Key Takeaways

  • A builders contract is a legally binding agreement between a builder and a client detailing the project scope, timeline, cost, materials, warranties, and dispute procedures.
  • There are several types of builder contracts, including fixed-price, cost-plus, and time-and-materials, each suited to different project needs.
  • Essential clauses should address payment schedules, change orders, insurance requirements, and dispute resolution to protect both parties.
  • Clear definitions in the scope of work and project timing help avoid delays, misunderstandings, and cost overruns.
  • Builder contracts should also include warranties, termination rights, and liability provisions that comply with local laws and building standards.

Builder contracts are important because they prevent misunderstandings and disagreements that stand between what both parties want. The contractor needs to get paid the agreed-upon amount for the work he does, and the building owner wants to get the house they're dreaming about.

Most professional builders have contracts prepared for their customers to sign. If yours does not, create one yourself or hire an attorney to create one. Never begin a project of this size with no signed contract.

A good contract should be neither too vague nor too detailed and complicated. Contracts need to have specific terms that are complete and clear, understandable to an ordinary person without a law degree. It's a legally binding agreement, so consider it carefully.

Builders have the option to use different types of construction contracts, but some types are more suited to new home construction. They define how the payments will take place as well as other terms such as the amount of time the builder will take to complete the project, quality, and the specifications of materials and design. A builder contract is not an ordinary work contract; it is a home sale. Such a contract protects the builder's expectation of payment and prevents the builder from selling the house to a different buyer.

Scope of Work Section

The first section of your builder contract should cover the scope of work. This is a description of the project that will be performed by the contractor. This will include details about the project, such as:

  • Permits that need to be obtained from your municipality
  • The type of labor, materials, equipment, and other services the builder will provide to complete construction of the house.
  • A requirement that the contractor follow the house's specifications and plans, which should be made part of the contract by attaching them as a separate document.

There may be situations in which plans and specifications may conflict. It's not unusual to find that the plans and specifications call for a different fixture or dimensions. In such a case, it's helpful to include a statement in the contract that the specifications should take precedence over the plans or any other document. The contract should be the final authority over all.

Types of Builders Contracts

When drafting or reviewing a builders contract, it’s important to know the main contract structures used in residential and commercial projects:

  1. Fixed-Price (Lump Sum) Contract:
    The builder agrees to complete the project for a single, predetermined price. This is common for projects with clearly defined plans and specifications. The risk of cost overruns lies with the builder unless the scope changes.
  2. Cost-Plus Contract:
    The homeowner reimburses the builder for actual costs of labor and materials plus an agreed-upon percentage or fee. This type offers flexibility for complex or evolving projects but requires detailed documentation of expenses.
  3. Time and Materials (T&M) Contract:
    This arrangement bases payment on actual labor hours and materials used, plus a markup. It’s best for small projects or renovations where the full scope is uncertain.
  4. Unit Price Contract:
    Pricing is based on specific measurable units—useful for large-scale or repetitive construction elements like roads or multi-lot developments.

Selecting the right builders contract depends on the project’s complexity, budget stability, and risk tolerance. Homeowners should ensure the contract specifies how cost changes are handled, including approval for change orders and allowances.

Timing of Work Section

Your builder may promise that the project will be completed in a certain amount of time, but your contract should include a specific statement about it. Include a statement that says the builder must finish the work professionally and legally, and also include a schedule of work that the builder is expected to follow.

Without a guarantee of schedule, it may be difficult for you to make plans on your end. You may need to coordinate the home construction with the sale of your current house and know when you will be moving into the new one.

Delays happen, however. The contract should allow for this, granting extensions of time for unforeseen circumstances such as:

  • Inclement weather
  • Labor strikes
  • The customer's delay in payment
  • Issues related to inspections required by your municipality
  • Additions or modifications to the original scope of work
  • Any other reasonable issues that are out of the control of either party.

What happens if the contractor does not complete the work on time? Your contract should cover this with a provision stating that every day beyond the scheduled completion date, the builder will be charged a fee, or have a set amount deducted from the total payment they are due.

This provides the builder with an incentive to avoid delays whenever possible. One of the justifications for adding this to the contract is that you may need to store your belongings or rent an apartment or hotel room while waiting for your home to be completed so you can move in.

Payment Terms and Progress Schedule

A builders contract should clearly outline how and when payments will be made. Typically, payments are structured as progress draws, tied to the completion of project milestones such as foundation, framing, roofing, and final inspection.Key payment considerations include:

  • Initial Deposit: Usually 5–15% of the contract value to secure scheduling and initial materials.
  • Progress Payments: Made upon completion of specific stages, verified by inspection.
  • Final Payment: Issued after final walkthrough and approval of completed work.

To protect both parties, the contract should include provisions for withholding payment if work does not meet specifications or if inspections fail. Including a retention clause—holding a small percentage of payment until project completion—ensures accountability and quality control.

Other Important Contract Sections

Your contract should include a clear explanation of how the customer will pay the builder, as well as how much and when payment is due. Typically, payments will need to be made throughout the project to cover the builder's supply of materials needed for the job.

Many contracts also include warranties against defects. These cover the types of defect the builder is responsible for fixing, and what he is required to do if problems occur.

Warranties, Insurance, and Dispute Resolution

A well-written builders contract includes clauses that address post-construction responsibilities and legal protections:

  • Builder Warranties: Cover defects in materials and workmanship for a defined period (typically one year for general workmanship and longer for structural components).
  • Homeowner Responsibilities: Outline maintenance duties that may void warranties if neglected.
  • Insurance Requirements: Specify that the builder must carry general liability, workers’ compensation, and builder’s risk insurance to protect against accidents or property damage during construction.
  • Dispute Resolution: Identify procedures for resolving disagreements, such as mediation, arbitration, or litigation. Including a clause for attorney’s fees and governing law ensures both parties understand their legal rights.
  • Termination Clause: Define when and how either party may terminate the contract and the process for compensating work completed to date.

These provisions are essential to prevent future legal issues and ensure both parties are protected if problems arise during or after construction.

Builder Contract Best Practices

To strengthen your builders contract:

  • Attach Detailed Plans and Specifications – Ambiguity in design or materials can lead to disputes.
  • Document Changes in Writing – Every change order should include pricing and time adjustments approved by both parties.
  • Confirm Permitting and Compliance – Ensure the builder obtains all required permits and follows local building codes.
  • Set Communication Standards – Establish how often progress updates or meetings will occur.
  • Consult Legal Counsel – Have an attorney review the final agreement to confirm it meets state construction laws and consumer protection requirements.

If you need help drafting or reviewing a builders contract, you can connect with a qualified construction attorney through UpCounsel.

Frequently Asked Questions

1. What is a builders contract?

A builders contract is a written agreement that outlines the scope, cost, and timeline for a construction project between a builder and a property owner.

2. What type of builders contract is best for new homes?

A fixed-price contract is often preferred for new home builds with defined specifications, while cost-plus contracts offer flexibility for custom projects.

3. What should be included in a builders contract?

Essential elements include project scope, payment schedule, timeline, warranties, insurance coverage, change order procedures, and dispute resolution terms.

4. Can a builders contract be terminated?

Yes, most contracts include termination clauses allowing either party to end the agreement under certain conditions, such as breach of contract or mutual consent.

5. How can homeowners protect themselves in a builders contract?

Ensure all promises are written into the contract, retain documentation of progress payments, and verify that the builder carries adequate insurance.

If you need more information or help with builder contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.