A construction contract defines scope by reference to plans and specifications, a price structure (fixed price, cost-plus with a fee of 10–20%, or time-and-materials with a cap), a milestone payment schedule with retainage (5–10% held to completion), a written change-order requirement, lien-waiver exchanges at each payment, and delay/weather terms. State law adds teeth: contractor licensing, deposit caps (California: 10% or $1,000, whichever is less), required notices, and right-to-cure statutes that govern defect claims.
Free Construction Contract Template
Reviewed by the Agiled editorial teamUpdated June 2026
Construction disputes are payment disputes, scope disputes, and delay disputes — and a good construction contract is engineered around all three. It ties money...
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Full template text
Below is a complete, ready-to-use construction contract. Customize the bracketed fields to match your project details.
CONSTRUCTION CONTRACT AGREEMENT
This Construction Contract Agreement ("Agreement") is entered into as of [Date], by and between:
Owner: [Owner Full Legal Name], with a mailing address of [Owner Address] ("Owner")
Contractor: [Contractor Full Legal Name / Business Name], with a principal place of business at [Contractor Address] ("Contractor")
The Owner and Contractor are collectively referred to as the "Parties."
1. Project Description
The Contractor agrees to perform construction work at the following property:
Property Address: [Full Property Address]
General Description of Work: [Brief narrative description of the project, e.g., "Construction of a single-family residential dwelling per the attached architectural plans and specifications dated [Date], prepared by [Architect/Designer Name]."]
2. Scope of Work
The Contractor shall furnish all labor, materials, equipment, and services necessary to complete the work described in Exhibit A (Scope of Work) attached hereto and incorporated by reference. Any work not expressly included in Exhibit A is excluded from this Agreement unless added through a written change order executed by both Parties. The Contractor shall perform all work in a professional and workmanlike manner and in compliance with all applicable building codes, laws, and regulations.
3. Materials and Labor
All materials and equipment incorporated into the project shall be new and of the quality specified in the project plans and specifications. Where specific brands or models are identified, the Contractor shall not substitute alternatives without the Owner's prior written approval. The Contractor may engage licensed subcontractors to perform portions of the work, provided the Contractor remains fully responsible for the quality, timeliness, and compliance of all subcontracted work.
4. Project Timeline
Work shall commence on or before [Start Date] and shall be substantially completed on or before [Substantial Completion Date]. Final completion, including all punch-list items, shall occur no later than [Final Completion Date]. The Contractor shall promptly notify the Owner of any conditions that may delay the schedule. Time extensions shall be granted for delays caused by the Owner, unusually severe weather, labor disputes, material shortages beyond the Contractor's control, or other force majeure events, provided the Contractor documents the delay in writing within [number] business days of its occurrence.
5. Contract Price
The Owner agrees to pay the Contractor a total contract price of $[Amount] for the complete performance of the work described in this Agreement. This price is a [lump-sum / cost-plus / time-and-materials] amount and includes all labor, materials, equipment, overhead, and profit unless otherwise specified herein.
6. Payment Schedule
Payments shall be made according to the following schedule:
- [Percentage or dollar amount] upon execution of this Agreement
- [Percentage or dollar amount] upon completion of [Milestone, e.g., foundation]
- [Percentage or dollar amount] upon completion of [Milestone, e.g., framing and rough-in]
- [Percentage or dollar amount] upon completion of [Milestone, e.g., drywall and interior finishes]
- [Percentage or dollar amount] upon substantial completion and Owner walkthrough
- [Percentage or dollar amount] (final payment / retainage release) upon final completion and delivery of all lien waivers
Invoices shall be submitted by the Contractor and paid by the Owner within [number] calendar days of receipt. Late payments shall accrue interest at the rate of [percentage]% per month.
7. Change Orders
Any modification to the scope, schedule, or price of this Agreement must be documented in a written change order signed by both Parties before the additional work begins. Each change order shall describe the proposed change, the cost adjustment (if any), and the impact on the project timeline. The Contractor shall not proceed with changed work until the Owner has approved and signed the change order. Verbal change requests are not binding.
