Contracts & Contract Law
The contract defines the deal: what will be built, for how much, by when, and what happens if something goes wrong. This topic covers the elements of a valid contract, common clauses contractors must understand, and how contracts are changed and enforced. These principles come from general contract law and apply broadly across states.
Elements of a Valid Contract
A legally enforceable contract requires five core elements: (1) an offer, (2) acceptance of that offer creating mutual assent, (3) consideration — something of value exchanged by each side, (4) legal capacity of the parties (of legal age and sound mind), and (5) a lawful purpose. If an element is missing — no consideration, or an illegal objective — the agreement may be void or unenforceable. The Statute of Frauds additionally requires certain contracts to be in writing, including contracts for the sale of land or interests in real property and agreements that cannot be completed within one year.
Key Clauses: Scope, Price, Schedule, and Damages
A sound construction contract clearly states the scope of work, the price and payment schedule (including progress payments and retainage), and the time for completion. A liquidated damages clause fixes, in advance, a reasonable dollar amount per day of delay when actual losses would be hard to prove — it must be a genuine estimate of harm, not a punishment, or a court may refuse to enforce it. Warranty clauses define how long and to what standard the work is guaranteed. Indemnification clauses shift certain risks between the parties.
Changes: Change Orders
Construction rarely goes exactly as drawn. A change order is a written, signed amendment documenting a change in scope, price, or schedule. The rule to live by: get changes in writing and signed BEFORE performing the extra work. Proceeding on a verbal 'go ahead' is one of the leading causes of payment disputes, because later the parties disagree about what was authorized and at what price. Written change orders protect the contractor's right to be paid and keep the schedule impacts documented.
Breach, Remedies, and Payment Security
A breach occurs when a party fails to perform as promised. Remedies can include damages (money to cover the loss), specific performance in limited cases, or termination for a material breach. To secure payment, contractors and suppliers may have the right to file a mechanic's lien against the property for unpaid labor or materials, and lien waivers are exchanged as payments are made. Surety bonds — bid, performance, and payment bonds — provide additional protection that the project will be completed and that subs and suppliers will be paid.