Reviewing a Construction Contract

What should the scope of work actually say?

The scope of work should describe exactly what is included, what is excluded, and what standard the finished work has to meet, in language specific enough that a disagreement about what was promised is not possible.

Vague scope language is the single most common source of change order disputes. Terms like "per plans" or "industry standard finish" sound precise and are not, because plans change and industry standards vary by trade and region. The fix is specificity: named materials, referenced specification sections, and a clear line between what is included in the base price and what is not.

The scope should also say who is responsible for permits, inspections, and site conditions like utility locates or soil testing. Silence on these items usually means a dispute later about who was supposed to handle them.

How should payment terms be structured?

Payment terms should tie each payment to a defined, verifiable milestone, state the exact documentation required to request payment, and set a firm deadline for when payment is due after a proper request is submitted.

Draw schedules tied to vague milestones, such as "50 percent complete," invite disagreement about whether the milestone was actually reached. Tying draws to specific, inspectable events, such as "foundation poured and inspected" or "rough-in complete," removes the argument.

The contract should also state what happens if a payment is late: whether work can be suspended, whether interest accrues, and how many days of notice are required before either happens. A contract silent on late payment leaves both sides guessing at the worst possible time.

What makes a change order procedure work?

A working change order procedure requires written approval before the changed work begins, states how the added or reduced cost gets priced, and says what happens to the schedule when a change is approved.

The riskiest contracts allow verbal authorization of changes in the field. Everyone intends to paper it later, and then a dispute arises about what was actually agreed to. Requiring written approval before work starts, even a same-day email, protects both sides.

Pricing method matters as much as the approval requirement. Contracts that specify unit pricing or a defined markup on changes avoid the after-the-fact negotiation that happens when pricing is left open-ended.

What should the retainage clause say?

The retainage clause should state the exact percentage withheld, when it reduces or releases, and what triggers early release, so neither side is guessing about cash flow toward the end of the project.

Retainage exists to give the owner leverage to make sure the work gets finished and punch list items get closed out. It also ties up a contractor's cash on a job that is otherwise complete, which is why the release terms deserve as much attention as the percentage itself.

What insurance and indemnification terms should you look for?

The contract should require specific coverage types and limits, name the other party as an additional insured where appropriate, and define indemnification in terms that match the actual risk each party controls.

Indemnification clauses are often the most one-sided part of a construction contract, requiring one party to cover losses regardless of fault. Reading this clause against the insurance requirements, not in isolation, is how you find out whether the risk being assigned is actually insurable.

Why have an attorney review the contract before signing?

Because the contract is reviewed once, before signature, when every term is still movable, and after signing the document controls regardless of what either side later says was intended.

A contract review is measured in days. A project built on an unclear scope, a vague change order clause, or an undefined retainage release is measured in months of avoidable friction. The review is the cheapest insurance on the job.