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Construction Contract

The Owner and the Contractor may be referred to individually as a “Party” and collectively as the “Parties

This Construction Contract (the “Contract”) is made valid upon signature by both Parties. 

The Parties agree as follows:

1. Description of Work

The Contractor shall perform the following described work at [Insert description/address of property where work is to be done] (the "Property"), in accordance with Owner’s Contract plans and specifications, this Agreement and any Change Order, as defined herein, [Insert description of work to be performed] (the "Work"). 

2. Contract Price and Payments:

The Owner agrees to pay the Contractor the total amount of [Insert amount and currency] (the “Contract Price”). Payment of this amount is subject to additions or deductions in accordance with any mutually agreed to changes and/or modifications in the work. Payment can be made by [cash/check/money order/credit or debit card/wire transfer/other] Payment can also be made in Installments upon completion of different milestones as agreed by both the Owner and the Contractor. The following schedule can be followed for Installments: 

 Installments will be paid upon the completion of the following milestones:

  • [Insert amount] due upon completion of [Milestone 1]
  • [Insert amount] due upon completion of [Milestone 2]
  • [Insert amount] due upon completion of [Milestone 3]

3. Materials and Labor:

The Contractor shall provide and pay for all labor and equipment, including tools, construction equipment, machinery, transportation and all other facilities and services, and all materials necessary for the completion of the work. All materials shall be good quality and new, unless the Contract documents require or permit otherwise. The Contractor may substitute materials only with the prior written approval of the Owner.

  1. The following materials will not be included in the Contract Price and are the sole responsibility of the Owner and will not be covered under warranty by the Contractor: [Insert list of materials that will not be included].

4. Licenses and Permits:

The Parties shall obtain all licenses and permits necessary for proper completion of the work. Each Party is responsible for the cost of any necessary permits or licenses.

5. Laws and Regulations:

The Contractor shall perform the work in a workmanlike manner and in compliance with all applicable federal, state, and local laws, regulations and ordinances, trade standards, ethical guidelines and any safety requirements of the Owner (the “Applicable Laws”). The Contractor shall promptly notify the Owner upon discovery of any variance between the Applicable Laws and the Construction Documents.

6. Supervision of Construction:

The Contractor shall be solely responsible for and shall supervise and direct all construction under this Contract. The Contractor shall provide competent and suitable personnel to perform the work and shall at all times maintain good discipline and order at the Property. The Contractor will at all times take all reasonable precautions for the safety of its employees and the public at the Property. The Contractor agrees to assume full responsibility for the acts, negligence, and/or omissions of its employees and any subcontractors and their employees.

7. Utilities:

The [Contractor/Owner] shall pay for all permanent electric, water, phone, cable, sewer and gas service as needed to perform the work. The [Contractor/Owner] shall pay for the installation, connection and removal of all temporary utilities on the Property during the performance of the work. All temporary utilities shall confirm and adhere to the Applicable Laws.

8. Hazardous Materials:

Except as otherwise provided in the Contract Documents, the Contractor shall be responsible for all Hazardous Materials brought to the Property by the Contractor. Hazardous Materials shall include radioactive materials, asbestos, polychlorinated biphenyls, petroleum products, crude oil, flammable materials, chemicals or solvents known to cause cancer or reproductive toxicity, pollutants, contaminants and toxic substances which are restricted, prohibited or regulated by any agency of government in its manufacture, use, maintenance, storage, ownership or handling.

If the Contractor discovers any Hazardous Materials on the Property, the Contractor shall immediately notify the Owner and may cease working until the material or substance has been rendered harmless. The Owner shall defend, indemnify and hold harmless the Contractor, any subcontractors, and their respective agents and employees from and against all claims, damages, losses and expenses, including attorney’s fees, arising out of or resulting from contact with the Hazardous Substance in performance of the work resulting in bodily injury, illness or death, or injury or property damage, provided such claim, damage, loss or expense is not the result of any negligent act or omission by the Party seeking such indemnity.

9. Warranty:

The Contractor warrants that the work shall be in accordance with the Contract Documents, Applicable Law and Trade Standards and free from material structural defects, improper workmanship or defective materials. The Contractor shall replace, correct or repair any work not in accordance with the Contract Documents, Applicable Law and Trade Standards or any defects caused by faulty materials, equipment or workmanship for a period of [Insert time period in years/months] from the date of completion of the work. 

