Construction Contract Template

Create a customized construction contract to define the rights and responsibilities of both parties. Outline the scope, date, and payment terms of a construction project.

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Last Update November 1st, 2023

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Table of Contents:

What Is a Construction Contract
Types of Construction Contracts
When is a Construction Contract Needed
Verify Contractor License
How to Write a Construction Contract
Construction Contract Sample
Related Documents
Other Types of Contracts
FAQs About Construction Contracts

What Is a Construction Contract

A construction contract is a legal document that sets the terms of a construction project and defines the work that will be done. It must be agreed to by all the parties involved, including the contractor, which will be carrying out the work, and the person or company who hired them to do the job (usually known as an owner, employer or client).

A construction contract can also be referred to as a:

Simple construction contract
Standard construction contract
Construction agreement
Construction contractor agreement
Construction agreement
Construction management agreement
Service agreement for construction
Construction services contract
Contract for construction
Construction contractor agreement
Contractor agreement

What should a construction contract include

A construction contract requires various details in order to be legally binding and to ensure it holds up in court. Having all the necessary information also helps avoid future misunderstandings and conflicts.

Below are the main terms a construction contract should usually include:

Full name, address, and contact details of the contractor and owner
A legal description and address of the worksite
The dispute resolution process
Contract price and payment terms
Contract documents
Work schedule and starting and completion dates
Subcontracts
Inspection guidelines
Decision-making responsibilities
Labor/material cost and financing requirements
Work change rules and project termination rights
Payment withholding rights
Breach of contract remedies and force majeure
License, permit, warranty, and insurance requirements
Damage amounts and liability limits
Signature and date by both parties

Types of Construction Contracts

There are various different types of construction contracts. Depending on the type of construction project needed by the owner, they can be customized to meet specific requirements and conditions.

The most common types of construction contracts include the following:

Contract Type	Benefits	Disadvantages
Lump Sum Customer pays for the project with a lump sum (e.g., $50,000 to build a guest house).	Contractor can ask for a higher price to protect against unforeseen circumstances. Total costs may be overestimated, which can lead to higher profits for the contractor.	Total costs may be underestimated, which can lead to lower profits for the contractor. All risk is carried by the contractor. May lead to higher bidding by the contractor due to the possibility of losses, which can make them lose the contract.
Time & Materials Customer pays for the actual time and material costs/	Easy to pivot if the specifications change for the project. Simple negotiation process. Able to handle variability in time or materials used.	Costs can rise significantly. Can be complicated to track time and materials. Higher chances of contractor dishonesty and fraud. Owners may need to verify a large amount of additional claimed costs. No benefits to efficiency unless scheduling bonuses are included.
Costs Plus Customer pays for the time and material costs, plus an additional job fee.	All costs, including overhead and other conditions, are properly accounted for. Able to handle variability in time or materials used.	Costs can rise significantly. Can be complicated to track time and materials. Higher chances of contractor dishonesty and fraud. Owners may need to verify a large amount of additional claimed costs. No benefits to efficiency unless scheduling bonuses are included.
Unit Price Customer pays for the project in smaller units rather than one overall price.	All costs, including overhead and other conditions, are properly estimated. Able to handle variability in time or materials used.	Final cost is determined only after the project is completed. May lead to an unbalanced bid due to the contractor’s ability to raise and lower the prices of certain items.
Guaranteed Maximum Price Customer pays for a guaranteed maximum price, and the contract covers any additional costs.	Security for the owner that they won’t bear extra costs due to contractor mistakes Smooth flow of work as details are worked out in advance. Contractor is incentivized to complete the work ahead of schedule.	Total costs may be underestimated, which can lead to lower profits for the contractor. May lead to higher bidding by the contractor due to the possibility of losses which can make them lose the contract.

Contract Type

Benefits

Disadvantages

Lump Sum

Customer pays for the project with a lump sum (e.g., $50,000 to build a guest house).

Contractor can ask for a higher price to protect against unforeseen circumstances.

Total costs may be overestimated, which can lead to higher profits for the contractor.

Total costs may be underestimated, which can lead to lower profits for the contractor.

All risk is carried by the contractor.

