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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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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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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:
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Research shows $1.63 trillion could be saved annually from infrastructure productivity changes in construction, and 45% of construction professionals say they spend more time than expected on 'non-optimal activities. We've noted this and decided to change the game.
You can create your contract in three steps:
A few regular questions we see for construction agreements:
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.
A construction contract can end when the project is completed, both parties agree to cancel the contract, or a stakeholder breaches the contract.
This Contract is between Sample Client (the "Client") and John Doe (the "Constructor").
The Contract is dated [the date both parties sign].
1. WORK AND PAYMENT.
1.1 Project. The Client is hiring the Constructor to do the following: The Constructor will assist the Client with construction services.
1.2 Schedule. The Constructor will begin work on March 09, 2021 and the work is ongoing. This Contract can be ended by either Client or Constructor at any time, pursuant to the terms of Section 6, Term and Termination.
1.3 Payment. The Client will pay the Constructor a rate of $30.00 (USD) per hour. Of this, the Client will pay the Constructor $500.00 (USD) before work begins.
1.4 Expenses. The Client will reimburse the Constructor's expenses. Expenses do not need to be pre-approved by the Client.
1.5 Invoices. The Constructor will invoice the Client weekly. The Client agrees to pay the amount owed within 15 days of receiving the invoice. Payment after that date will incur a late fee of 5.0% per month on the outstanding amount.
1.6 Support. The Constructor will not provide support for any deliverable once the Client accepts it, unless otherwise agreed in writing.
2. OWNERSHIP AND LICENSES.
2.1 Client Owns All Work Product. As part of this job, the Constructor is creating “work product” for the Client. To avoid confusion, work product is the finished product, as well as drafts, notes, materials, mockups, hardware, designs, inventions, patents, code, and anything else that the Constructor works on—that is, conceives, creates, designs, develops, invents, works on, or reduces to practice—as part of this project, whether before the date of this Contract or after. The Constructor hereby gives the Client this work product once the Client pays for it in full. This means the Constructor is giving the Client all of its rights, titles, and interests in and to the work product (including intellectual property rights), and the Client will be the sole owner of it. The Client can use the work product however it wants or it can decide not to use the work product at all. The Client, for example, can modify, destroy, or sell it, as it sees fit.
2.2 Constructor's Use Of Work Product. Once the Constructor gives the work product to the Client, the Constructor does not have any rights to it, except those that the Client explicitly gives the Constructor here. The Client gives permission to use the work product as part of portfolios and websites, in galleries, and in other media, so long as it is to showcase the work and not for any other purpose. The Client does not give permission to sell or otherwise use the work product to make money or for any other commercial use. The Client is not allowed to take back this license, even after the Contract ends.
2.3 Constructor's Help Securing Ownership. In the future, the Client may need the Constructor's help to show that the Client owns the work product or to complete the transfer. The Constructor agrees to help with that. For example, the Constructor may have to sign a patent application. The Client will pay any required expenses for this. If the Client can’t find the Constructor, the Constructor agrees that the Client can act on the Constructor's behalf to accomplish the same thing. The following language gives the Client that right: if the Client can’t find the Constructor after spending reasonable effort trying to do so, the Constructor hereby irrevocably designates and appoints the Client as the Constructor's agent and attorney-in-fact, which appointment is coupled with an interest, to act for the Constructor and on the Constructor's behalf to execute, verify, and file the required documents and to take any other legal action to accomplish the purposes of paragraph 2.1 (Client Owns All Work Product).
2.4 Constructor's IP That Is Not Work Product. During the course of this project, the Constructor might use intellectual property that the Constructor owns or has licensed from a third party, but that does not qualify as “work product.” This is called “background IP.” Possible examples of background IP are pre-existing code, type fonts, properly-licensed stock photos, and web application tools. The Constructor is not giving the Client this background IP. But, as part of the Contract, the Constructor is giving the Client a right to use and license (with the right to sublicense) the background IP to develop, market, sell, and support the Client’s products and services. The Client may use this background IP worldwide and free of charge, but it cannot transfer its rights to the background IP (except as allowed in Section 11.1 (Assignment)). The Client cannot sell or license the background IP separately from its products or services. The Constructor cannot take back this grant, and this grant does not end when the Contract is over.
2.5 Constructor's Right To Use Client IP. The Constructor may need to use the Client’s intellectual property to do its job. For example, if the Client is hiring the Constructor to build a website, the Constructor may have to use the Client’s logo. The Client agrees to let the Constructor use the Client’s intellectual property and other intellectual property that the Client controls to the extent reasonably necessary to do the Constructor's job. Beyond that, the Client is not giving the Constructor any intellectual property rights, unless specifically stated otherwise in this Contract.