10. Inspection:

The Owner shall have a right to inspect the work at any time and request that the Contractor promptly correct any work that is defective or does not conform to the Contract Documents. If required, the work shall be inspected and certified by the appropriate state or local agency or health officer at each necessary stage.

11. Right to Stop Work:

If the Contractor fails to correct any defective work or repeatedly fails to perform the work in accordance with the Contract Documents, the Owner shall have the right to order the Contractor to stop performing the work, or any portion thereof, until the cause for such order is eliminated.

12. Subcontracts:

The Contractor shall furnish to the Owner a list of names of subcontractors proposed to perform principal portions of the work. The Contractor shall not employ any subcontractor to whom the Owner reasonably objects. A subcontractor, for the purposes of this Contract, shall be a person with whom the Contractor has a direct contract for work at the Property. All contracts between the Contractor and subcontractor shall be in accordance with the terms of this Contract and the Contract Documents.

13. Work Changes:

The Owner reserves the right to order changes to the work in the nature of additions, deletions or modifications, without invalidating this Contract, and agrees to make corresponding adjustments in the Contract Price and Time of Termination if applicable. All changes will be authorized in a written “Change Order” signed by the Owner and the Contractor, which shall be incorporated by reference herein.

14. Indemnification:

The Contractor agrees to defend, indemnify and hold harmless the Owner and its agents and employees, from and against all claims, actions, liabilities, suits, demands, injuries, obligations, damages, losses, settlements, judgments, fines, penalties, costs and expenses, including reasonable attorneys' fees, arising out of any negligent act or omission by the Contractor, a subcontractor or anyone directly or indirectly employed by them in the performance of the work resulting in bodily injury, illness or death, or for property damage, including loss of use, unless caused by the sole negligence or willful misconduct of the Owner.

15. Contractor’s Insurance:

The Contractor agrees to maintain at its own expense during the entire period of Construction at the Property:

  1. General Liability Insurance: Such general liability insurance will protect the Contractor from claims for property damage and bodily injury, with limits of liability not less than [Insert amount] for each occurrence. AND; 
  1. Worker’s Compensation Insurance: Such workers' compensation and employee insurance as required by law.  Or;
  1. Automobile Liability Insurance: Such automobile liability insurance with limits of liability not less than [Insert amount]. Or; 
  1. Other Insurance: [Insert description of Other Insurance].

The Contractor shall name the Owner as an additional insured (except for the workers' compensation insurance). Proof of such insurance shall be filed by the Contractor with the Owner within a reasonable time after execution of this Contract.

16. Waiver of Subrogation:

The Owner and the Contractor each waive any and all claims or rights to recovery against the other Party for any loss or damage to the extent such loss or damage is covered by insurance or would be covered by any insurance required under this Contract. The Owner and the Contractor shall cause each insurance policy carried by the Owner or the Contractor relating to the Property to include or allow a full waiver of any subrogation claims.

17. Time is of the Essence:

All times stated in this Contract or in the Contract Documents are of the Essence. The Contractor agrees that such times are reasonable for performing and completing the work.  

18. Liquidated Damages:

The Owner is entitled to damages. In the event the work is not completed by the date set forth in this Contract, plus any extensions thereof as allowed in this Contract, the Owner shall suffer damages uncertain in amount and difficult to measure and prove accurately. The Owner and the Contractor agree that in lieu of actual damages, and not as a penalty, for delay in the performance of the work, the Contractor shall pay the Owner the sum of [Insert amount] for each calendar day completion of the work is delayed. The Contractor agrees that the liquidated damages specified herein are reasonable in amount and are not disproportionate to actual anticipated damages. The Owner shall have the right to deduct any liquidated damages from any amount due or that may become due to the Contractor. Liquidated damages shall be the sole and exclusive remedy for the Owner for delay in completion of the work past the agreed upon date.  

19. Extension of Time:

The time stated in this Contract may be extended for such reasonable time as the Contractor may determine when performance of the work by the Contractor is delayed by a Change Order, labor disputes, fire, unusual delay in deliveries, abnormal adverse weather conditions, unavoidable casualties, or other causes beyond the Contractor’s control or which justify the delay.