8. Permits and Licenses
The Contractor shall obtain and pay for all building permits, licenses, and government approvals required for the lawful performance of the work, unless otherwise agreed in writing. The Contractor shall schedule and coordinate all required inspections with the local building authority. The Contractor warrants that it holds all licenses and registrations required by the jurisdiction in which the project is located.
9. Insurance
The Contractor shall maintain, at its own expense, the following insurance coverages throughout the duration of the project:
- Commercial General Liability Insurance with minimum limits of $[Amount] per occurrence and $[Amount] aggregate
- Workers' Compensation Insurance as required by applicable state law
- Automobile Liability Insurance with minimum limits of $[Amount] per occurrence
The Contractor shall provide the Owner with certificates of insurance prior to commencing work and shall name the Owner as an additional insured on the general liability policy. The Contractor's insurance shall be primary and non-contributory.
10. Warranties
The Contractor warrants that all work performed under this Agreement shall be free from defects in materials and workmanship for a period of [number] year(s) from the date of substantial completion. During the warranty period, the Contractor shall, at its own expense, repair or replace any defective work upon written notice from the Owner. This warranty does not cover damage caused by the Owner's misuse, neglect, or failure to perform normal maintenance. Manufacturer warranties on installed products and equipment shall be assigned or passed through to the Owner where permitted.
11. Dispute Resolution
In the event of any dispute arising out of or relating to this Agreement, the Parties agree to first attempt resolution through good-faith negotiation. If negotiation is unsuccessful within [number] days, the Parties shall submit the dispute to mediation administered by [Mediation Organization or "a mutually agreed mediator"] before pursuing any other remedy. If mediation fails to resolve the dispute, the Parties agree to resolve the matter through [binding arbitration under the rules of (Arbitration Organization) / litigation in the courts of (Jurisdiction)]. The prevailing party in any arbitration or litigation shall be entitled to recover reasonable attorneys' fees and costs.
12. Termination
Either Party may terminate this Agreement for cause if the other Party materially breaches any provision and fails to cure the breach within [number] days of receiving written notice. The Owner may terminate this Agreement for convenience at any time by providing [number] days' written notice to the Contractor. In the event of termination for convenience, the Owner shall pay the Contractor for all work satisfactorily completed through the date of termination, plus reasonable demobilization costs. Upon termination, the Contractor shall promptly vacate the site and deliver all completed work, materials stored on site, and project documentation to the Owner.
13. Governing Law
This Agreement shall be governed by and construed in accordance with the laws of the State of [State], without regard to its conflict-of-laws principles.
14. Entire Agreement
This Agreement, together with all exhibits, attachments, and change orders, constitutes the entire agreement between the Parties concerning the subject matter hereof and supersedes all prior negotiations, representations, and agreements, whether written or oral. No amendment to this Agreement shall be effective unless made in writing and signed by both Parties.
SIGNATURES
Owner:
Signature: ____________________________
Printed Name: ____________________________
Date: ____________________________
Contractor:
Signature: ____________________________
Printed Name: ____________________________
Title: ____________________________
Date: ____________________________
- Payment structure
- Milestones + 5–10% retainage
- Cost-plus fee
- 10% – 20% over costs
- Deposit caps
- State law (CA: 10% or $1,000)
- Changes
- Written, priced, signed — before work
What your construction contract should cover
Scope by plans and specifications
The contract incorporates the drawings, the spec list, and the allowances by date and version. 'Per plans dated 3/14, rev B' is enforceable; 'remodel kitchen as discussed' is a dispute with a start date.
Price structure, chosen deliberately
Fixed price (contractor owns the risk, prices it in), cost-plus (actual costs + 10–20% fee, with open books and a not-to-exceed cap), or T&M with caps for genuinely unknowable scopes. Each allocates surprise differently — the choice is the deal.
