What is a construction contract

Starting a construction or renovation project is not without challenges, particularly when navigating contracts. So, what is a construction contract? 

Simply put, a construction contract is the legal agreement between you (the project owner) and the contractor. It outlines the scope of work, project timeline, payment details, and other essential considerations—serving as your project’s roadmap. 

However, while these agreements ensure you and your contractor remain aligned from start to finish, they are often lengthy and filled with technical terminology. Skipping over key details or misinterpreting a clause can cause miscommunication, unexpected expenses, delays, or legal disputes. 

Thankfully, Protractor simplifies construction contracts by automatically reviewing and translating complex jargon into clear, everyday language. It empowers homeowners and businesses to catch issues early, discuss agreements confidently, set realistic expectations, and make well-informed decisions. Give Protractor a try today!

Key Elements of a Construction Contract

A strong contract leaves little room for ambiguity, covering multiple aspects of the project. While specific details vary by job, here are some universally important elements.

Scope of Work

Outlines what the contractor will do, the materials they’ll use, and the outcomes you expect. For example, if you’re upgrading a commercial bathroom, this might include details on fixtures, finishes, and waste management.

Project Timeline

Establishes when work will begin, milestones to meet, and a target completion date. This roadmap helps track progress and maintain accountability, especially if unpredictable issues (like weather or material delays) arise.

Payment Terms

Defines costs, deposits, and when payments are due (often linked to milestone completions). It should also state how overages or extra expenses will be managed, preventing sticker shock later on.

Responsibilities of Each Party

Specifies who’s responsible for everything from securing permits to procuring materials and cleaning the site. Laying out these tasks in writing keeps everyone on the same page.

Change Orders

Details how changes will be recorded, approved, and billed, ensuring that no adjustments are made (or paid for) without mutual agreement. This is important because construction plans often evolve. 

Dispute Resolution

This section explains how conflicts will be handled—through negotiation, mediation, arbitration, or, if needed, legal avenues. Even with precise contracts, disagreements can happen. 

Common Types of Construction Contracts

Construction project contracts come in different forms. Here are four common types you may encounter.

1. Fixed-Price (Lump Sum) Contract

You and the contractor agree on a set total cost. This arrangement is ideal when the project scope is clearly defined and unlikely to change.

• Pros: Predictable budgeting, straightforward project management

• Cons: Less flexibility for alterations or unexpected discoveries

2. Cost-Plus Contract

You pay the actual costs of labor and materials plus a fee for the contractor’s profit—either a flat rate or a percentage.

• Pros: More adaptable if plans need to shift mid-project

• Cons: Final expenses can be harder to anticipate

3. Time and Materials Contract

Billing is based on the time spent and the materials used, making it suitable for projects with unclear or evolving scopes.

• Pros: Flexible structure for changing requirements

• Cons: Tougher to predict total costs

4. Unit Price Contract

Work is measured in “units,” such as per square foot, each with a set rate. This approach works well when exact quantities are unknown at the outset.

• Pros: Adapts to variable project sizes

• Cons: Overall cost can fluctuate significantly if the project expands

Avoid these Mistakes with Your Construction Contract

Slip-ups can happen, so here are some common pitfalls to watch out for.

Not Reading the Contract Thoroughly

Dense legal language can be intimidating, but scanning and signing without understanding each clause can lead to big problems later. Protractor can help you ensure nothing is missed in your contract. Get started with Protractor.

Overlooking Change Order Procedures

Changes during construction are common. You could face unexpected costs or schedule delays if the contract doesn’t specify how alterations are approved or priced.

Ignoring Payment Terms

If you fail to meet agreed-upon payment milestones, your contractor may slow down work or stop altogether. Make sure the schedule is realistic and clearly spelled out.

Not Addressing Dispute Resolution

Disagreements can quickly escalate if there’s no defined process for handling them. Confirm whether issues will go to mediation, arbitration, or the courts.

Assuming Everything Is Included

Certain tasks, like debris removal or final cleaning, may not be part of the contract unless specifically mentioned. If it’s not written down, don’t count on it.

Tips for Reviewing a Construction Contract

Here are a few tips to help you review your contract properly.

• Start by asking questions about anything unclear. A trustworthy contractor or legal advisor will be open to clarifying ambiguous points so you can proceed confidently.

• Be on the lookout for red flags, such as vague language or open-ended pricing, as these can lead to confusion or unexpected expenses. 

• Make sure the agreement explicitly lists all materials, labor, and services—including site cleanup—so you’re not surprised by hidden costs. If it’s not clearly stated in the contract, don’t assume it’s included.

• Confirm that any changes to the original plan are addressed in detail, including how they’ll be documented, priced, and approved. A clear process prevents misunderstandings if you decide to upgrade materials or alter the design. 

• Verify that each party’s responsibilities are spelled out, from pulling permits to ordering materials and scheduling inspections. 

A thorough, well-defined contract helps keep your project on track and minimizes complications down the road.

Conclusion

For many homeowners and businesses, construction is a substantial financial investment. A detailed, well-structured contract protects your time, money, and peace of mind in several ways. However, reviewing your contract to ensure there are no issues can be challenging, which is where Protractor can help.

Protractor is an AI-powered construction contract review tool that highlights potential issues, clarifies ambiguous terms, and guides you through essential contract details. Gain clarity, control, and peace of mind before you put pen to paper. Try Protractor today.