lump-sum contract are:

1. Miscalculations. Sometimes, miscalculations can lead to a very bleak profit margin or, in some cases, even losses for the contractor since the price is fixed. There might be setbacks or unexpected changes that are unaccounted for.
2. Risks. When the construction project is large, the contractor usually hires many subcontractors and suppliers, which rarely leaves no room for error. In case any significant issue arises, this may lead to losses incurred on the contractor’s part.

Therefore, a fixed-price agreement is usually the best for small projects with a scope of work that is predictable and well-defined.

Time and Materials Contract

These types of legal documents reimburse the contractors for the cost of materials and employ them on a daily or an hourly rate. In the case of a time and materials contract, the scope of work is usually not well-defined. This legal agreement has its own set of pros and cons.

The pros of a time and materials contract are:

1. Simple Negotiations. There is not a lot of fuss involved in these contracts as the parties only have to determine the materials that will be covered and the hourly or daily rate that will be paid for the construction services.
2. Swift Execution. Since the owner undertakes to reimburse the contractor for the cost of materials and pay them hourly or daily pay, it covers all unexpected delays, roadblocks, and any sudden changes to the scope of work.

The cons of a time and materials contract are:

1. Time-Consuming. It can be excruciating to keep track of all the material costs used in the project, and any failure to provide an accurate account of them can lead to the incurrence of expenses by the contractor.
2. Lack of Motivation. Since a time and materials contract pay by the hour or day, the contractors have no incentive to finish a project earlier than anticipated.

Unit-Price Contract

These contracts focus on the tasks carried out in addition to the materials and labor involved in the project. This payment structure categorization makes it easy for owners to evaluate the costs involved in the project and allows the contractor to charge for their contribution to the project appropriately.

The pros of a unit-price contract are:

1. Simplified Invoicing. These legal contracts allow the owners to track the costs involved in the project, which prevents any unnecessary disputes during the settlement of payment.
2. Profit Margin. These legal documents make it easier to manage any changes and alterations in the scope of work and can be easily added on as another pre-priced unit.

The cons of a unit-price contract are:

1. Complex Final Estimate. The number of units needed to complete a project cannot be predetermined.
2. Delayed Payment. The owner’s ability to compare the cost of each unit with the costs of the work under this agreement leads to delayed payments.

Cost-Plus Contract

These contracts are also known as cost-reimbursement contracts and generally require the owner to pay for all the expenses incurred in the completion of the project plus a set profit margin. Cost-plus contracts are riskier for the owner as they may end up paying more than anticipated and provide room for the contractor to get reimbursed for their trial and errors.