Allowances, stated honestly
Dollar allowances for unselected items (fixtures, tile, appliances) at realistic numbers — lowballed allowances make the bid look good and the project over budget. Overages/underages settle at cost with documentation.
Milestone payment schedule with retainage
Payments tied to completed stages (foundation, framing, rough-in, drywall, finishes), each conditioned on the work actually existing, with 5–10% retainage held to final completion. The schedule should track value in place — front-loaded schedules finance the contractor's other jobs.
Change orders in writing, every time
Scope, price, and schedule impact signed before the work happens — including owner-requested changes and concealed-condition discoveries. The no-oral-changes clause is the single most valuable sentence in the document.
Concealed conditions and unit prices
Rot, asbestos, knob-and-tube, undersized panels — priced when found via change order, with pre-agreed unit prices for the predictable surprises. The clause that keeps demo day from becoming a renegotiation.
Lien waivers exchanged with payment
Conditional waivers with each progress payment, unconditional on clearance, from the GC and subs/suppliers. Mechanics-lien law lets unpaid subs lien the property even when the owner paid the GC — waivers are the owner's only proof chain.
Schedule, delay, and weather
Start and substantial-completion dates, excusable delays (weather, owner changes, concealed conditions) extending time without damages, and — where the owner needs teeth — liquidated damages per day after a grace period, set at a defensible pre-estimate.
Insurance, licensing, and permits
Contractor licensed (number stated — unlicensed contractors can't enforce payment in many states and trigger disgorgement in California), GL insurance at $1M+, workers' comp for crews, builder's risk assigned, and permits pulled by the contractor in the contractor's name.
Warranty and punch list
Workmanship warranty (1–2 years standard; some states mandate longer structural warranties), manufacturer warranties passed through, and the substantial-completion walkthrough generating a written punch list tied to the final payment plus retainage release.
Termination and right-to-cure
Either party's exit terms, payment for work in place on termination, and the state right-to-cure regime — many states require owners to give written notice and a cure opportunity before suing over defects. The clause should mirror the statute.
Typical residential construction terms (U.S., 2026)
| Term | Typical range / rule | Notes |
|---|---|---|
| Deposit | 10% – 33% | CA caps at 10%/$1,000; check state |
| Retainage | 5% – 10% | Released at final completion |
| Cost-plus fee | 10% – 20% | GC overhead and profit |
| Workmanship warranty | 1 – 2 years | Structural longer by statute |
| Liquidated damages | $100 – $500/day | After grace; must be reasonable |
| GL insurance | $1M per occurrence | Plus workers' comp |
| Right-to-cure notice | 30 – 90 days | State defect statutes |
Construction contracting is heavily state-regulated: licensing, deposit caps, mandatory contract disclosures, lien procedures, and defect-claim regimes all vary. Larger projects warrant AIA or state-bar form documents and counsel review.
How construction contracts work in practice
The kitchen-bath remodel
The classic mid-size job: fixed price against plans and a spec list, realistic allowances for tile and fixtures, a five-milestone payment schedule with 10% retainage, and a change-order pad in the truck. The dispute this structure prevents is the one every remodel flirts with — 'while you're in there' scope drift settled verbally and invoiced surprisingly. With the no-oral-changes clause and same-day written change orders (a text-message confirmation referencing the change-order number works), the project's price history is a paper trail instead of a memory contest.
The addition with concealed-condition risk
Opening walls and tying into old structure makes surprises a certainty, not a risk. The contract handles it honestly: the fixed price assumes stated baseline conditions; concealed conditions (rot, undersized framing, dead knob-and-tube, the footing that isn't there) trigger documented change orders, with unit prices pre-agreed for the predictable categories. The alternative — a fat contingency silently baked into a fixed price — has the owner paying for surprises that never materialize. The middle path: a visible contingency allowance, spent only on documented discoveries, returned if unused.
