Construction Contract Clauses: 10 Critical Provisions for Every Project
Construction disputes are the most expensive contract disputes. These 10 clauses prevent the problems that cost project owners and contractors the most money.
Why construction contracts are uniquely risky
Construction projects involve more parties, more variables, and more money at risk than almost any other contract type. A single missing clause — like a change order process — can lead to disputes that cost more than the project itself.
The average construction dispute takes 14 months to resolve and costs $50,000–$500,000 in legal fees alone. Prevention through proper contract drafting is dramatically cheaper than resolution.
Scope, specs, and change orders
1. Scope of Work: reference specific plans, drawings, and specifications by exhibit number. Include an explicit list of exclusions.
2. Change Order Process: no changes without a written change order signed by both parties specifying the change, cost impact, and schedule impact. Contractor proceeds at their own risk without a signed change order.
3. Schedule and Milestones: attach a project schedule with specific dates. Make time of the essence.
Watch out: Change orders are the #1 source of construction disputes. Without a written, signed change order process, scope creep will destroy your budget.
Payment and financial protections
4. Progress Payments: monthly applications based on schedule of values with inspection before payment.
5. Retainage: withhold 10% of each payment until substantial completion. Release 50% at substantial completion, balance at final completion.
6. Lien Waivers: conditional waiver with each payment application; unconditional final waiver at project completion. Get waivers from subcontractors too.
Quality and completion
7. Warranty: 12–24 months on workmanship and materials from substantial completion.
8. Liquidated Damages: pre-agreed daily amount for late completion. Must be a reasonable estimate of actual damages to be enforceable.
9. Performance Bond: 100% of contract value from an A-rated surety.
10. Safety and OSHA Compliance: contractor is solely responsible for site safety with immediate stop-work authority for unsafe conditions.
Key takeaway
Retainage + lien waivers + performance bonds = your financial protection stack in construction. Never skip any of these.
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