Chapter 4 of Construction Project Management: A Practical 10-Step Guide.
Read This Before You Sign
Every time I start a project, I come back to this chapter. Not because I love contracts (I don’t), but because this is where success or failure begins. Get the construction contract agreement wrong, and everything that follows will be harder.
If this chapter does what it’s supposed to, it should make you paranoid about every clause, every timeline, and every assumption in the contract. That’s a good thing.
What’s the Goal of a Construction Contract?
Most people think a contract is just a formality. Something legal ticks off so you can “get started.” That’s a mistake.
The contract should do exactly three things:
- Define responsibilities and scope clearly
- Transfer and manage risk fairly
- Give you a legal fallback when things go wrong (because they will)
If a contract is doing more or less than this, something’s off.
Pick the Right Contract Type or Prepare to Bleed Margin
Contract types aren’t just legal formats—they shape how risk and profit are distributed. Here’s a breakdown:
Fixed-Price Contracts (Lump Sum) – You take on all the risk. If your estimates are tight and clear, you’re fine. If not, prepare to lose.
Cost-Plus Contracts: The client takes on the risk, but you’ll be scrutinized—every invoice, every material. Transparency is mandatory.
Unit Price Contracts – You win or lose based on quantities. Great for projects where the scope may flex.
Time and Materials – You get paid for what you do. Flexibility is high, but oversight and documentation must be airtight.
What to Watch Out for in Construction Contract Agreements
If I had to review just four clauses in a contract before signing, they would be:
- Contract Sum – Is it right? Sounds obvious, but don’t trust the spreadsheet.
- Deadlines (Interim and Final) – Is the delivery date feasible? Are milestone dates fair?
- Penalties and Delay Damages – This is where the client puts pressure on you. Understand the consequences.
- Guarantees and Warranty Periods – Who’s responsible for what, how long, and with what financial backing?
Beyond that, these areas deserve special attention:
- Scope of work
- Payment terms and invoicing schedules
- Change order protocols
- Retention terms
- Insurance and liability allocations
- Dispute resolution method and jurisdiction
Avoid These Contract Pitfalls (Learned the Hard Way)
- Never rely on verbal agreements. If it’s not written, it didn’t happen.
- Don’t assume clients or subcontractors interpret “reasonable” the same way you do.
- Don’t accept catch-all clauses like “best construction practices” without defining what that means in your region.
- Always set deadlines for document submissions. Especially for material approvals and warranties.
How I Prep for Contract Negotiation
I approach contracts like pre-construction planning. Here’s what I run through:
- Does this contract shift all risk to me?
- Are the drawings and specs clear enough to be priced accurately?
- Is the cash flow fair based on work-in-progress?
- Can I win claims later if the client starts adding scope?
- Is the dispute resolution clause practical (not just legal fluff)?
Why This Chapter Exists
Because I’ve been burned. More than once. And it always came back to a contract I didn’t read closely enough.
This isn’t about turning you into a lawyer. It’s about helping you avoid bleeding money over things you thought “were understood.”
Review this before every project. The hour you spend here will save you weeks (and thousands) later.
Author’s Experience & Domain Knowledge
“After leading construction projects for over 15 years—from small-scale builds to large commercial sites—I’ve come to one conclusion: good contracts don’t just reduce disputes, they boost profitability. This checklist and chapter are based on real experiences. Every lesson here has been paid for—sometimes dearly.”
Explore the Next Chapter: Delegation and Motivation
You’ve mastered construction contract management. Next, dive into Delegation and Motivation to learn How to Lead your team effectively—even when resources are tight.
Go to the Construction Project Management: A Practical 10-Step Guide.