A Simple Guide to Understanding Your Construction Contract

What to Know Before Signing on the Dotted Line

Many people assume the most important step in a commercial construction project is hiring the right contractor or finally breaking ground. In reality, one of the most important milestones happens long before construction begins: reviewing and understanding your construction contract. At Jaco, a nationally trusted commercial construction company, we believe every client should feel confident in understanding their contract, so we’ve put together a simple guide to help you know exactly what to look for before signing on the dotted line.

What Is a Construction Contract?

A construction contract is basically what it sounds like. It’s the written agreement between you, the business owner, and your general contractor. This agreement outlines the specifics of your project, defines the responsibilities of both parties, explains what you can expect throughout the process, and serves as the roadmap for the work ahead. At its core, a construction contract exists to make sure everyone is on the same page. It helps prevent misunderstandings, sets clear expectations, and gives both you and your contractor something to reference throughout the project.

What Your Contract Should Include

So, you’ve chosen your contractor. The contract is sitting in front of you. What exactly should you be looking for? When reviewing your construction contract, a few things should immediately stand out: the scope of the project, the projected timeline, the cost and payment schedule, the materials to be used, and any warranties or guarantees.

A trustworthy general contracting company should also clearly explain how change orders will be handled. Even with the most organized project, there’s almost always something that needs to be adjusted once construction begins. Outlining that process before work ever starts helps prevent surprises and creates the kind of transparency that builds trust throughout the project.

Don’t Skip the Fine Print

We get it. Reading a long contract can feel excruciating. But there’s a reason people have always said to read the fine print. There’s really no substitute for sitting down and reading your entire construction contract, including footnotes, appendices, exhibits, and attachments. It can be tempting to skim over words or phrases you don’t understand, especially when they’re industry-specific. Instead, take the time to ask questions or request clarification. Those details could have a bigger impact on your project than you realize.

Remember, the contract isn’t only there to protect your contractor—it’s there to protect you, too. Make sure every agreement is documented in writing. Unfortunately, handshake promises are a thing of the past. While verbal agreements may be enforceable in some circumstances, a written contract generally serves as the primary record of what both parties agreed to.

Discuss the Change Order Process

The important part isn’t whether changes will occur; it’s how your general contractor handles them. Your contract should clearly explain what qualifies as a change order, how changes will be approved, what additional work may cost, and whether those changes could affect the project timeline. Having that process outlined before construction begins eliminates confusion and helps everyone make informed decisions if adjustments become necessary.

Questions to Ask Before You Sign

Lastly, it’s important to understand some of the legal clauses in your contract, such as indemnity, additional insured, arbitration, jurisdiction, and attorney’s fees clauses. Because these provisions often become important if a dispute arises, it’s worth taking the time to understand exactly what they mean before signing. As you’re reviewing your contract, consider asking questions like:

• Are both parties required to arbitrate a dispute rather than file a lawsuit?
• Does the contract require the losing party in a dispute to pay the winning party’s attorney’s fees?
• If you’re being named as an additional insured, what coverage is required? Does the applicable policy endorsement provide the protection described in the contract?

No one begins a construction project expecting problems. But taking the time to understand your contract before work begins can help you avoid confusion, protect your investment, and build a stronger working relationship with your general contracting company from day one.