Construction Contract Review: What to Check Before You Sign

A contractor I know signed a fixed-price contract for a kitchen remodel last spring. Scope said "renovate the kitchen per attached drawings." The drawings showed a layout, finishes, and a few elevations. Nobody noticed the drawings didn't say anything about the rotted subfloor under the existing tile, the panel that didn't have spare capacity for the new induction range, or the venting work the new hood would require. The owner's position when those came up: "That's all part of renovating the kitchen." The contract didn't disagree clearly enough. The contractor ate about $18,000.

Almost every construction dispute looks like that. Two people read the same words, walked away with two different mental pictures of the deal, and ten weeks later one of them is paying for the gap. The fix isn't more paperwork. It's reading the paperwork you already have, with a checklist that catches the gaps before money starts moving.

This guide is that checklist. It's written for general contractors signing prime contracts, subs reviewing flow-down agreements, and owners (especially small businesses commissioning their first build-out) trying to figure out what they're actually agreeing to. The clauses below are the ones that decide who eats overruns, delays, and defects. Read them once, before the schedule pressure starts, and you'll save yourself the version of the story above.

TL;DR: A solid construction contract review covers scope and drawings, schedule and substantial completion, price and retainage, change orders, differing site conditions, delay and time extensions, liquidated damages, indemnification and insurance, warranties, termination, dispute resolution, lien rights, and payment timing (especially pay-when-paid vs pay-if-paid). The fastest way to spot risks in an inbound construction contract is the LegesGPT Document Review service, which flags the high-stakes clauses in seconds and lets you ask plain-English questions about any of them against the actual contract text.

What makes construction contracts different

Construction contracts have a unique problem that other commercial contracts don't. You're agreeing to a price and a schedule for work that will be performed across many months in conditions that nobody fully understands at signing. The site might hide surprises. Materials prices move. Weather happens. Other trades fall behind and push you off schedule. The contract is essentially a forecast, and the entire document is structured around who absorbs the variance when the forecast turns out to be wrong.

That's why construction contracts have entire sections devoted to topics that don't really exist in other commercial paper: differing site conditions, change orders, delay damages, mechanic's liens, retainage, substantial completion. Reading a construction contract the way you'd read a SaaS subscription is a recipe for missing the parts that actually matter.

Two other things make construction contracts different. They're often built on standard forms (AIA, ConsensusDocs, EJCDC) with custom modifications. Modifications buried as amendments or supplementary conditions can completely flip the meaning of a clause in the base form. And construction is heavily state-regulated, so a clause that's enforceable in Texas may be void in California, especially around lien waivers, indemnification, and pay-if-paid language.

The five types of construction contracts

Before you review any specific clauses, identify what kind of contract you're looking at. The risk profile changes with each.

Lump sum contracts are where most disputes happen, because the scope is treated as fixed even when the drawings aren't complete. Cost-plus shifts the risk to the owner, which is why owners push hard for a GMP cap. Time and materials is friendly to the contractor on the price side but tends to invite scrutiny on the labor hours.

The construction contract review checklist

Read this in order. Each section catches a different category of risk.

1. Scope and drawings

Find the section that defines the work. Then find the exhibit list. Make sure every drawing, specification, addendum, and bulletin referenced in the scope is actually attached and properly identified by date and revision. Scope language like "all work necessary to complete the project per industry standards" without specific drawings is an invitation to the dispute that started this article.

Three things to check:

• Is the order of precedence between documents stated? When the spec and the drawings disagree, which wins?
• Is there explicit language about what is and isn't included? Out-of-scope items are easier to address up front than mid-build.
• Are allowances spelled out? Allowance items have a hard ceiling and a process for what happens when the actual cost exceeds the allowance.

2. Schedule and substantial completion

Construction contracts use specific milestone language. Don't gloss over it.

• Notice to proceed (NTP) is the formal start date.
• Substantial completion is when the project can be used for its intended purpose, even if punch-list items remain. This date triggers many things: warranty start, retainage release, owner occupancy, and (often) the end of liquidated damages.
• Final completion is when all punch-list items are done, lien waivers are collected, and the project is fully closed out.

Look for who has the right to declare substantial completion, what the criteria are, and what happens if the owner occupies the property before substantial completion. Beneficial occupancy without a clean handoff is one of the most expensive disputes in construction.