20. Early Termination For Breach of Contract: 

  1. Contractor’s Termination: The Contractor may, on [Insert number of days] days’ written notice to the Owner, terminate this Contract before the completion of the work when for a period of [Insert number of days] days after a progress payment is due, through no fault of the Contractor, the Owner fails to make the payment. On such termination the Contractor may recover from the Owner payment for all work completed and for any loss sustained by the Contractor for materials, equipment, tools or machinery to the extent of actual loss thereon, plus loss of a reasonable profit.
  1. Owner’s Termination: The Owner may, on [Insert number of days] days’ notice to the Contractor, terminate this Contract before the completion of the work, and without prejudice to any other remedy the Owner may have when the Contractor defaults in the performance of any provision of Contract, or fails to carry out performance of the work in accordance with the provisions of the Contract Documents.
  1. Excess Payment: 
  1. If the unpaid balance on the Contract Price at the time of the termination exceeds the expense of finishing the work, the Owner shall pay such excess to the Contractor.
  1. If the expense of finishing the work exceeds the unpaid balance of the Contract Price at the time of termination, the Contractor shall pay the difference to the Owner.

21. Disputes: 

Any dispute arising from this Contract shall be resolved through:

  1. Court Litigation: The dispute shall be resolved in the courts of  [Insert name of state/country].
  1. Attorneys’ Fees: If either Party brings legal action to enforce its rights under this Contract, the prevailing Party will be entitled to recover from the other Party its expenses (including reasonable attorneys’ fees and costs) incurred in connection with the action and any appeal. Or; 
  1. Arbitration: The dispute shall be resolved through binding arbitration conducted in accordance with the rules of the American Arbitration Association. Or; 
  1. Mediation: The dispute shall be resolved through mediation. Or; 
  1. Mediation then Arbitration: The dispute shall be resolved through mediation. If the dispute cannot be resolved through mediation, then the dispute will be resolved through binding arbitration conducted in accordance with the rules of the American Arbitration Association. 

22. Certificate of Completion:

Work under this Contract shall begin on [Insert beginning date] and shall be completed by [Insert completion date]. Upon completion of the Work, the Contractor shall notify the Owner that the work is ready for final inspection and acceptance and the Owner shall make the final payment within [Insert number of days] days after final inspection.

23. Counterparts:

This Contract may be executed in one or more counterparts, each of which shall be deemed an original and all of which together, shall constitute one and the same document.

24. Headings:

The section headings herein are for reference purposes only and shall not otherwise affect the meaning, construction or interpretation of any provision of this Contract.

25. Notices:

Any notice or communication given or made to any Party under this Contract shall be in writing and delivered by hand, sent by overnight courier service or sent by certified or registered mail, return receipt requested, to the address stated above or to another address as that Party may subsequently designate by notice and shall be deemed given on the date of delivery.

26. Assignment:

No Party hereto shall have the right to assign its rights or delegate its duties hereunder without the written consent of the other Party.

27. Binding Effect:

This Contract shall be binding and ensure to the benefit of the Parties and their respective legal representatives, heirs, administrators, executors, successors and permitted assigns.

28. Governing Law:

This Contract and the rights and obligations of the Parties hereto shall be governed by and construed in accordance with the laws of [Insert name of state or country].

29. Severability:

If any provision of this Contract is held to be invalid, illegal or unenforceable in whole or in part, the remaining provisions shall not be affected and shall continue to be valid, legal and enforceable as though the invalid, illegal or unenforceable part had not been included in this Contract.

30. Amendments:

This Contract may not be amended or modified except by a written agreement signed by all of the Parties.

31. Waiver:

No Party shall be deemed to have waived any provision of this contract or the exercise of any rights held under this contract unless such waiver is made expressly and in writing. Waiver by any Party of a breach or violation of any provision of this Contract shall not constitute a waiver of any other subsequent breach or violation.

32. Independent Contractor:

The Contractor acknowledges that it is an independent contractor and is not an agent, partner, joint venture nor employee of the Owner. The Contractor shall have no authority to bind or otherwise obligate the Owner in any manner nor shall the Contractor represent to anyone that it has the right to do so.

33. Right of Third Parties:

Nothing in this Contract shall create or give to any third party a claim or right of action against the Contractor or the Owner.

