What is a construction contract?
A construction contract is essential to protect both parties when hiring construction services, whether it's an office structure, private property, real estate, or another type of construction project.
The use of a construction contract ensures work is completed on time, and the completion of work is paid in full. Otherwise known as a construction contract agreement, the deal is between the general contractor and the client.
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Why you need a construction agreement
First and foremost, construction contracts safeguard any payments while guaranteeing a certain level of work to be completed. 63.2% of construction contractors say "sometimes" they are paid on time—a worrying stat that can be fought with clearer payment terms in your contract.
A construction contract agreement is also a vital step before you undergo any construction project. A construction agreement can give security to contractors and sub-contractors; it builds trust and prevents future project disputes.
If a dispute does happen, a contractor agreement should state how both parties move forward in the dispute resolution process.
Types of construction contracts
There are a few different types of construction contracts; they largely depend on the different types of construction projects you're doing and your client's needs.
Note: All of these types of contract templates can be created using Bonsai's online contract maker. With Bonsai, you can create the agreement from scratch or tweak your sample construction contract template to meet your needs.
Let's explore the different types of construction contracts.
Fixed-price construction contract
A fixed-price construction contract agreement is a set contract price for your construction service. These are usually lump-sum contracts to cover labor and materials used.
Cost-plus construction contract
A cost-plus contractor agreement is when the client agrees to make a payment for labor, materials, and other expenses. The client may add a clause to state that a contractor cannot go over a certain amount.
The construction contractor is paid a fixed sum or a percentage of the total costs.
Unit pricing construction contract
A unit pricing document is when a client pays the construction contractor for labor and materials at a settled price. The contractor will make money by charging more than they would usually pay their staff to complete the job.
Time and material construction contract
If a client wants to set up a contract in a measurement of square foot, or another unit of measurement, a time and material agreement is organized between the construction contractor and client.
What should be included in a construction contract agreement
Your agreement needs to include the scope of work, along with the lump sum to be paid. It should also include the legal rights for any completed construction and give an overview of anything that will be sub-contracted.
The construction contract agreement should include all working details with any plans and orders attached to the contractor agreement along with the required permits for work to be completed by any law-enforcing governing bodies.
Let's explore the must-have clauses in your agreement.
Detailed descriptions of the work and parties involved
This section should cover your roles and responsibilities, as well as those for every stakeholder involved. This includes anyone from the client's side and any sub-contractors you may bring to the job.
What are the milestones for your project build, and what's the final completion date? Make sure your contract documents this and it's mapped out clearly, and you hold yourself and your team accountable to deadlines.
Scope of work
The following details need to include what's within scope for this contract, and what's out of scope. When something is out of scope, you should consider charging more and changing pre-assigned deadlines.
More often than not, contractors control this clause. What are your payment terms and conditions? If the client pushes back, then they need to make sure the contractor agrees to any changes before both parties agree and sign for the new construction.
Rights and responsibilities of client and contractors
Construction work handles rights and responsibilities for the services provided just as much as any other general contractor. Layout if there's an insurance policy here, who owns what should there be governmental inspections, and clarify under which governing law your operating client and contractor rights.
Cancellations of contracts occasionally happen, and they're out of the contractor's control. Perhaps the property owner has had a change of heart, maybe the property owner can no longer afford the services, or something has come up that is blocking them from proceeding.
This section outlines written notice, what to do with remaining provisions, and for how long the construction plan can be delayed until officially canceled.
Termination of contract
The best legal advice you'll get when building your entire agreement is to have a termination clause. Terminations, although rarely, happen. If they do, unfortunately, happen, having this clause in place will prevent you from needing to get a law firm involved to provide legal advice and take legal action.
Lastly, list anything else the property owner (client) would like to see on the list. Consider:
- Handling hazardous materials protocol
- What needs written consent or approval in the project build
- Any applicable laws not previously mentioned but specific to your geographic location
- Legal experts contact details (if needed)
- The effective date of the contract and start date of the project
Simple construction agreement template
Grab your contract template for free today. It's so important that independent contractors start making time to ensure they're legally backed before continuing with any project. Sign up to Bonsai, and you'll get instant access to your editable contract.
What's the benefit of using Bonsai instead of editing a template yourself?
Bonsai's online contract maker enables you to jump straight into the finer details of contract building for each client, rather than losing time building a contract from scratch.
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How to create a construction contract template with Bonsai
You can create your contract in three steps:
- Sign-up for the Bonsai platform
- Select to start a contract from scratch or use a ready-to-go construction template
- Make any edits you need & send the contract on its way
Construction contract FAQs
A few regular questions we see for construction agreements:
What is the best contract for construction?
There's no one-size-fits-all answer for this one. A few popular contract options for construction contractors are fixed-price, cost-plus, unit price, and time & material contracts.
How does a construction contract end?
A construction contract can end when the project is completed, both parties agree to cancel the contract, or a stakeholder breaches the contract.