May lead to higher bidding by the contractor due to the possibility of losses, which can make them lose the contract.

Time & Materials

Customer pays for the actual time and material costs/

Easy to pivot if the specifications change for the project.

Simple negotiation process.

Able to handle variability in time or materials used.

Costs can rise significantly.

Can be complicated to track time and materials.

Higher chances of contractor dishonesty and fraud.

Owners may need to verify a large amount of additional claimed costs.

No benefits to efficiency unless scheduling bonuses are included.

Costs Plus

Customer pays for the time and material costs, plus an additional job fee.

All costs, including overhead and other conditions, are properly accounted for.

Able to handle variability in time or materials used.

Costs can rise significantly.

Can be complicated to track time and materials.

Higher chances of contractor dishonesty and fraud.

Owners may need to verify a large amount of additional claimed costs.

No benefits to efficiency unless scheduling bonuses are included.

Unit Price

Customer pays for the project in smaller units rather than one overall price.

All costs, including overhead and other conditions, are properly estimated.

Able to handle variability in time or materials used.

Final cost is determined only after the project is completed.

May lead to an unbalanced bid due to the contractor’s ability to raise and lower the prices of certain items.

Guaranteed Maximum Price

Customer pays for a guaranteed maximum price, and the contract covers any additional costs.

Security for the owner that they won’t bear extra costs due to contractor mistakes

Smooth flow of work as details are worked out in advance.

Contractor is incentivized to complete the work ahead of schedule.

Total costs may be underestimated, which can lead to lower profits for the contractor.

May lead to higher bidding by the contractor due to the possibility of losses which can make them lose the contract.

When is a Construction Contract Needed

Deeding on the state in which you reside, a written contract will be legally required for some or all construction projects you undertake. Whether or not you need a contract will often differ based on the size of the construction project.

For example, in California, a written construction contract is necessary for all home improvement projects over $500. In this case, the contract, alongside any changes made, must be in legible writing including all the necessary terms and conditions.

Consequences of not signing a construction agreement

Starting a construction project without a signed contract can put both parties in a risky position. Without a contract, it can be difficult to ensure either party follows through with their responsibilities and obligations as specified.

This can lead to misunderstandings and legal issues occurring on a more frequent basis. In addition, if a dispute were to arise, the lack of a contract existing will often result in the conflict ending up in litigation, making the resolution much more costly.

Verify Contractor License

Before hiring a contractor or a construction business, it’s important to verify that they are properly licensed within the state, before signing the contract.

Licensed contractors help to minimize financial risk if the work is incomplete or faulty, a worker is injured on the property, or the property itself is damaged. Work performed by an unlicensed contractor may not be covered under your insurance policy, and they are unlikely to qualify for worker’s compensation and liability insurance.

Below are some examples of state licensing requirements:

California: General contractors are required to have a California contractor license for projects worth more than $500. They’ll need to have proof of at least 4 years of professional experience completed within the last 10 years; passed business, trade, and law exams; provide proof of surety bond and general liability insurance.
Texas: General contractors are not required to obtain a license, but there may be licensing requirements at the local level. If the contractor will be doing plumbing, electrical, or HVAC work, they will need a state license.
Florida: To get a Florida construction license, general contractors need at least 1 year of experience in construction work on buildings less than 4 stories high. Building contractors are limited to the construction, modification, repair, or improvement of residential or commercial buildings that do not exceed a height of 3 stories. Residential contractors can only work on residencies that do not exceed 2 stories in height. In addition, every contractor must pass trade, business, and law exams; provide proof of relevant work experience and/or education; and provide a financial statement as well as proof of general liability and worker’s compensation insurance.
New York: General contractors are not required to obtain a license, but there may be licensing requirements at the local level.
Pennsylvania: General contractors do not need to be licensed, but if the value of the annual home improvement projects exceeds $5,000 they will need to register with the state’s Attorney General's Office. Requirements may also vary from city to city.

How to Write a Construction Contract

There are various key details that a construction contract must include to prevent miscommunication between the client and the contractor. While a lawyer is not needed to write up one of these agreements, missing out on important information can render the contract invalid.

