Construction Contracts: Essential Terms to Protect Your Interests
When it comes to construction projects, the contract is more than paperwork—it’s foundational to protecting your investment. From large-scale real estate developments to small home improvement projects, construction contracts establish expectations and obligations, allocate risk, and provide safeguards against costly disputes. Whether you’re a contractor, developer, architect, or property owner, understanding the key terms within your construction contract can make the difference between a smooth build and a legal headache.
Why Construction Contract Terms Matter
Every construction project involves significant investments of time, money, and manpower. Without clear contract terms, even minor misunderstandings can lead to disputes, which may cause construction delays and result in unexpected project costs.
Well-drafted construction contracts:
Provide clarity on each party’s obligations and expectations, including schedules and deadlines, payment terms, and insurance requirements.
Prevent costly disputes and project delays by outlining how to address changes in the project, providing dispute resolution mechanisms, and allocating risk.
Offer tailored protections based on the unique needs of the project, including specific time and cost considerations, customized scope of work provisions, and warranties and representations.
Working with an experienced Construction Law attorney ensures that your contract terms reflect your specific goals and minimize risks from the outset.
Core Contract Provisions to Prioritize
When negotiating or reviewing a construction contract, special attention should be paid to these essential contract provisions:
Scope of Work & Deliverables – Each party’s scope of work and associated deliverables should be clearly and precisely defined, including but not limited to tasks, specifications, drawings, and materials.
Payment Terms & Schedule – Every construction contract should contain specific payment terms, which are usually tied to deliverables and/or the project schedule. These payment provisions should outline the timing of payments, any retainage, project milestones, and conditions for payment or withholding. These provisions are particularly important in projects with both prime contracts and subcontracts, in which subcontractor payments are often tied to the underlying prime contract between the general contractor and project developer.
Change Orders & Variations – Changes commonly occur throughout the performance of a construction project, even in small-scale projects. A well-drafted construction contract will set clear approval processes, pricing adjustments, and documentation requirements for changes.
Delays & Extensions of Time – Delays can occur in even the best planned construction projects. Your construction contract can minimize the impact of project delays by outlining notice requirements, providing a mechanism for adjusting the project cost and schedule, and authorizing payment of certain liquidated damages for missed deadlines.
Termination Rights – In the event a dispute arises that cannot be resolved, a construction contract should clearly outline how parties may terminate the contract and the rights that they have with respect to such termination, including notice requirements and deadlines, final payment terms, and other remedies.
Risk Management & Indemnity – Every construction contract should allocate the parties’ responsibility for insurance, indemnification, liability caps, and compliance with building codes. KLH Advisors recommends working closely with your attorney to review risk management and indemnity provisions in your construction contracts to provide a clear understanding of risk and loss for each project.
Warranties & Defects Liability – Even for small construction projects, it is important to identify any warranties provided for the work and/or materials, as well as other quality assurances and defect remediation processes. Outlining these provisions at the start of a project helps prevent disputes if quality issues or other liability concerns arise later on.
These essential provisions not only protect financial interests in construction projects but also help keep projects moving forward smoothly - even if disputes arise.
Practical Tips to Strengthen Your Construction Contracts
Even with the right provisions, the administration of a construction contract can make or break a project and any resulting disputes. Consider these best practices:
Always use written contracts—even for small projects. While handshake deals are still common in Montana and surrounding states, a written contract will help ensure that all key terms are legally enforceable and prevent disputes over a party’s obligations or responsibilities.
Customize construction contracts for each project. While many contracts have general boilerplate terms, these terms may not always be in your best interest. It is important to review and understand all provisions in your construction contracts, even standard provisions.
Reference specific drawings, exhibits, and schedules in the scope of work. An effective construction contract will include the agreement itself together with specific exhibits, schedules, and other materials that specifically relate to and refine the project.
Create clear notice and approval workflows for delays and change orders. Changes can happen frequently in construction projects. A well-drafted construction contract will contain provisions that clearly outline how the parties will handle changes in the work to prevent disputes over such changes.
Keep thorough documentation of changes, adjustments, and accepted modifications. A well-drafted construction contract still requires thorough documentation and record keeping to ensure that the parties are fulfilling their obligations thereunder.
Consult with an experienced attorney—KLH Advisors provides construction contract drafting and review tailored to your needs. We work with you to understand your project, the parties involved, and associated objectives to craft effective construction contracts that protect your investment and further your development goals.
How KLH Advisors Can Help
At KLH Advisors, we understand that construction contracts are not one-size-fits-all. We work closely with general contractors, developers, property owners, architects, engineers, and suppliers to draft, negotiate, and review contracts that safeguard their interests.
Our attorneys bring deep knowledge of Construction Law, Real Estate Law services, and Business Law support, ensuring that contracts are both legally sound and strategically aligned with your goals.
Serving Montana, Colorado, and beyond, KLH Advisors provides personalized legal support designed to protect your time, money, and resources.
If you’re preparing for a construction project, don’t leave your contract to chance. Schedule a consultation with KLH Advisors today to safeguard your investment and move forward with confidence.