3. Price, payment, and retainage

The payment section deserves slow reading.

• Total contract price and how it can change
• Schedule of values (the breakdown that drives progress payments)
• Application for payment process and the number of days the owner has to pay
• Retainage percentage (often 5-10%) and when it's released
• Conditional vs unconditional lien waivers required with each payment
• Direct payment rights to subs or suppliers if the GC fails to pay
• Joint check arrangements

The waiver language is the trap. Many standard forms include a clause where signing a progress lien waiver waives lien rights for the period covered, even if you haven't actually been paid yet. Push for "conditional upon payment" lien waivers, not "unconditional upon submission."

4. Change orders

A change order clause should answer: who can request changes, what process is required, how the price is calculated, and what happens when the parties disagree.

The biggest issue in change orders is the "directed change" trap. The owner instructs the contractor to do something, the contractor does it, and then the parties argue later about whether it was a change or in-scope work. Best practice: any directed change requires a written change order before work proceeds, with an agreed price or an "open book" cost agreement.

Read the markup percentages closely. Overhead and profit on labor, on materials, on subs, on equipment. A 10% markup on a $50,000 change order can compound across many change orders into real money over the life of a project.

5. Differing site conditions

If you're doing any sub-surface work or working in or around existing structures, find the differing site conditions clause. Most standard forms recognize two types:

• Type I: Conditions that differ materially from those indicated in the contract documents.
• Type II: Unknown physical conditions of an unusual nature.

A solid clause gives the contractor a right to time and money for either type, after written notice within a short window (often 14 or 21 days). A bad clause forces the contractor to absorb the risk regardless. Custom contracts often quietly strip the differing site conditions clause out entirely. If you're doing any excavation, slab penetration, or interior demo, that's a hard no.

6. Delay and time extensions

Construction schedules slip. The contract decides who pays for the slip.

• What events entitle the contractor to a time extension? (Owner-caused delays, weather, force majeure, differing site conditions.)
• What's the notice requirement? Often 14 days. Missing the notice can waive the right.
• Does the contractor get money for delays, or just time? "No damage for delay" clauses are common but heavily litigated.
• Who owns the schedule float? If the contractor finishes a critical-path activity early, can the owner consume the float without giving the contractor a credit?

The combination of a no-damage-for-delay clause and a generous owner-caused-delay right is a contractor-killer. The contractor absorbs the cost of delays they didn't cause and can't recover anything beyond an extension of the calendar.

7. Liquidated damages

If the project finishes late, the owner usually has a right to liquidated damages: a per-day amount that approximates the owner's losses without having to prove them. Check four things:

• The daily amount. Is it reasonable relative to the project value?
• Is there a cap on total liquidated damages?
• What's the start date? Substantial completion or final completion?
• Are there carve-outs for excusable delays?

The liquidated damages clause should be reciprocal in spirit. If the owner can charge the contractor for late delivery, the contractor should be able to charge the owner for late payment.

8. Indemnification and insurance

This is where uncapped liability hides.

• Is the indemnification one-way or mutual?
• Does the contractor have to indemnify the owner for the owner's own negligence? Many states (Texas, Colorado, California, and others) have anti-indemnity statutes that void these clauses in construction contracts. Know your state.
• Are the insurance requirements achievable? Look at limits, deductibles, additional insured requirements, and the certificate format.
• Is there a waiver of subrogation for property damage covered by builder's risk?

A common trap: the contract requires $5 million per-occurrence general liability with the owner named as additional insured on a primary, non-contributory basis, on top of a $1 million umbrella. Get a real quote before signing. The premium delta on tight insurance requirements can eat a job's profit margin.

9. Warranties

The warranty section creates obligations that survive the contract.

• How long is the general warranty? Standard is one year from substantial completion, but custom contracts push three, five, or longer.
• Are there extended warranties on specific systems (roof, MEP, structural)?
• What's the remedy? Repair? Replace? Refund?
• Who bears the cost of access to the warranted work?
• Are there "latent defects" provisions extending the warranty period for hidden defects?

If you're signing a long warranty, look at the manufacturer warranties for the components. You don't want to be on the hook for a five-year roof warranty when the membrane manufacturer only warrants the product for two.

