Building Construction Contracts: Everything You Need to Know
A building construction contract or a construction contract is a legally binding, written agreement between a business or homeowner and a contractor that summarizes the terms and conditions of the construction or work to be done, usually the building or renovation of a home.3 min read
A building construction contract or a construction contract is a legally binding, written agreement between a business or homeowner and a contractor that summarizes the terms and conditions of the construction or work to be done, usually the building or renovation of a home. The contract can be drafted by the homeowner, contractor, supplier, or by a certified legal professional. A solid building construction contract provides outlines each party's responsibilities and provides a framework for dispute resolution. Having a contract in place helps avoid wasting time, money, and resources.
There are many types of building construction contracts that can be customized to meet your specific needs. A contract can be general or describe specific terms of the contract like payment terms, the length and a detailed timeline of the project, the scope and depth of the project, and the legal obligations of each party.
Benefits of a Building Construction Contract
By entering into a contract, buyers, property owners, contractors, subcontractors, and construction firms are fully aware of each party's expectations regarding performance, materials, schedule, and finances. Having a concrete building contract in place before work starts can help avert disputes because it defines a process for addressing them if they arise, reducing stress in an already stressful situation.
A construction contract also protects the rights of both parties. Protections include preparations for delays and mistakes, contract and price disputes, and liabilities from work-related incidents. Both parties should consider the following before entering into a legally binding agreement:
- Ensure the contractor has a license.
- Ensure the contract is insured for contractor's risk and workman's compensation.
- Conduct research, check references, consult the Better Business Bureau (BBB) to make sure the contractor is reputable.
- Fully review any contract provided to ensure it is precise and clear.
- Consult an attorney to review and explain the contract and make sure that it complies with state laws and regulations.
Consequences of Not Using a Builder's Contract
Without a written agreement, both parties risk spending more money, time, and resources, as well as legal ramifications. There are bound to be disputes without the use of a construction contract. Some of the most commonly disputed aspects of a construction contract include issues with payment, the scope of the work completed, and length of time to complete the project.
Homeowners also might not get quality work completed on time, and if the contractor doesn't have scrupulous billing practices, they might end up overpaying. Contractors and suppliers, on the other hand, risk not being paid and fronting the cost of the work until payment is received. Contractors also risk losing his or her license.
Building Construction Contract Contents
Spelling out the specifics of the contract in its entirety, the terms and conditions section is one of the most important parts of the contract. Regardless of the type of contract, there are certain provisions and guidelines that must be included in the construction contract. A building contract covers the following:
- Contract agreements and contracts - essential components of the contract documents include the main and supplementary documents to be attached or referenced. Obligations, responsibilities, and duties of both parties are also included in this section.
- Statement of work - a description of the work to be done, including a process for sourcing materials and assessing the quality of the work
- Special or specific conditions - the process for changing orders, designs, and materials
- Construction schedule - a description of the timeline of the project, expected completion date, process to manage delays
- Construction costs - final price, payment schedules and amounts, and Contract Price Dispute Resolution clause
- Compliance - for the contract to be valid, it must comply with the laws and regulations of the state where the work will be done.
- Arbitration - the contract should include provisions addressing the resolution of disputes. Dispute resolution options include mediation, arbitration, or court involvement.
- Signatures of both parties and date signed
To ensure you're starting your project on a good foot, both you and the other party should consult with a qualified legal advisor prior to signing the contract to ensure it covers all applicable legal requirements.
If your project has special requirements that are not covered by a standard builder contract template, or you want to receive some advice before you proceed, you can post your legal need or job 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.