Construction Contract Template

What Is a Construction Contract?

A construction contract is a written agreement between an owner and a contractor for a building job. It keeps the working relationship between the two sides clear. It also makes it easy to look back at the agreement if a disagreement comes up. That’s why all the details of the work should be included in your contract documents.

When Do You 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. It also helps both sides handle unforeseen and unexpected issues before the construction is complete.

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?

A strong construction contract answers the basic questions about the job. Who is involved? What work will be done, and where? How much does it cost, and when will it be finished? 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.

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.
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.
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.
4. Create and sign the document. After you have found the contractor, go over the terms and conditions of the legal document together. Then put the duties, responsibilities, scope of work, and payments for both sides into one written agreement and sign it.

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Filling Out the Construction Contract Template

Follow these steps to complete the FormsPal construction contract template. They go in the same order as the form, so you can work from page 1 to page 7 without skipping around. Each step names the part of the form it covers.

The screenshots under each step show the FormsPal Construction Contract template filled with sample entries in blue, so you can see where each answer goes. The names, addresses, dates and amounts are examples only.

1. Enter the date and identify the parties. On page 1, enter the date and year of the contract. Then fill in the Contractor's name and mailing address and the Owner's name and mailing address.

   

2. Describe the Services and the Property. Under Section 1 on page 1, describe the work in the lines for the Services. Then enter the address or description of the Property where the work happens.

   

3. Enter the commencement date. On page 1, write the date the engagement begins on the line after the start-date sentence in Section 1.

   

4. Choose how the engagement ends. Under "Select, as applicable" on page 1, check either the automatic end date (and enter it) or the fixed term (and enter its length).

   

5. Set the termination options. At the top of page 2, check each termination option that applies. If you choose the option for termination at any time, enter the number of days of advance written notice.

   

6. Select the compensation. Under Section 2 on page 2, check hourly rate, fixed fee, or other, and enter the amount. Then check whether the Contractor receives an upfront retainer or payment, and enter the amount if so.

   

7. Choose when payment is due. Check how the Contractor is paid: when invoiced (enter the number of days to pay), daily, weekly, bi-weekly or upon completion of the Services.

   

8. Describe the payment milestones. At the top of page 3, check "Other" if payment follows milestones, and write each milestone on the lines provided.

   

9. List any materials the Owner provides. Under Section 3 on page 3, check the box only if some materials come from the Owner, and list them on the lines. Leave it blank if the Contractor supplies everything. Materials are the supplies used to complete the project.

   

10. Assign the utilities. On page 4, under Section 6, check who pays for permanent utilities (Contractor or Owner) and who pays for temporary utilities during the Services.

    

11. Fill in the State blanks in Dispute Resolution. Section 12 on page 6 is the dispute resolution clause. This should contain the resolution mode (arbitration, mediation, or negotiation), the governing law, the seat for arbitration, and how it shall be governed. On this template the clause is already written out, so you only fill in the two State blanks. One is for the governing law and the other is for the place of arbitration.

    

12. Write the party names at the signature block. At the end of page 6, enter the Owner's name and the Contractor's name on the lines after "The Owner:" and "Contractor:".

    

13. Sign and complete the signature lines. On page 7, each party signs on the “By” line and prints a name and title. The signatures of both the owner and the contractor and the date of the agreement must be present in the construction agreement.

    

How to Sign and Use the Construction Contract

Once your construction contract is filled in, read it through from start to finish with the other party. These steps cover the last checks before signing and what to do with the signed copies, so that both sides can find them later.

1. Review the roles, duties, and responsibilities. Before you sign, read the sections that set out each side’s 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.
2. Check the details. Read the names, addresses, dates, and amounts one more time. A small typo in a name or an amount is easier to fix before signing than after.
3. Share and store the copies. Give each party a signed copy. Keep yours with the project plans, invoices, and payment receipts so you can find them if a question comes up later.

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.

A written contract gives both sides one shared record of:

• The work to be done and where it will happen.
• The price and the payment dates.
• The start date and the finish date.
• Who handles which materials and utilities.

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.

Frequently Asked Questions

Can I edit this construction contract?

Yes. Click Create My Document to fill it in online, or download the PDF and complete it by hand. You can also use the FormsPal PDF editor to fill in the downloaded PDF on your screen.

What information does the FormsPal template ask for?

It asks for the date, the names and addresses of the contractor and the owner, a description of the services and the property, the start date, and how the engagement ends. It also has lines for compensation, payment timing, materials, utilities, and the signatures.

How do I set the payment terms?

Under the compensation section, check hourly rate, fixed fee, or other, and enter the amount. Then choose when payment is due, such as on invoice, daily, weekly, bi-weekly, or upon completion, or describe payment milestones.

How many parties does the FormsPal template cover?

It has lines for one contractor and one owner. Each party signs on a separate “By” line with a printed name and title.

General information, not legal or tax advice.

Jennifer M. Settles

Author & Attorney

With over 25 years of experience as a business and transactional attorney, Jennifer has mastered the craft of closing highly successful deals for her clients. Through her wide-ranging expertise in commercial contracts, real estate transactions, M&A and corporate law, Jennifer secures results that are second-to-none.