We recommend using one of our construction contract templates to make sure your document includes all the necessary points. By using our builder, you’ll be able to complete your document in minutes with the help of expert legal guidance and advice.

Construction Contract Sample

We recommend looking at a 100% verified sample contractor contract before starting your own.

Use our example below to get a feel for the points to cover and details to include in your own customized agreement.

Construction Contract Agreement Template

Other Types of Contracts

You might be interested in other services as well. If so, use a service contract to formalize the service.

A service contract is designed to protect both the person providing and receiving the service.

It adds security if the contact is terminated or terms aren’t respected.

Other types of service contracts that LawDistrict makes easy to create:

FAQs About Construction Contracts

A construction contract needs to be prepared carefully, to ensure no crucial provisions are missing when it’s signed. To find out more about how these agreements work and must be prepared, check our FAQs below.

How does a construction contract work?

A construction contract is a legally binding agreement which records the terms and conditions of a specific construction project in document form. By putting the scope of the construction work in writing, this serves as a record of commitment for both parties, thus helping to prevent future conflict, and mitigate risk.

How to terminate a construction contract?

An owner can terminate a construction contract if the contractor defaults and fails to cure the default. This may include a failure to perform the required work, meet the project schedule, or comply with applicable laws. Owners may also terminate a construction contract upon prior written notice, for their convenience and without cause. In this case, the two parties usually negotiate the termination.

On the other hand, a contractor may terminate a construction contract if the owner defaults and fails to cure such default. A default may include nonpayment in bad faith or without evidence being provided by the owner.

In most states, a notice of termination should be served by either of the contracting parties if they wish to terminate the contract, or they are unable to hold up their end of the agreement. It’s important to check the guidelines in your area, as notice requirements can differ from state to state. Termination rights may also differ depending on the contract that was established.

How do you recognize revenue in a construction contract?

Construction revenue recognition is based on the activities and performance of the contractor. Under the current standard, revenue is recognized when the contractor satisfies performance obligations. It is calculated by reference to the stage of completion where the construction contract’s outcome can be estimated reliably, or to the extent of recoverable contract costs incurred.

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Preview of your Construction Contract Template

INDEPENDENT CONTRACTOR AGREEMENT

THIS INDEPENDENT CONTRACTOR AGREEMENT (the "Agreement") is made and entered into as of _____________, ____, ________.

BY AND BETWEEN CLIENT:
_________
of _________
(the "Client")

AND CONTRACTOR:
_________
of _________
(the "Contractor")

PURPOSE OF HIRING THE CONTRACTOR

A. The Client has engaged the Service Provider or Contractor because he/she possesses special skills and qualifications, as well as knowledge and experience, necessary to provide services which are of value to the Client.

B. The Contractor has agreed to be engaged as an Independent Contractor to provide the Client the services set forth, in accordance with the terms and conditions of this Agreement.

NOW, THEREFORE, AND IN CONSIDERATION OF the premises and mutual promises described above, as well as the covenants and agreements herein set forth, the Client and the Independent Contractor (individually the "Party" and collectively the "Parties" to this Agreement) agree as follows:

SCOPE OF SERVICES

1. The Client hereby engages the services of the Independent Contractor, and the Independent Contractor agrees to provide to the Client the services described further herein (the "Services"):

• _________.

2. The Services shall also include any and all other tasks agreed to by the Parties, in accordance with the terms and conditions of this Agreement.

***The Independent Contractor hereby agrees to provide such Services to the Client, and the Client agrees to not control the manner or means by which the Independent Contractor performs the Services [including but not limited to the time and place the Independent Contractor performs the services].

TERM OF AGREEMENT

3. The term of this Agreement (the "Term") shall be valid from the date of this Agreement and shall remain in full force and effect until all Services are provided, unless terminated earlier, or unless extended by mutual agreement expressed in writing signed by both parties prior to the expiration of the term, as provided herein.

PERFORMANCE

4. The Parties agree to do their best efforts to satisfy the performance of the terms of this Agreement.

COMPENSATION

5. During the Term, the Client shall pay the Independent Contractor for services as follows: a flat fee of $_________ (the "Compensation").

