Key Clauses Every Construction Contract Should Include

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A well-drafted construction contract is essential for protecting both contractors and clients, ensuring clear expectations, and minimizing disputes. Whether you are overseeing a residential, commercial, or government project, including key clauses in your contract can safeguard financial interests, define responsibilities, and establish legal protections.

At Plumtree & Brunner, LLP, our California construction attorneys help you draft enforceable and effective contracts. Your deal is only as good as the contract that puts it in writing. 

Essential Clauses for a Construction Contract

1. Scope of Work

The scope of work clause defines the exact nature of the project, including materials, labor, and specifications. It should outline:

  • The tasks the contractor is responsible for
  • The quality standards expected
  • Any exclusions to prevent misunderstandings

A detailed scope ensures both parties have a clear understanding of the work required.

2. Payment Terms

Clearly defined payment terms prevent financial disputes. This clause should specify:

  • Total contract price and breakdown of costs
  • Payment schedule (e.g., upfront deposit, milestone payments, final payment)
  • Late payment penalties and interest charges
  • Retainage (a percentage withheld until project completion)

Transparent payment terms protect both parties from unexpected financial issues.

3. Change Orders

Construction projects often require modifications due to unforeseen circumstances. A change order clause should outline:

  • The process for requesting changes
  • How additional costs and timeline adjustments will be handled
  • Approval requirements before implementing changes

This clause ensures that modifications are documented and agreed upon before execution.

4. Insurance Requirements

To mitigate risks, construction contracts should include insurance provisions such as:

  • General liability insurance to cover property damage or injuries
  • Workers’ compensation insurance for employee protection
  • Builder’s risk insurance for damage to the project during construction

Proper insurance coverage protects all parties from unexpected liabilities.

5. Warranties and Guarantees

A warranty clause ensures that the contractor stands behind their work. It should specify:

  • The duration of the warranty (e.g., one year, five years)
  • What defects or issues are covered
  • The process for repairing or replacing faulty work

This clause provides assurance that the project meets quality standards.

6. Dispute Resolution

To avoid costly litigation, contracts should include a dispute resolution clause outlining:

  • Whether disputes will be resolved through mediation, arbitration, or litigation
  • The jurisdiction where disputes will be handled
  • The process for selecting a neutral third party

A structured dispute resolution process helps resolve conflicts efficiently.

7. Time is of the Essence

This clause emphasizes that deadlines must be met and holds parties accountable for delays. It should specify:

  • The expected completion date
  • Penalties for missed deadlines
  • Allowances for unforeseen delays (e.g., weather, supply chain issues)

Ensuring timely completion is crucial for project success.

8. Hidden or Changed Conditions

Construction sites often reveal unexpected conditions, such as structural issues or hazardous materials. This clause should address:

  • How additional costs will be handled
  • The process for modifying the contract due to unforeseen conditions
  • Responsibilities for site inspections before work begins

This provision prevents disputes over unexpected site challenges.

client and lawyer reviewing contract

9. Termination Clause

A termination clause defines the conditions under which either party can end the contract. It should include:

  • Grounds for termination due to breach of contract
  • Notice requirements before termination
  • Financial obligations upon termination

This clause protects both parties from unfair contract cancellations.

10. Indemnification Clause

An indemnification clause ensures that one party compensates the other for damages or legal claims arising from the project. It should specify:

  • Who is responsible for legal fees and damages
  • The scope of liability protection
  • Exceptions where indemnification does not apply

This clause minimizes financial risks associated with legal disputes.

Speak with a California Construction Contract Attorney Today

A well-structured construction contract is essential for ensuring smooth project execution, protecting financial interests, and minimizing disputes. By including key clauses such as scope of work, payment terms, warranties, and dispute resolution, both contractors and clients can establish clear expectations and legal safeguards. 

Our team at Plumtree & Bruner, LLP can help you draft enforceable construction contracts for you and your business. Contact us today for a consultation.