Levelset visitors can also get a free Procore account.

Construction Contracts
Overview, FAQs & Resources

Need contract help? Put a team of legal experts in your corner.
Construction contracts - illustration of contract documents with blueprints

What is a construction contract?

At its core, a construction contract is simply an agreement between two or more parties to provide services in exchange for payment. Not much is needed to form a binding contract. Legally speaking, only 4 things are needed to form a valid construction contract:

  1. An offer
  2. Acceptance
  3. Consideration (i.e. money, or something of value)
  4. Legality (you can’t contract to break the law!)

In the construction industry, one project can involve multiple different contracts. We refer to this as the contract chain. An owner will have a contract with a general contractor, a GC will then have a contract with a sub, a sub may have a contract with a material supplier, and so on down the chain.

What to include in a construction contract

Construction contracts don’t need to be overly complicated documents. However, there should be enough detail to give both parties a clear picture of their agreement. A well-drafted contract should include all of the general project information, such as the “general conditions,” the parties involved, a general project timeline, a detailed scope of work, how substantial completion is defined, and more.

In addition to the project info, the contract should clearly explain the rights and responsibilities of all parties; such as payment application process, identify any retainage being withheld, how change orders are processed, notice provisions, etc.

Furthermore, a construction contract isn’t solely one document. There may be a number of other documents that can be attached or otherwise incorporated by the language. This can include things such as any drawings or specifications, a schedule of values, a bill of quantities, any special conditions, and a full project schedule

Common types of construction contracts

Contracts can be drafted in a number of different ways. This is known as the “freedom of contract.” This means the parties are free to agree to essentially any terms they want, obviously, with some limitations. However, in the construction industry, there are 5 types of contracts that are frequently used.

Lump-Sum/Fixed Price Contracts

This is the simplest form of a construction contract. Under these types of agreements, the customer agrees to pay a specified amount for the completion of the work. A line-item cost breakdown isn’t required.

Cost-Plus Contracts

These contracts require that a contractor be reimbursed for all costs incurred on the project (costs). In addition to that, there is a certain percentage of those costs which constitute the contractor’s profits (plus).

Time & Materials Contracts

This is an agreement where the contractor is paid an hourly rate for labor, the actual cost of materials and equipment, and an additional amount to cover overhead and profit.

Unit Price Contracts

Unit price contracts are an arrangement where the customer pays a fixed, agreed-upon amount for completion of each unit of work. Instead of pricing the entire project, the contractor is based on individual “chunks” of work.

Guaranteed Maximum Price (GMP) Contracts

This is a cost-type contract, where there is an agreed-upon limit to how much the customer will be obligated to pay. These types of contracts will typically include a contingency fund as a safety valve in case unforeseen costs increase the contract price.

Common contract clauses

A typical construction contract will contain numerous different provisions and clauses. Some of them are relatively standard and included in almost every contract. These are known as boilerplate terms. You should read contract clauses carefully to understand how they affect your rights and remedies.

Some of the more particular clauses that may raise a red flag are:

Standard industry contract forms

There are some standardized construction contract forms that contractors and suppliers can use as well. Two of the most commonly used standardized contracts are the ones prepared by the American Institute of Architects (AIA) and ConsensusDocs. Whenever using one of the industry contracts, be sure that you read it thoroughly to understand how the terms and conditions can affect your rights.

American Institute of Architects logoAIA Construction Contracts

ConsensusDocs logoConsensusDocs Contracts

Construction Contracts
Article Name
Construction Contracts
Construction Contracts FAQs, Guides, Forms, & Basics - Everything you need to know about construction contracts to get paid on your construction job.
Publisher Name
Publisher Logo

State-by-State Map Of Contract Requirements and Enforceability of Certain Clauses

What are the construction contract requirements in your state? The map below will give you an answer at a quick glance. Explore our construction contract resources and guides more fully, which includes downloadable templates, charts, blog articles, and more.

Can you file a mechanics lien without a contract?
  • Can you file a mechanics lien without a contract?
  • Are "No-Lien" Clauses Enforceable?
  • Are Pay-if-Paid Clauses Enforceable?

Frequently Asked Questions About Construction Contracts

Construction contracts can be complex. Given the serious impact they can have on your rights and liability, it's important to have a good understanding of what the contract entails. Here are some common questions about construction contracts that may be on your mind to help you understand what you need to know, and ensure that you're doing the right thing for your business.

What is a construction contract?

A construction contract is a legally binding agreement between two or more parties to provide construction services or materials in exchange for compensation.

Do I need to have a written contract?

Both oral and written contracts are enforceable. However, oral contracts are notoriously difficult to enforce.

Certain states require a written contract in order to file a mechanics lien.

Is an estimate considered a contract?

Estimates, contracts, and proposals are all different, but an estimate can become a contract if you're not careful. It's important to clearly communicate with your client or customer to ensure they understand the document you're providing.

Are there certain contract clauses that I should look out for?

