Construction Contract Template

Construction projects—whether they involve building a new home, renovating a commercial space, or adding an extension to an existing structure—represent significant financial commitments and complex coordination challenges for all parties involved. A well-drafted construction contract is the single most important risk management tool available to both property owners and contractors, establishing clear expectations for the scope of work, payment terms, timeline, quality standards, and the procedures for handling changes and disputes that inevitably arise during the course of construction.

Our free construction contract template is designed for use by US contractors, subcontractors, and property owners across a wide range of project types, from residential remodels to commercial ground-up builds. It covers the essential elements required for an enforceable and practically workable agreement: detailed scope of work provisions, milestone-based payment schedules, change order procedures, warranty obligations, insurance requirements, and dispute resolution mechanisms. The template is free to download and customizable to your specific project requirements.

What Is a Construction Contract?

A construction contract is a specialized agreement between a property owner (the client) and a contractor (the builder) that defines the rights, obligations, and expectations of each party in connection with a construction, renovation, or repair project. It is distinguished from other service contracts by the unique nature of the construction industry, which involves physical labor, building materials, specialized trades, regulatory inspections, and inherent risks related to site conditions, weather, and supply chain disruptions.

The legal framework governing construction contracts in the United States is derived from a combination of common law principles (offer, acceptance, consideration, and breach), state-specific contractor licensing statutes, the Uniform Commercial Code (UCC) as it applies to the sale of building materials, and various federal regulations such as OSHA workplace safety standards and EPA requirements for lead paint and asbestos abatement. Many states also have specific consumer protection statutes that impose additional requirements on residential construction contractors.

One of the most distinctive features of construction contracts compared to other commercial agreements is the concept of "site possession"—meaning the contractor is given exclusive possession of the construction site for the duration of the project, which limits the owner's ability to use the property and creates potential liability for injuries to third parties. This also means that the contractor bears significant responsibility for job site safety, equipment storage, and protection of the work in progress.

Construction contracts take several common forms in the US market. A lump-sum or fixed-price contract sets a single total price for the entire project, transferring the risk of cost overruns to the contractor (though change orders may adjust the price for scope changes). A cost-plus contract reimburses the contractor for actual costs plus a negotiated fee or percentage, providing more transparency but transferring cost risk to the owner. A guaranteed maximum price (GMP) contract is a hybrid that reimburses costs up to an agreed ceiling, with any overages borne by the contractor.

Key Clauses Every Construction Contract Must Include

Construction contracts are among the most detailed and technically complex agreements used in commercial practice. The following provisions are essential for protecting both parties and ensuring the project proceeds smoothly.

1. Scope of Work

The scope of work (SOW) is the heart of any construction contract. It must describe the project in sufficient detail to give both parties a clear understanding of what is and is not included, including specifications for materials, equipment, and finishes; the standards of workmanship required; the drawings and plans that are part of the contract; and any exclusions specifying what the contractor is not responsible for providing or installing. Ambiguities in the scope of work are one of the leading causes of construction disputes.

2. Project Schedule and Timeline

This clause establishes the project start date, substantial completion date, and final completion date, along with any milestones or phase deadlines within the overall timeline. It should address the consequences of delays—including whether the contractor is entitled to an extension of time for force majeure events (such as severe weather or supply chain disruptions) and the owner's remedies if the contractor misses deadlines. A well-drafted schedule provision distinguishes between compensable delays (where the owner pays for additional time) and non-compensable delays.

3. Payment Terms and Retainage

The payment clause should specify the total contract price, the payment schedule (typically tied to project milestones), the process for submitting and approving payment applications (often called "pay apps"), the required documentation with each application, and any retainage withheld from each payment. Construction contracts frequently require the contractor to submit conditional lien waivers with each payment and unconditional lien waivers upon final payment, protecting the owner from claims by subcontractors or suppliers.

4. Change Order Procedure

No construction project ever proceeds exactly as planned. The change order provision establishes a formal process for documenting and approving any modifications to the scope of work, schedule, or contract price. It should specify who has authority to approve change orders (typically the property owner or designated representative), the timeframe within which the contractor must submit a change order request, and the pricing methodology for additional work (such as unit pricing for labor and materials or a negotiated markup on cost).