6. The Independent Contractor shall submit an invoice to the Client when all services have been completed.

7. Payments for invoice amounts submitted to the Client by the Independent Contractor shall be due within 30 days of receipt of the invoice from the Independent Contractor.

8. Provided that the Client terminated the Agreement before all services are completed by the Independent Contractor and the latter has provided partial services under the Agreement, he or she shall be entitled to payment in compensation for the amounts earned for services given prior to the effective date of such termination. However, the Independent Contractor shall be entitled to such payment if and only if he or she has not breached the Agreement.

9. The Independent Contractor shall be responsible for paying all ordinary and necessary expenses incurred in connection with the provision of the services, and shall not be reimbursed for any of these expenses.

LATE PAYMENT PENALTIES

10. In the event that any amounts are overdue under this Agreement, interest will be charged at a rate of _________% per annum or at the maximum rate enforceable under applicable legislation, whichever is lower.

TRADE SECRETS

11. Trade secrets (the "Trade Secrets") is defined as information, including any kind of formula or compound, pattern or test results, compilation, program, device, method, technique or process, tool or mechanism that: 1) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons, other than the Client that owns it, who can obtain economic value from its disclosure or use; and, 2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy in order to protect the Client from being caused economical harm.

12. The Independent Contractor agrees that he or she will not disclose, divulge, reveal, report or use, for any purpose, any Trade Secrets which the Independent Contractor has obtained, unless as otherwise authorized by the Client, agreed by the Parties or as required by law. The obligations of confidentiality will apply during the Term and will survive indefinitely upon termination of this Agreement.

13. Confidential Information Belongs to Client: All notes, data reference materials, memoranda, documentation and records in any way incorporating or reflecting any of the Confidential Information shall belong exclusively to the Client, and the Independent Contractor agrees to return the originals and all copies of such materials in his possession, custody or control to the Client upon request or upon termination or expiration of the Term of this Agreement.

Confidential Information shall not, however, include the following: Any information which the Independent Contractor can establish that (i) was publicly known and made generally available in the public domain prior to the time of disclosure to the Independent Contractor by the Client; (ii) becomes publicly known and made generally available after disclosure to the Independent Contractor by the Client through no action or inaction of the Independent Contractor; (iii) is in the possession of the Independent Contractor, without confidentiality restrictions, at the time of disclosure by the Client as shown by the Independent Contractor's then-contemporaneous files and records kept in the ordinary course of business; or (iv) readily ascertainable or independently developed.

OWNERSHIP OF INTELLECTUAL PROPERTY

14. All intellectual property made, developed, conceived, first reduced to practice, fixed in any tangible medium of expression or created independently by the Client, and any related material, including any trade secrets, moral rights, goodwill, relevant registrations or applications for registration, and rights in any patent, copyright, trademark, trade dress, industrial design and trade name (the "Intellectual Property") that is developed or produced under this Agreement, as well as, any other original works of authorship included, will be considered a "work made for hire" and the sole and exclusive property of the Client. Thus, the use by the Client of its Intellectual Property will not be restricted in any manner or form.

15. The Client shall own all the Independent Contractor work product or deliverables in this Agreement; all ideas, inventions, concepts, know-how, development tools, techniques, and any other propriety material or information that may be developed by the Independent Contractor in connection with performance of the services, and all related patent rights, copyrights, and other intellectual property rights, and which the Independent Contractor shall not use for any purpose, unless as authorized in this Agreement by the Client. The Independent Contractor shall be responsible for any and all damages resulting from the unauthorized use of the Client's Intellectual Property.

RETURN OF PROPERTY

16. Upon the written request of the Client, the Independent Contractor shall return all documents and other tangible objects, which in any way relate to the Client's Confidential Information, or any other type of documents representing Confidential Information and all copies thereof which are in the possession of the Independent Contractor shall be and remain the property of the Client. Upon termination of this Agreement, any property, documentation, records, or confidential information which is the property of the Client shall be promptly returned to said party upon its request. In no event shall the Independent Contractor have the right to use or exploit the Client's property for any purpose after its return.