There are a few specific contract clauses that contractors should keep an eye out for. Some of the more dangerous clauses include no-lien clauses, pay-if-paid clauses, subordination clauses, and no damages for delay clauses.

Are "no-lien" clauses enforceable?

A "no-lien clause" is a provision in a construction contract that waives the party's ability to file a mechanics lien. The enforceability of these these types of clauses varies depending on the state.

Are pay-if-paid clauses enforceable?

A pay-if-paid clause is a type of "contingent payment clause."

If included in your contract, a pay-if-paid clause essentially means that the contractor won't be obligated to pay their subs or suppliers until they receive payment from the owner.

The enforceability of these types of clauses vary from state to state.

Are there other documents that should be included with my construction contract?

Construction contracts are rarely limited to just one document. There are a number of different documents that may be attached or incorporated by the terms into the contract. This includes things such as the construction schedule, drawings and specifications, a schedule of values, and a number of other potential documents.

What if I make a mistake on my construction contract?

Making mistake in a construction contract can be costly. Some may be minor and easily modified, while others may require the rescission of the entire contract. This depends on whether the mistake was aunilateral or mutual mistake.

When is the construction contract considered substantially complete?

Exactly when a construction contract has reached substantially complete will generally be defined by the terms of the contract. Typically when a Certificate of Substantial Completion is issued, or some other defined event. This date is incredibly important as it will start the clock for payments, actions under lien and bond claim laws, and liability under warranties. However, this isn't always the case. A relatively recent case out of California held that the term "substantial completion" isn't always determinative.

How can I terminate my contract?

Most construction contracts will include a termination clause. This will govern the notices, procedures, and potentially to opportunity to cure any defects that must be met to properly terminate the contract. If not, you may find yourself liable for wrongful termination.

There are two basic types of termination clauses; “termination for cause,” and “termination for convenience.”

A termination for cause must be based on the other party’s failure to fulfill a certain obligation under the contract. Termination for convenience clauses, on the other hand, are exactly what they sound like. This allows either party to terminate the agreement without any specific reason to do so. Termination for convenience clauses are particularly common in public works contracts. If there is no termination for convenience clause, then the contract can only be terminated for cause.

Need More Help with Construction Contracts? We're Here.

Ask an expert for free

Construction attorneys: Courtney Stricklen, Christopher Ng, Andrea Goldman, and Peter Ryan

Recent Questions & Answers
About Construction Contracts

View more questions & answers

Construction Contract Templates

Free, customizable construction contract templates for different project types, prepared by construction attorneys.

Preview of the Equipment Rental Agreement Template for Lessors

Equipment Rental Agreement Template

This customizable equipment rental agreement template is for equipment rental companies who want to ensure payment on their construction projects. This simple, straightforward rental agreement...

Get Form Now

Time and Material Contract Template

If you are supplying time or materials to any construction project, it’s essential to get everything in writing. This five page contract template is simple...

Get Form Now

California Home Improvement Construction Contract - form preview

California Home Improvement Contract Download

California requires a written contract for all home improvement projects exceeding $500. Any construction contract for home improvement – as well as changes to that contract – must...

Get Form Now

Roofer Contract Template - thumbnail

Roofer Contract Template

Who says a construction contract for roofers has to be a long, complicated document? Certainly not us! This simplified yet thorough roofer contract template should...

Get Form Now

Drywall Contract template thumbnail

Drywall Contract Template

Just like every other member of the construction industry, drywall contractors can have problems communicating with other contractors and subs, as well as recovering payment...

Get Form Now

Contract for Construction first page

Construction Contract Template

Construction agreements do not have to be long, complicated documents. This simple construction contract template is a total of 3 pages! Using a simple contract like...

Get Form Now

Construction Contract Crash-Course | Expert Webinar


Popular Articles About Contracts in Construction


The 5 Types of Construction Contracts You Need to Know

The five main types of construction contracts are lump sum, time and materials, cost-plus, unit price, and guaranteed maximum price...

Read more


9 Essential Construction Contract Documents for Every Project

A construction contract can include a multitude of documents. Understanding what these documents are and how they affect the agreement...

Read more


9 Construction Contract Clauses to Watch For

Due to this difficulty, or just due to the ongoing risk-shifting battle that occurs in construction over the risk on...

Read more


Construction Contracts | A Deep Dive on Breach of Contract

This article is a deep dive on breach of contract in construction and covers the main causes of a breach,...

Read more


Construction Change Directives (CCD): How to navigate forced work

Change directives force contractors to accept changes that they aren't on board with. As a result, they can lead to...

Read more


Can a Contractor File a Lien Without a Written Contract?

Whether you need a written contract to be eligible for a mechanics lien depends on the state where you're located....

Read more


AIA Contract Documents: Pros & Cons for Subcontractors

The American Institute of Architects (AIA) is one of the largest professional organizations in the design and construction industry. They create and...

Read more