3. COMPETITIVE ENGAGEMENTS. The Constructor won’t work for a competitor of the Client until this Contract ends. To avoid confusion, a competitor is any third party that develops, manufactures, promotes, sells, licenses, distributes, or provides products or services that are substantially similar to the Client’s products or services. A competitor is also a third party that plans to do any of those things. The one exception to this restriction is if the Constructor asks for permission beforehand and the Client agrees to it in writing. If the Constructor uses employees or subcontractors, the Constructor must make sure they follow the obligations in this paragraph, as well.
4. NON-SOLICITATION. Until this Contract ends, the Constructor won’t: (a) encourage Client employees or service providers to stop working for the Client; (b) encourage Client customers or clients to stop doing business with the Client; or (c) hire anyone who worked for the Client over the 12-month period before the Contract ended. The one exception is if the Constructor puts out a general ad and someone who happened to work for the Client responds. In that case, the Constructor may hire that candidate. The Constructor promises that it won’t do anything in this paragraph on behalf of itself or a third party.
5.1 Overview. This section contains important promises between the parties.
5.2 Authority To Sign. Each party promises to the other party that it has the authority to enter into this Contract and to perform all of its obligations under this Contract.
5.3 Constructor Has Right To Give Client Work Product. The Constructor promises that it owns the work product, that the Constructor is able to give the work product to the Client, and that no other party will claim that it owns the work product. If the Constructor uses employees or subcontractors, the Constructor also promises that these employees and subcontractors have signed contracts with the Constructor giving the Constructor any rights that the employees or subcontractors have related to the Constructor's background IP and work product.
5.4 Constructor Will Comply With Laws. The Constructor promises that the manner it does this job, its work product, and any background IP it uses comply with applicable U.S. and foreign laws and regulations.
5.5 Work Product Does Not Infringe. The Constructor promises that its work product does not and will not infringe on someone else’s intellectual property rights, that the Constructor has the right to let the Client use the background IP, and that this Contract does not and will not violate any contract that the Constructor has entered into or will enter into with someone else.
5.6 Client Will Review Work. The Client promises to review the work product, to be reasonably available to the Constructor if the Constructor has questions regarding this project, and to provide timely feedback and decisions.
5.7 Client-Supplied Material Does Not Infringe. If the Client provides the Constructor with material to incorporate into the work product, the Client promises that this material does not infringe on someone else’s intellectual property rights.
6. TERM AND TERMINATION. This Contract is ongoing, until ended by the Client or the Constructor. Either party may end this Contract for any reason by sending an email or letter to the other party, informing the recipient that the sender is ending the Contract and that the Contract will end in 7 days. The Contract officially ends once that time has passed. The party that is ending the Contract must provide notice by taking the steps explained in Section 11.4. The Constructor must immediately stop working as soon as it receives this notice, unless the notice says otherwise. The Client will pay the Constructor for the work done up until when the Contract ends and will reimburse the Constructor for any agreed-upon, non-cancellable expenses. The following sections don’t end even after the Contract ends: 2 (Ownership and Licenses); 3 (Competitive Engagements); 4 (Non-Solicitation); 5 (Representations); 8 (Confidential Information); 9 (Limitation of Liability); 10 (Indemnity); and 11 (General).
7. INDEPENDENT CONTRACTOR. The Client is hiring the Constructor as an independent contractor. The following statements accurately reflect their relationship:
- The Constructor will use its own equipment, tools, and material to do the work.- The Client will not control how the job is performed on a day-to-day basis. Rather, the Constructor is responsible for determining when, where, and how it will carry out the work.- The Client will not provide the Constructor with any training.- The Client and the Constructor do not have a partnership or employer-employee relationship.- The Constructor cannot enter into contracts, make promises, or act on behalf of the Client.- The Constructor is not entitled to the Client’s benefits (e.g., group insurance, retirement benefits, retirement plans, vacation days).- The Constructor is responsible for its own taxes.- The Client will not withhold social security and Medicare taxes or make payments for disability insurance, unemployment insurance, or workers compensation for the Constructor or any of the Constructor's employees or subcontractors.
8. CONFIDENTIAL INFORMATION.
8.1 Overview. This Contract imposes special restrictions on how the Client and the Constructor must handle confidential information. These obligations are explained in this section.
8.2 The Client’s Confidential Information. While working for the Client, the Constructor may come across, or be given, Client information that is confidential. This is information like customer lists, business strategies, research & development notes, statistics about a website, and other information that is private. The Constructor promises to treat this information as if it is the Constructor's own confidential information. The Constructor may use this information to do its job under this Contract, but not for anything else. For example, if the Client lets the Constructor use a customer list to send out a newsletter, the Constructor cannot use those email addresses for any other purpose. The one exception to this is if the Client gives the Constructor written permission to use the information for another purpose, the Constructor may use the information for that purpose, as well. When this Contract ends, the Constructor must give back or destroy all confidential information, and confirm that it has done so. The Constructor promises that it will not share confidential information with a third party, unless the Client gives the Constructor written permission first. The Constructor must continue to follow these obligations, even after the Contract ends. The Constructor's responsibilities only stop if the Constructor can show any of the following: (i) that the information was already public when the Constructor came across it; (ii) the information became public after the Constructor came across it, but not because of anything the Constructor did or didn’t do; (iii) the Constructor already knew the information when the Constructor came across it and the Constructor didn’t have any obligation to keep it secret; (iv) a third party provided the Constructor with the information without requiring that the Constructor keep it a secret; or (v) the Constructor created the information on its own, without using anything belonging to the Client.
