Construction Contracts: Key Terms You Need to Understand
Construction contracts are among the most complex agreements you may encounter. Whether you are a homeowner hiring a contractor or a subcontractor reviewing a general contractor's agreement, understanding these terms can save you significant time and money.
Essential Terms to Review
- Scope of work: This is the foundation of the contract. It should describe in detail what work will be performed, materials to be used, and quality standards. Vague scope leads to disputes over what is included.
- Payment schedule: Look for milestone-based payments tied to completed work phases (foundation, framing, rough-in, finish). Avoid paying too much upfront before work begins.
- Change order process: Changes are inevitable in construction. The contract should specify how changes are requested, priced, and approved in writing before work proceeds.
- Timeline and delays: Review the estimated completion date, what constitutes an excusable delay (weather, permits, force majeure), and any liquidated damages for late completion.
- Lien waivers: Require lien waivers from contractors and subcontractors upon payment. Without them, a subcontractor who was not paid by the general contractor could place a mechanics lien on your property.
- Warranty provisions: Understand what is covered, for how long, and what your responsibilities are for maintenance.
Red Flags
- Requests for large upfront payments (more than 10-15% of total cost)
- No written change order process
- Missing or vague scope of work
- No lien waiver requirements
- One-sided dispute resolution favoring the contractor
When to Consult a Lawyer
For projects over $25,000 or involving structural work, consider having a construction attorney review the contract. Mechanics lien laws vary significantly by state and the consequences of gaps in your contract can be very expensive.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.