Payment, liens, and the money choreography
Each milestone runs the same sequence: contractor invoices against completed work, owner (or lender's inspector) verifies the stage exists, payment issues against a conditional lien waiver, and the waiver converts to unconditional when funds clear — with sub and supplier waivers collected for their portions. Retainage accumulates to final completion, then releases after the punch list closes. This choreography exists because mechanics-lien statutes make the property itself collateral for everyone on the job — the owner who pays the GC but can't prove the subs got paid can pay twice.
Mistakes that weaken a construction contract
A front-loaded payment schedule
When 60% is paid at 30% complete, the owner is financing someone else's project and holding no leverage. Match payments to value in place and hold retainage — the schedule is the security.
Verbal change orders
'Just add it to the bill' is how a $90k remodel invoices at $130k with nothing to argue from. No-oral-changes plus a same-day written CO discipline protects both parties' version of events.
Lowballed allowances
A $3,000 appliance allowance in a bid for a kitchen that obviously needs $9,000 of appliances isn't a price — it's a deferred change order. Realistic allowances make bids comparable and budgets honest.
Skipping lien waivers
Paying the GC without collecting waivers leaves the owner exposed to liens from unpaid subs and suppliers — double payment with a lien on the title as the enforcement mechanism. Waivers with every check, no exceptions.
Hiring around the license
Unlicensed contracting voids payment rights in many states and triggers full disgorgement in California — and the owner's insurance may not cover unlicensed work at all. Verify the license number against the state board before signing.
How to use this template
- 01
Download the construction contract template in Word or PDF.
- 02
Incorporate the plans, specs, and allowances by date and version.
- 03
Choose the price structure (fixed, cost-plus with cap, or T&M) and build the milestone schedule with retainage.
- 04
Set the written change-order requirement and unit prices for likely concealed conditions.
- 05
Add lien-waiver exchange terms, insurance and license verification, and the delay/liquidated-damages clause.
- 06
Check deposit caps and required disclosures for your state, then sign with the license number on the document.
Skip this template if…
- Commercial projects and public work — AIA/ConsensusDocs families, bonding, and prevailing-wage rules govern there.
- Design services — architect and engineer agreements carry professional-liability terms a construction contract doesn't.
FAQs
What should a construction contract include?
Scope incorporated by plans and specs, the price structure, realistic allowances, a milestone payment schedule with retainage, a written change-order requirement, lien-waiver exchange, insurance and licensing terms, schedule and delay provisions, warranty terms, and termination rights — with state-mandated disclosures where they apply.
How much deposit should I pay a contractor?
As little as the project genuinely requires — 10–33% is common, but several states cap it: California limits home-improvement deposits to the lesser of 10% or $1,000. Beyond the deposit, pay against completed milestones with 5–10% retainage held to the end, never ahead of work in place.
What is retainage in construction?
A percentage of each payment — typically 5–10% — withheld until final completion and punch-list closure. It keeps the last (and least glamorous) portion of the work funded and motivated, and it's the owner's primary leverage after the trades have moved to the next job.
What is a change order and why does it matter?
A signed written amendment covering any scope change — owner requests, concealed conditions, substitutions — with its price and schedule impact, executed before the work happens. Projects without change-order discipline end in invoice archaeology; projects with it have a priced paper trail.
What are lien waivers and do I need them?
Documents in which contractors, subs, and suppliers waive mechanics-lien rights for amounts paid. Because lien statutes let unpaid subs lien the property even when the owner already paid the GC, collecting conditional waivers with each payment (unconditional once funds clear) is the only protection against paying twice.
Fixed price or cost-plus — which is better?
Fixed price buys certainty: the contractor prices the risk and owns overruns. Cost-plus (costs + 10–20% fee) buys transparency and suits scopes that can't be fully defined — paired with open books and a not-to-exceed cap. The wrong answer is cost-plus with no cap and no audit rights.
Pair it with the construction invoice template
The contract sets the terms — the invoice collects on them. Free download with the right line items pre-filled.
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