How to Write a Construction Contract (The Clauses That Protect Your Money)

Most contractors lose money not on the job but in the contract - or the lack of one. (Figures in this post are in USD; the model applies in any currency.) A bad contract hands the client the tools to dispute extras, delay payment, and drag you into arguments that cost more to fight than the margin was worth. This is where you fix that.

Here is the thing: how to write a construction contract is really a conversation about how construction arbitrage actually works. You - the general contractor (main contractor in the UK) - hold the contract, your subbies do the work, you keep the margin in the middle. The contract is the instrument that protects that margin. Get it wrong and the client owns the deal, not you.

What a construction contract actually needs to do

A contract is not paperwork. It is the operating manual for the relationship. It tells the client what they are getting, tells you what you are owed, and gives both parties a clear path when something changes or goes wrong.

Three things a good construction contract does that a handshake cannot:

• It fixes the scope. Once the scope is written down and signed, scope creep stops being a conversation and starts being a change order. That is a billable event, not a favour.
• It fixes the payment mechanism. You know when you get paid, what triggers the payment, and what happens if it is late.
• It limits your exposure. Without a contract, a dispute over a $20,000 job can cost you $20,000 in legal fees to fight. A contract with a clear dispute clause (mediation before litigation) usually stops it there.

The 7 clauses every construction contract must have

1. Scope of work. The most important clause and the one most contractors write badly. Be specific: materials, specifications, trade, floor levels, finishes. List what is excluded as well as what is included. If the drawings are the scope, attach them and reference them by revision number. A vague scope is an open cheque for the client.

2. Contract sum and payment schedule. State the total contract price and how it breaks down into stages. Each stage should be tied to a deliverable - not a date. "Payment due 14 days after foundations are poured and signed off" is enforceable. "Payment due 30 days from start" is not, if the client delays the work.

3. Change order procedure. No additional or varied work begins without a written change order agreed and signed by both parties. Include the cost, the timeline impact, and the payment terms for the change. This is the clause most contractors skip and the one that costs them the most.

4. Start and completion dates. Give a start date and a practical completion date. If the project is subject to weather or third-party delays (inspections, utility companies), say so. Include a clause that adjusts the completion date automatically for delays caused by the client or factors outside your control.

5. Insurance requirements. Both parties list their insurance. You carry general liability - most commercial clients require at least $1 million per occurrence and $2 million aggregate before they will sign anything with you. In Australia and the UK, this is employers liability and public liability. The contract should require the client to maintain their own property insurance on the project.

6. Late payment terms. State the payment period (14 or 30 days from invoice is standard), the interest rate on overdue amounts, and your right to suspend work if payment is not received. In most jurisdictions you already have statutory rights here - the contract makes them visible, so the client knows you know them.

7. Dispute resolution. Specify that disputes go to mediation before litigation. It is cheaper, faster, and settles 80 to 90 percent of construction disputes before they reach a court. Include the governing law - which state or country's law applies to the contract.

How to structure your payment schedule

The best payment schedule is front-loaded. You want money flowing in ahead of costs going out. Here is a structure that works on most residential and light commercial projects:

Notice the deposit. Never start a job without one. A client who will not pay a deposit to secure a start date is a risk signal. A deposit also confirms the client is real - unserious buyers disappear when a payment is required.

Change orders - the clause that makes or breaks your margin

This is the section people hate hearing about until they lose $15,000 on it once. Then they never skip it again.

Scope creep is the single biggest margin killer in construction. The client asks for small changes verbally. You do them because the relationship is good. Then at the end they dispute the final invoice because "that was supposed to be included." The change order clause stops this completely.

If it is not written down and signed, it was not agreed. Full stop.

When a client requests something outside the original scope, stop. Produce a change order document with: the description of the change, the additional cost, any impact on the completion date, and a signature line. Send it. Do not start the work until they have signed it back. On a big job, this also protects the client - they know exactly what they are paying for before you spend their money.

Retainage and retention - know your rights before you accept it

Retainage (called retention in the UK and Australia) is where a client holds back a percentage of each payment until the job is complete and any snags are fixed. In the USA, retainage typically runs 5 to 10 percent depending on the state - California and New York both cap it at 5 percent on private projects as of 2026. In the UK, retention is common on commercial contracts and has been the subject of industry reform for years.

Three things to negotiate into any retainage clause:

• A maximum cap. 5 percent is standard and reasonable. More than that is a cash flow weapon.
• A clear release trigger. "Practical completion" or "client sign-off" is fine if both are defined. "When the client is satisfied" is not - it is unenforceable.
• A maximum defects period. Twelve months is standard in most countries. Longer than that, push back.

Country notes - what changes by jurisdiction

The core clauses above apply everywhere. What differs by country is the legal backstop when the contract is breached. Check the rules for your own jurisdiction before you rely on any of these:

If your contract is silent on these rights, you still have them in most of these countries. But a contract that spells them out, by name, means the other side knows you know. That changes the dynamic before it ever reaches a dispute.

Template or solicitor - how to decide

For most jobs, a template is fine. The AIA in the USA, the JCT in the UK, the HIA in Australia, and the Standards New Zealand contracts are all written specifically for construction and used on hundreds of thousands of projects. They hold up in court because courts have seen them before.

Get a construction solicitor involved when:

• The contract value is above $150,000 USD or your local equivalent
• The client has sent you their own contract with tracked changes from their lawyer
• The project involves design-and-build, where your liability extends beyond construction
• A previous contract dispute cost you money and you want to plug the gap

One review session with a construction solicitor - typically a few hundred dollars or pounds - covers your standard template for years. Do it once, use it on every project.

Get it signed before you start

The contract means nothing unsigned. I have seen contractors lose arguments about scope and payment because they started work before the paperwork was back, and the client knew it. The moment you break ground without a signature, the balance of power has shifted.

Send the contract. Give the client three to five working days to read it. If they want to change a clause, that is a conversation - but it happens on paper before work starts, not in a WhatsApp message two months in. If they will not sign, that job is not yours yet. Treat it accordingly.

The operators who run the construction arbitrage model well are meticulous about this. They know the contract is where the spread is protected. Sloppy contracts are why good-margin jobs end up with no margin at all. Fix the contract and you fix most of the money problems in one go. If a client ever stops paying, the contract is also what you use - read the full playbook on what to do when a construction client doesn't pay.