Understanding Construction Contracts: A Comprehensive Guide for Construction Professionals

Construction projects can get pretty complex. They involve numerous stakeholders, and require careful planning and coordination at every step along the way to ensure a successful outcome for all parties.

One essential aspect of construction project management is understanding construction contracts.

These legally binding agreements govern the relationships, responsibilities, and obligations between parties involved in a certain construction project. While the average person most likely doesn’t have to understand every nitty-gritty detail of a contract, it’s still important to understand the key elements of contracts, and how they work to contribute to project success.

What exactly is a construction contract?

A construction contract is a legally binding agreement between multiple parties involved in a construction project.

These parties might include owners, contractors, subcontractors, and suppliers.

The contract itself outlines the scope of work, project specifications, timelines, payment terms, and other important details. It serves as a roadmap of sorts for all parties involved, helping to set clear expectations and preemptively mitigate any potential disputes.

What are some of the essential elements of a construction contract?

Parties Involved

A construction contract should clearly identify all parties involved in the contract, and project– including the owner, contractors and subcontractors, designers, and suppliers, plus anyone else with a stake in the project or who will be directly involved in its completion.

Scope of Work

The contract should define the project scope, including detailed specifications and materials, and all required deliverables.

Project Timeline

Setting a clear project timeline is essential for a construction contract. It should specify the project start and completion dates, plus desired milestones– and it should also outline potential penalties for missing deadlines (or incentives to help everyone meet them!)

Change Orders

A solid construction contract should include provisions for making changes to the project scope, adding additional work, and determining any relevant cost adjustments.

What are some types of construction contracts?

Construction contracts vary greatly depending on the project in question and who will be involved in it. 

Lump Sum or Fixed-Price Contracts

The contractor and owner agree on a predetermined fixed price for the project.

Cost-Plus Contracts

In a cost-plus contract, it’s agreed that the owner will reimburse the contractor for project costs, plus a predetermined fee or percentage.

Time and Materials Contracts

The owner and contractor agree that the contractor will be reimbursed based on the actual cost of materials, labor, and a predetermined fee for completion of the required work.

Unit Price Contracts

In unit-price contracts, the owner agrees to pay the contractor based on a unit price for each specific item of work.

Why are construction contracts important?

Just like many legal documents, construction contracts are important to help all parties involved in a construction project fully understand the scope of the project and what’s expected of them. It also helps in the event of any potential disputes– having expectations clearly written out can mitigate any issues just as soon as they arise.

In the event of more serious disagreements, construction contracts can also provide legal protection. If there’s a dispute, breach of contract, or non-performance by one of the involved parties, the contract can be used in a court of law to reach a resolution.

Should I seek legal assistance for my construction contract?

Because construction contracts can be complex documents with plenty of legal implications, it’s definitely advisable to seek out the services of an experienced attorney to help navigate the document.

An attorney can help to review, draft, and negotiate contracts to make sure that they align with project requirements and any applicable laws and regulations.

With over 40 years of experience, the attorneys at Davidson Law Firm are fully prepared to help you navigate the ins and outs of your construction contracts. To get started, just reach out or give us a call today.