CAPACITY/INDEPENDENT CONTRACTOR

17. The Client and the Independent Contractor each expressly agree that they are creating an independent contractor relationship and that the Parties understand that in providing the services under this Agreement, nothing can be understood and construed as creating an employer-employee relationship. Thus, the Independent Contractor shall not be considered as an employee by the Client under this Agreement for any purpose and shall not be entitled to receive or participate in any medical, retirement, vacation, paid or unpaid, or other benefits provided by the Client to its employees. The Independent Contractor is exclusively responsible for all Social Security, self-employment, and income taxes, disability insurance, workers' compensation insurance, and any other statutory benefits otherwise required to be provided by employees, and all fees and licenses, if any, required for the performance of the services. Immediately upon entering into this Agreement, the Independent Contractor agrees to be responsible for providing the Client with a completed and signed W-9 form, Request for Tax Payer Identification Number. The Client will report all income to the Independent Contractor and the Independent Contractor is responsible for all income and/or other local, state and federal taxes obligations, if any, including but not limited to all reporting and payment obligations, if any, which may arise as a consequence of any payment under this Agreement.

NOTICE

18. All notices and other communications required or permitted under this Agreement shall be in writing and shall be deemed given by first class U.S. Mail, registered or certified, return receipt requested, postage pre-paid and delivered to the Parties at the following addresses:

a. _________
_________

b. _________
_________

INDEMNIFICATION

19. The Parties shall indemnify, defend and hold harmless each other and its respective subsidiaries, affiliates, officers, employees, contractors, and agents, even beyond the termination of this Agreement, from and against all claims and losses (including costs of defense and reasonable attorney's fees) of any nature arising out of, resulting from, or relating to, the Independent Contractor's provision of services or violation of the terms of this Agreement. This indemnification will survive the termination of this Agreement.

MODIFICATION OF AGREEMENT

20. This Agreement cannot be modified, or any performance or condition waived, in whole or in part, except by a written document signed by the Party or an authorized representation of said Party against whom enforcement of the modification or waiver is sought.

ASSIGNMENT AND SUBCONTRACTORS

21. The Independent Contractor shall not assign, sell, transfer, delegate, or otherwise dispose of any Independent Contractor rights or material duties or obligations under this Agreement without the express written consent of the Client. Any purported assignment, transfer, or delegation without the consent of the Client shall be void.

Furthermore, all services must be performed by the Independent Contractor and the Independent Contractor shall not use, voluntarily or by operation of law, any subcontractors to perform any duties or responsibilities under this Agreement, except with the written consent of the Client.

ENTIRE AGREEMENT

22. This Agreement, including all attachments, contains the entire agreement between the parties with respect to the subject matter of this Agreement and supersedes and replaces any prior agreement, written or oral, that may otherwise apply. Any statement, representations, and/or understanding not set in this Agreement, including the printed terms of any invoice or other document, such as warranties, collateral agreement or condition affecting this Agreement, shall have no force or effect over this Agreement.

GOVERNING LAW

23. The validity and effect of this Agreement shall be governed by and construed and enforced in accordance with the laws of the .

SEVERABILITY

24. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be valid and effective under applicable law. If any provision of this Agreement shall be unlawful, void, or for any reason unenforceable, it shall be deemed separable from, and shall in no way affect the validity or enforceability of, the remaining provision of this Agreement, and the rights and obligations of the parties shall be enforced.

WAIVER

25. No waiver by either Party of any default or breach of any of the provisions of this Agreement shall in any way prejudice the complying Party or be construed as a waiver with respect to any subsequent default or breach by the other Party.

IN WITNESS WHEREOF, the Parties have hereunto signed their names under hand and seal on this ________ day of ________________, ________.

________________________________
_________

Construction Contract Template

What Is a Construction Contract

What should a construction contract include

Types of Construction Contracts

When is a Construction Contract Needed

Consequences of not signing a construction agreement

Verify Contractor License

How to Write a Construction Contract

Construction Contract Sample

Related Documents

Other Types of Contracts

FAQs About Construction Contracts

How does a construction contract work?

How to terminate a construction contract?

How do you recognize revenue in a construction contract?

Preview of your Construction Contract Template