In the construction industry, verbal agreements and handshake deals aren’t enough to protect your business. Every project—whether large or small—comes with risks, expectations, and financial stakes that must be clearly outlined in a legally binding agreement. Without a solid construction contract, contractors expose themselves to payment disputes, liability claims, project delays, and legal battles that could put their business at risk.
In this guide, we’ll explore why every contractor should have a strong contract before starting a project, what key clauses to include, and how a construction attorney can help safeguard your interests.
The Risks of Starting a Project Without a Contract
Starting a construction project without a contract is like building without a foundation—sooner or later, things will fall apart. Here are some of the biggest risks contractors face when they skip a written agreement:
1. Payment Disputes & Unpaid Work
Without a written contract, owners may refuse to pay, delay payments, or dispute the agreed-upon price and scope of work. A contract sets clear payment terms and protects contractors from unjustified nonpayment.
How a Contract Helps:
✔️ Defines payment schedules (down payments, progress payments, and final payment).
✔️ Outlines penalties for late payments and interest on overdue invoices.
✔️ Provides legal grounds for filing a mechanic’s lien if payment is withheld.
2. Undefined Scope of Work
Owners and contractors may have different expectations about what is included in a project. Without a clear scope of work, contractors may be forced to do extra unpaid work or face disputes over unfinished tasks.
How a Contract Helps:
✔️ Clearly defines project details (materials, labor, and specific work to be completed).
✔️ Prevents owners from demanding extra work outside the original agreement.
✔️ Includes a change order process for additional work requests.
3. Unexpected Project Delays & Disruptions
Delays happen due to weather, material shortages, permitting issues, or client-related changes. Without a contract, contractors may be blamed for delays outside their control or forced to absorb additional costs.
How a Contract Helps:
✔️ Defines acceptable reasons for delays and extensions.
✔️ Outlines penalties for client-caused delays (e.g., late design approvals, unpaid invoices).
✔️ Sets clear project timelines to keep all parties accountable.
4. Legal Liability & Insurance Gaps
If accidents, property damage, or construction defects occur, the contractor may be held financially responsible without a proper contract in place.
How a Contract Helps:
✔️ Clearly defines liability and limits contractor responsibility for certain risks.
✔️ Requires proof of insurance coverage from all parties involved.
✔️ Establishes dispute resolution methods to avoid costly lawsuits.
5. Termination Disputes & Project Abandonment
If a client suddenly cancels a project or hires another contractor, the original contractor may be left with unpaid work and wasted resources.
How a Contract Helps:
✔️ Outlines valid termination reasons and notice periods.
✔️ Defines contractor rights to compensation for work already completed.
✔️ Protects against wrongful termination claims.
Key Elements of a Strong Construction Contract
A well-drafted construction contract should cover all aspects of the project to prevent misunderstandings and protect your rights. Here are the essential clauses every contractor should include:
1. Project Scope & Work Description
✔️ Clearly outlines what work will be done, materials used, and project specifications.
✔️ Prevents scope creep (clients demanding extra work without paying more).
2. Payment Terms & Schedule
✔️ Specifies payment milestones, due dates, and late penalties.
✔️ Includes mechanic’s lien provisions for unpaid work.
3. Timeline & Deadlines
✔️ Sets clear project start and completion dates.
✔️ Defines allowable delay reasons and extension request procedures.
4. Change Order Process
✔️ Establishes a formal process for adding work, cost adjustments, and approvals.
✔️ Prevents verbal change order disputes that lead to unpaid labor.
5. Insurance & Liability Provisions
✔️ Requires proof of insurance (general liability, worker’s comp, etc.).
✔️ Limits contractor liability for uncontrollable events (e.g., natural disasters).
6. Termination & Breach of Contract
✔️ Defines valid reasons for contract termination (by either party).
✔️ Protects contractor from wrongful termination claims and ensures fair compensation.
7. Dispute Resolution & Legal Protections
✔️ Includes mediation or arbitration clauses to resolve conflicts without litigation.
✔️ Ensures legal jurisdiction is in the contractor’s favor to prevent legal battles in distant courts.
Why You Need a Construction Attorney to Draft & Review Your Contract
Even if you use standard contract templates, every project has unique risks and requirements that should be addressed in writing. A construction attorney ensures your contract:
✔️ Complies with state and local laws in your area.
✔️ Properly protects your payment rights and ability to file liens.
✔️ Limits liability exposure in case of delays, defects, or accidents.
✔️ Includes enforceable clauses to prevent legal loopholes.
💡 Pro Tip: Don’t sign a contract provided by the property owner or general contractor without having your attorney review it first—many contracts are written to favor the other party!
What to Do If You Started a Project Without a Contract
If you’ve already started a project without a contract, here’s what you can do:
✔️ Stop Work Immediately – Before investing more time or materials, request a formal agreement.
✔️ Document Everything – Keep records of communications, work completed, and materials used.
✔️ Send a Written Agreement Now – Even a late contract is better than none—have an attorney draft a retroactive agreement.
✔️ Consult a Construction Lawyer – If disputes arise, legal guidance can help recover unpaid amounts.
Final Thoughts: Protect Your Business with a Strong Construction Contract
A well-written contract is your #1 legal safeguard against payment disputes, liability issues, and project delays. Never start a project without one—no matter how much trust exists between parties.
💼 Are you a contractor needing a solid construction contract?
At SJJ Law, we help contractors draft, review, and enforce legally sound contracts that protect their businesses and profits.