Construction Contracts for Small Contractors: Essential Elements

Essential construction contract elements include: detailed scope of work (what's included AND excluded), total price and payment terms, project timeline, change order process, warranty terms, and termination clause. A written contract protects both parties—verbal agreements lose disputes. Even small jobs need contracts.

Why Contracts Matter

Without a Written Contract

With a Written Contract

• Clear expectations for both parties
• Reference document for disputes
• Legal protection
• Professional image
• Easier collections if needed

Essential Contract Elements

1. Parties and Project Information

Include:

• Your business name and contact
• Client name and contact
• Property address
• Contract date
• Project name/description

2. Scope of Work

The most important section. Be specific about:

What's INCLUDED:

• Specific tasks to be performed
• Materials to be used (type, quality)
• Square footage or quantities
• Locations/rooms
• Completion criteria

What's EXCLUDED:

• Related work not part of this contract
• Client responsibilities
• Items commonly assumed but not included

Example:

Included: Install 120 sq ft of engineered hardwood flooring in living room, including removal of existing carpet, subfloor prep, underlayment, and quarter-round trim.

Excluded: Furniture moving (client responsibility), shoe molding painting, HVAC register replacement, subfloor repair beyond minor leveling.

3. Contract Price

Fixed price contracts:

• Total price clearly stated
• What's included in that price
• How price changes are handled

Time and materials:

• Hourly rate(s)
• Material markup percentage
• Estimated range or not-to-exceed
• How time is tracked and reported

4. Payment Terms

Include:

• Deposit amount and when due
• Progress payment schedule (if applicable)
• Final payment terms
• Accepted payment methods
• Late payment penalties

Example schedule:

• 30% deposit upon signing
• 30% at rough completion
• 35% at substantial completion
• 5% upon final walkthrough

5. Timeline

Include:

• Estimated start date
• Estimated completion date
• What affects timeline (weather, permits, client decisions)
• How delays are communicated

Reasonable language:

"Work is estimated to be completed within [X] working days of start date, weather permitting. Delays caused by client decisions, permit issues, or unforeseen conditions may extend timeline."

6. Change Order Process

Critical for scope protection:

• How changes are requested
• How they're priced
• Written approval required
• Impact on timeline and price

Example:

"Any changes to scope must be documented in writing, with agreed price and timeline impact, signed by both parties before work begins. Verbal requests will not be honored."

7. Permits and Inspections

Clarify:

• Who obtains permits
• Who pays for permits
• Inspection scheduling
• Responsibility for failures

8. Warranty

Define:

• What you warrant
• Duration (1 year is common)
• What's excluded
• How claims are handled

Example:

"Contractor warrants workmanship for one (1) year from completion date. This warranty covers defects in workmanship only, not material defects, client-caused damage, or normal wear and tear."

9. Insurance and Liability

State:

• Your insurance coverage
• Required certificates
• Liability limitations
• Client's insurance responsibilities

10. Termination Clause

Address:

• How either party can terminate
• Notice requirements
• Payment for work completed
• Return of materials

11. Dispute Resolution

Options:

• Mediation first
• Arbitration
• Which state's laws apply
• Where disputes are heard

Contract Types

Fixed Price (Lump Sum)

Best for:

• Well-defined scope
• Known conditions
• Competitive bidding

Pros:

• Client knows total cost
• Simple to manage
• Incentive for efficiency

Cons:

• Risk if scope changes
• Must estimate accurately
• Unforeseen conditions are your problem

Time and Materials (T&M)

Best for:

• Undefined scope
• Repair work
• Discovery/investigation

Pros:

• Flexibility
• Fair for unknowns
• Paid for actual work

Cons:

• Client uncertainty on final cost
• More tracking required
• Disputes over hours possible

T&M with Cap (Not-to-Exceed)

Best for:

• Some unknowns but client wants budget certainty

Pros:

• Flexibility within limit
• Budget protection for client
• Fair for both parties

Cons:

• Must manage to cap
• May need to stop if cap hit

Cost-Plus

Best for:

• Large projects
• High-trust relationships
• Complex scope

Pros:

• Paid for all costs plus profit
• Transparent pricing
• Good for changes

Cons:

• Less cost certainty for client
• Detailed documentation required
• Less incentive for efficiency

Contract Templates

Where to Get Templates

AIA Documents

The industry standard:

• A105: Standard Short Form Agreement
• A107: Abbreviated Agreement (small projects)
• A201: General Conditions

Pros: Widely recognized, tested in court Cons: Complex, may be overkill for small jobs

Creating Your Own

If creating custom contracts:

• Have attorney review
• Cover all essential elements
• Use clear language
• Update regularly
• Include your specific needs

Contract Tips

Do's

• ✅ Use contracts on every job
• ✅ Be specific about scope
• ✅ List exclusions explicitly
• ✅ Get signatures before starting
• ✅ Keep copies of everything
• ✅ Read what you sign
• ✅ Explain contract to client

Don'ts

• ❌ Start work without signed contract
• ❌ Use vague scope descriptions
• ❌ Assume client understands
• ❌ Skip contract for "small" jobs
• ❌ Ignore change order process
• ❌ Copy contracts without understanding

Handling Contract Issues

Client Won't Sign

Options:

• Explain why contract protects them
• Simplify language if too complex
• Offer to answer questions
• Walk away if they refuse (red flag)

Scope Creep

Response:

1. Recognize when scope is changing
2. Stop and discuss
3. Prepare change order
4. Get written approval
5. Then do the work

Client Claims Work Not Per Contract

Response:

1. Review contract together
2. Point to specific language
3. Document your position
4. Offer to address legitimate issues
5. Stand firm on what contract says

FAQ

Do small contractors need contracts?

Yes. Even handymen should use simple contracts. Without one, you have no protection in disputes. The job size doesn't change the need for clear agreements.

What makes a contract legally binding?

Offer, acceptance, consideration (exchange of value), capacity (both parties can legally agree), and legality (legal subject matter). For extra protection: signatures, dates, and clear terms.

Can you enforce a verbal contract?

Sometimes, but it's difficult. Without written terms, it's your word against theirs. Courts prefer written agreements. Always get it in writing.

Should I have an attorney review my contracts?

Yes, at least once to create your template. Attorney review costs $200-500 typically but prevents much larger problems. Then use that template consistently.

What if the client wants to change terms?

You can negotiate, but don't agree to unfavorable terms to win a job. Red-line changes, discuss, and document final agreement. Both parties should be comfortable.

How long should I keep contracts?

At least as long as warranty period (1-2 years), plus statute of limitations for contract disputes (typically 4-6 years). Many contractors keep them indefinitely.

The Bottom Line

Every construction contract needs:

1. Scope — Detailed inclusions AND exclusions
2. Price — Clear total or rate structure
3. Payment — Terms and schedule
4. Timeline — Start, end, contingencies
5. Changes — Written approval required
6. Warranty — What you stand behind

A good contract prevents problems. A great contract makes problems easy to resolve. Use one on every job.

Related: Getting Paid as a Contractor | How to Bill for Change Orders