8.3 Third-Party Confidential Information. It’s possible the Client and the Constructor each have access to confidential information that belongs to third parties. The Client and the Constructor each promise that it will not share with the other party confidential information that belongs to third parties, unless it is allowed to do so. If the Client or the Constructor is allowed to share confidential information with the other party and does so, the sharing party promises to tell the other party in writing of any special restrictions regarding that information.
9. LIMITATION OF LIABILITY. Neither party is liable for breach-of-contract damages that the breaching party could not reasonably have foreseen when it entered this Contract.
10.1 Overview. This section transfers certain risks between the parties if a third party sues or goes after the Client or the Constructor or both. For example, if the Client gets sued for something that the Constructor did, then the Constructor may promise to come to the Client’s defense or to reimburse the Client for any losses.
10.2 Client Indemnity. In this Contract, the Constructor agrees to indemnify the Client (and its affiliates and their directors, officers, employees, and agents) from and against all liabilities, losses, damages, and expenses (including reasonable attorneys’ fees) related to a third-party claim or proceeding arising out of: (i) the work the Constructor has done under this Contract; (ii) a breach by the Constructor of its obligations under this Contract; or (iii) a breach by the Constructor of the promises it is making in Section 5 (Representations).
10.3 Constructor Indemnity. In this Contract, the Client agrees to indemnify the Constructor (and its affiliates and their directors, officers, employees, and agents) from and against liabilities, losses, damages, and expenses (including reasonable attorneys’ fees) related to a third-party claim or proceeding arising out of a breach by the Client of its obligations under this Contract.
11.1 Assignment. This Contract applies only to the Client and the Constructor. The Constructor cannot assign its rights or delegate its obligations under this Contract to a third-party (other than by will or intestate), without first receiving the Client’s written permission. In contrast, the Client may assign its rights and delegate its obligations under this Contract without the Constructor's permission. This is necessary in case, for example, another Client buys out the Client or if the Client decides to sell the work product that results from this Contract.
11.2 Arbitration. As the exclusive means of initiating adversarial proceedings to resolve any dispute arising under this Contract, a party may demand that the dispute be resolved by arbitration administered by the American Arbitration Association in accordance with its commercial arbitration rules.
11.3 Modification; Waiver. To change anything in this Contract, the Client and the Constructor must agree to that change in writing and sign a document showing their contract. Neither party can waive its rights under this Contract or release the other party from its obligations under this Contract, unless the waiving party acknowledges it is doing so in writing and signs a document that says so.
(a) Over the course of this Contract, one party may need to send a notice to the other party. For the notice to be valid, it must be in writing and delivered in one of the following ways: personal delivery, email, or certified or registered mail (postage prepaid, return receipt requested). The notice must be delivered to the party’s address listed at the end of this Contract or to another address that the party has provided in writing as an appropriate address to receive notice.
(b) The timing of when a notice is received can be very important. To avoid confusion, a valid notice is considered received as follows: (i) if delivered personally, it is considered received immediately; (ii) if delivered by email, it is considered received upon acknowledgement of receipt; (iii) if delivered by registered or certified mail (postage prepaid, return receipt requested), it is considered received upon receipt as indicated by the date on the signed receipt. If a party refuses to accept notice or if notice cannot be delivered because of a change in address for which no notice was given, then it is considered received when the notice is rejected or unable to be delivered. If the notice is received after 5:00pm on a business day at the location specified in the address for that party, or on a day that is not a business day, then the notice is considered received at 9:00am on the next business day.
11.5 Severability. This section deals with what happens if a portion of the Contract is found to be unenforceable. If that’s the case, the unenforceable portion will be changed to the minimum extent necessary to make it enforceable, unless that change is not permitted by law, in which case the portion will be disregarded. If any portion of the Contract is changed or disregarded because it is unenforceable, the rest of the Contract is still enforceable.
11.6 Signatures. The Client and the Constructor must sign this document using Bonsai’s e-signing system. These electronic signatures count as originals for all purposes.
11.7 Governing Law. The laws of the state of Maine govern the rights and obligations of the Client and the Constructor under this Contract, without regard to conflict of law principles of that state.
11.8 Entire Contract. This Contract represents the parties’ final and complete understanding of this job and the subject matter discussed in this Contract. This Contract supersedes all other contracts (both written and oral) between the parties.
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