34. Confidentiality:

As a result of the Contractor's participation in the work, the Contractor will have access and contribute to information and materials of a highly sensitive nature, including Confidential Information. The Contractor hereby warrants that the Contractor and its employees and agents shall not (without in each instance obtaining the Owner's prior written consent) disclose, make commercial or other use of, or give or sell to any person, firm, or corporation, any Confidential Information received directly or indirectly from the Owner or acquired or developed in the course of the performance of this Contract unless: 

  1. required to do so pursuant to Applicable Laws (and then only after the Contractor has given the Owner prompt written notice of the legal compulsion and, at the Owner's expense, provided by the Owner with cooperation in any attempt the Owner may make to gain a protective order acceptable to the Owner); or 
  1. it is rightfully in the possession of the Contractor from a source other than the Owner prior to the time of disclosure of the information to the Contractor under this Contract; or 
  1. it was in the public domain prior to the time of the Contractor's receipt; or 
  1. it became part of the public domain prior to the time of the Contractor's receipt by any means other than an authorized act or omission on the part of the Contractor; or 
  1. it is supplied to the Contractor after the time of the Contractor's receipt by a third party who was not under any obligation to the Owner to maintain such information in confidence; or 
  1. it was independently developed by the Contractor prior to the time of its receipt from the Owner. All Confidential Information, regardless of form, shall be the property of the Owner and shall be returned to the Owner upon its request, or in any event, at the completion or earlier termination of this Contract.

35. Entire Agreement:

This Contract contains the entire agreement between the Parties hereto with respect to the subject matter hereof, and supersedes all prior negotiations, understandings and agreements.

36. Record Documents:

The Contractor shall maintain in a safe place at the Property one record copy of all drawings, specifications, addenda, written amendments, and the like in good order and annotated to show all changes made during construction, which will be delivered to the Owner upon completion of the work. The Owner shall have the right to inspect and review such documents upon notice to the Contractor.

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A construction contract is a legal document that is used to describe the services and costs associated with a construction project. It outlines the type of construction that will be performed as well as the costs for doing so.

Construction contracts - general background

Generally, it will also include a timeline by which certain parts of the job should be completed. It may also include information such as when payment can be requested. A clearly written construction contract can save the parties involved a lot of hassle and money since the responsibilities and timeline are documented within the contract.

A construction contract could be used for a home or business. Depending on the client, a construction contract will contain different information. For example, a residential contract will contain different information from a commercial construction contract.

Types of construction contracts

These are following types of Construction Contracts: 

Lump sum

A lump sum contract is the most common pricing arrangement for construction contracts.  It is also known as a “fixed price” contract. In a lump sum contract, the parties agree to one price based on the contractor’s estimate of the total costs of the project.  A lump sum contract includes all the materials, labor, subcontracts, profit, and all other related costs. Lump sum contracts can include incentives for early termination and penalties for late termination.  

Lump sum contracts are used when the owner wants to transfer risk to the builder and avoid change orders for unspecified work.

Cost-plus construction

A cost-plus contract is an agreement for the owner to pay for all the costs associated with a construction project plus an additional fixed fee for a profit margin.  This means that the owner will first pay for all the actual costs incurred during construction such as costs for materials and labor. The owner will then pay the contractor an additional agreed upon fee, which is usually either a flat fee or a fixed percentage that is based on a percentage of the total costs.

Cost plus contracts are used when the scope of work is not clearly defined.  It becomes the owner’s responsibility to establish some limits on how much a contractor bills.

Unit price

In a unit price construction contract, the parties set a price for every unit of work.  A unit price contract can be based on hours, linear feet, cubic yards, or by item.

Unit price contracts are often used by federal agencies.  Unit price contracts allow an owner to set prices during a bidding process by requesting specific quantities and pricing of a set number of items.

Time and materials contracts

Time and material contracts are used when parties agree to pay a predetermined rate for a unit.  These contracts are used when it is not possible to present an accurate estimate or when it is difficult to define a schedule.  A time and materials contract is the riskiest type of contract for the owner and the most secure type of contract for the contractor.

A time and materials contract should specify labor costs, material mark-up, not-to-exceed or maximum amount charged, and maximum labor hours.

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