Updated September 08, 2022
A construction contract is used by a client seeking to build or remodel a property with the hired help of a general contractor. The agreement will detail the general contractor’s scope of work including, payment, and rights to subcontract any of the tasks involved in completing the construction.
All details of the work should be included in the contractor’s agreement. If there are any work orders or plans they should be attached in addition to any permits acquired from the local government to begin work.
4 Types of Construction Contracts
1. Fixed Price
A price is given for the services provided. This is a lump sum that covers all materials and labor.
2. Cost Plus
The client agrees to pay “at cost” for the contractor’s materials, labor, and any other expenses. The contractor will profit by being paid a percentage of the total costs or a fixed fee. The client may also add a clause stating the total construction costs may not breach a specific amount.
3. Time and Material
The client pays the contractor for materials and labor at a negotiated rate. The contractor makes a profit by charging the client more than what they pay their staff.
4. Unit Pricing
If the client is seeking to have the contract set up in a per square foot ($/SF) or another unit of measurement.
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How to Start a Construction Project (6 steps)
This roadmap is for clients and the contractor alike to help determine where the project currently stands and what items are outstanding for it to be completed. Although, every project is unique the following guide may be able to assist in planning a construction project.
Step 1 – Budget and Scheduling
Decide the budget for the project and decide when it’s best to have construction begin. For those living in northern areas of the United States, it may be best to have the construction occur during the summer months due to costs being more affordable. Establishing a budget is the best way to meet with an architect, designer, or project manager to determine what can be accomplished and what materials may be available.
Step 2 – Generate and Refine Design Concepts
Create design concepts with the third (3rd) party working on the project. It’s recommended to request a few design layouts and to refine the client’s needs over the process. Whenever working in a finite budget or limited space, there will always be sacrifices that are made to satisfy the entire project.
Step 3 – Obtain Local Permits
Whether it’s a home, apartment, or condominium, chances are the project will need to be approved by a local government or, for condos, the condominium association. Bring the final plans and submit while requesting a building permit that allows the construction to occur for a period of time, usually 6 to 24 months depending on the construction.
Step 4 – Find the Construction Contractor
During the permitting period, it is best to begin the search for the construction contractor. In most cases, word-of-mouth or recommendation from those in the community will direct someone to the best contractor in the area. Otherwise, websites like Yelp do a good job of acting as a directory for someone to call and seek requests for bids while interviewing them to see if they fit the role for the work.
Verify a General Contractor
A general contractor must be registered with the State if they are to accept work for residential and commercial projects. Use the links below to verify the individual is authorized to practice in the State:
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Colorado
- Connecticut
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Mississippi
- Missouri
- Montana
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Texas
- Utah
- Vermont
- Virginia
- Washington
- West Virginia
- Wisconsin
- Wyoming
Step 5 – Write the Contractor Agreement
At this time it’s best for the client and the contractor that they’ve selected to go over the bid and finalize the scope of work and enter into a contract for the construction. The client should utilize an attorney to ensure that all aspects of the work are protected in the chance it’s not completed in accordance with the plans and budget.
Step 6 – Construction Payments
If the project is new construction or if the project is sizable (lasting more than 2-3 months) the contractor will demand that they are paid overtime or at certain “checkpoints”. The client is responsible for ensuring that the project is going accordingly and, if certain parameters are being met, to make payment.
For smaller construction jobs, payment is administered upon completion.
Sample Construction Contract
Download: Adobe PDF, MS Word (.docx), OpenDocument
Related Agreements
Construction Subcontractor Agreement – Between the contractor and any third (3rd) party, “subcontractor”, for any work that cannot be completed by the contractor such as an electrician, roofer, plumber, etc.
Download: Adobe PDF, MS Word, OpenDocument
Construction Invoice – For a contractor to request payment from their client for services rendered.
Download: Adobe PDF, MS Word, OpenDocument