5. Warranty and Defect Correction

Contractors typically provide a warranty that the work will be performed in a workmanlike manner and conform to the contract documents. The warranty clause should specify the duration of the warranty period (one year is common, though some jurisdictions imply longer warranties), what is covered, how defects will be identified, and the process for the contractor to cure defects at its own expense. It should also address the distinction between the contractor's warranty and manufacturers' warranties on installed equipment and materials.

6. Insurance and Indemnification

The insurance and indemnification provisions allocate the risks of the construction project between the parties. The contractor typically indemnifies the owner against claims arising from the contractor's negligence or breach of contract, while the owner's indemnification covers claims arising from the owner's acts or omissions. The contract should also specify required insurance coverages, minimum policy limits, and the requirement to name the other party as an additional insured where appropriate.

7. Termination

The termination clause should address both party's rights to terminate for cause (such as the other's material breach or insolvency) and, in some cases, for convenience (without cause). It should specify the notice and cure periods for termination for cause, the consequences of termination on payment obligations, and who is entitled to payment for work performed before termination. This provision prevents disputes about what each party is owed if the relationship breaks down.

How to Write a Construction Contract

Drafting a construction contract requires careful attention to both legal requirements and practical realities of the construction industry. Before you begin drafting, gather all relevant project documents: the architectural and engineering plans, the project specifications, the soils or geotechnical report (if applicable), any existing surveys or title commitments, and the contractor's license information and insurance certificates. These documents form the factual foundation of the contract.

When writing the contract, ensure that the scope of work is as detailed as possible. General descriptions like "construct a three-bedroom home according to plans" are insufficient. Instead, specify materials by brand name or approved equivalent, cite specific ASTM or other industry standards for workmanship, and reference the specific plan sheets and specification sections that govern each portion of the work. This level of detail prevents disputes about whether a particular component meets the contractual standard.

Pay particular attention to the payment schedule and change order provisions, as these are the areas where construction disputes most frequently arise. The payment schedule should be realistic and tied to verifiable milestones that can be inspected and documented. The change order provision should require written approval before any additional work begins—not only to protect the owner from surprise costs but also to ensure the contractor is compensated for additional work.

Finally, ensure that both parties sign the contract before any work begins. Many states require contractors to provide a Notice to Owner or similar filing to preserve their lien rights, and some municipalities require permits before construction can commence. The contract should cross-reference these requirements and assign responsibility for obtaining necessary permits and approvals.

Sample Construction Contract

Imagine a mid-sized commercial project: Lakeside Hospitality Group has contracted with Pinnacle Build Corp to construct a forty-room extended-stay hotel in Charlotte, North Carolina. The total contract price is $4.2 million under a guaranteed maximum price structure, with the GMP including a contingency allowance of $200,000 for unforeseen conditions.

The contract specifies that Pinnacle will submit monthly pay applications on the twenty-fifth of each month, documenting the percentage of completion for each line item in the schedule of values. Lakeside has fifteen days to approve or disputed applications, and undisputed amounts are due within thirty days of approval. Ten percent retainage is withheld from each payment until the project reaches fifty percent completion, at which point retainage drops to five percent.

The contract includes a detailed scope of work specifying that all exterior cladding will be fiber cement siding meeting ASTM C1186 standards, that HVAC systems will be VRF (variable refrigerant flow) technology with a minimum SEER 18 rating, and that all electrical work will comply with NFPA 70 National Electrical Code as adopted in North Carolina. The contract further specifies a project schedule with a commencement date of March 1 and a substantial completion date of November 1—eight months total—and imposes liquidated damages of $5,000 per calendar day for failure to meet substantial completion.

The change order provision requires Lakeside's authorized representative (identified as the Director of Development) to approve all change orders in writing before additional work commences, with pricing submitted within ten business days of the change directive using unit rates established in the contract. The contract also contains a termination for cause provision allowing either party to terminate if the other party fails to cure a material breach within ten days of written notice.

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Get Started with Your Construction Contract

Construction projects involve significant money, tight timelines, and multiple parties—making a detailed written contract absolutely essential. Whether you are a homeowner hiring a contractor or a contractor working with a client, Eonebill's free construction contract template covers scope of work, payment schedules, change order procedures, liability, and dispute resolution so every party knows exactly where they stand.

Download the Free Construction Contract Template Now and protect your project before the first nail is driven.