10. Termination

Both sides need to know what triggers termination and what happens after.

• Termination for cause: what's the cure period? Standard is seven to ten days for non-monetary defaults.
• Termination for convenience: usually owner-only. What does the contractor get paid?
• What happens to materials on site? Stored off site? Pre-paid subs?
• Are there liquidated termination costs?

A termination-for-convenience clause that pays only for work performed (no overhead recovery, no profit on unperformed work) is hostile to the contractor. Reasonable terms include direct costs incurred, plus a percentage for overhead and profit on completed work, plus reasonable wind-down expenses.

11. Dispute resolution

Construction contracts often have multi-step dispute resolution: project-level discussion, mediation, then arbitration or litigation. Check:

• Is mediation required before arbitration?
• Under whose rules (AAA Construction, JAMS)?
• Where does arbitration happen?
• Who pays for it?
• Are claims handled together or one project at a time?
• Is there a jury trial waiver?
• Is there an attorney's fees clause? (Often only one-way in favor of the owner. Make it mutual.)

A jury trial waiver in a construction contract that also lets the owner choose litigation in their home venue is a clause stack worth pushing back on.

12. Mechanic's lien rights

Mechanic's liens are the contractor's most powerful collection tool. Many states have statutes that prohibit pre-construction lien waivers, but contracts still try.

• Are there lien waiver requirements with progress payments?
• Are the waivers conditional (effective upon receipt of payment) or unconditional?
• Are there limits on bond or "no-lien" clauses?
• For federal projects (Miller Act) and state public projects (Little Miller Acts), lien rights are replaced with payment bond rights. Don't skip the bond claim process.

13. Pay-when-paid vs pay-if-paid

This is the single most important clause in a subcontract. Both versions sound similar; they're very different.

• Pay-when-paid: The GC pays the sub within a reasonable time after receiving payment from the owner. Most courts treat this as a timing provision, not a condition. If the owner never pays, the GC still owes the sub after a reasonable time.
• Pay-if-paid: The GC's payment to the sub is conditional on the GC receiving payment from the owner. If the owner doesn't pay, the GC doesn't owe the sub. Some states (California, New York, Wisconsin) void or sharply limit pay-if-paid clauses. Others (Florida, Texas) enforce them.

If you're a sub, read this clause word by word and know your state's law. A pay-if-paid clause hides the owner's credit risk inside what looks like a GC contract.

Red flags that should make you push back

A few patterns come up often enough to flag by name.

• No differing site conditions clause in a project involving demo, excavation, or work in existing structures
• No-damage-for-delay clauses combined with broad owner-caused-delay rights
• Uncapped liquidated damages with no reciprocal contractor-side remedy
• Unconditional progress lien waivers required before payment is received
• Indemnification for the owner's own negligence in a state where the statute may void it (creating litigation cost regardless of outcome)
• Pay-if-paid in a subcontract where you don't know the owner's financial position
• One-way attorney's fees in favor of the owner
• Vague scope combined with broad "all work necessary" language
• No cap on aggregate liability for things like consequential damages

Two or more of these in the same contract isn't a contract, it's a setup.

AIA, ConsensusDocs, and custom contracts

Most construction contracts in the U.S. are built from one of a few standard form families.

• AIA (American Institute of Architects) forms (A101, A102, A104, A201 General Conditions) are the most widely used. They tend to be moderately owner-favorable but have decades of case law interpreting them.
• ConsensusDocs forms came out of a coalition led by the AGC and tend to be more contractor and owner-balanced.
• EJCDC forms are common on engineering and infrastructure projects.
• Custom contracts are written by the owner's lawyers and almost always tilt heavily in the owner's favor.

Two practical rules. First, when reviewing an AIA or ConsensusDocs contract, the base form matters less than the supplementary conditions and amendments. Those are where the deal actually gets shaped. Read the amendments first, then go back to the base form to understand what's left.

Second, when reviewing a custom contract, compare it clause by clause to the equivalent standard-form language. The deviations are where the risk shifts.

Doing the review faster with AI

A careful construction contract review on a 60-page agreement plus supplementary conditions runs three to five hours. For an active contractor reviewing inbound prime contracts and outbound subs, that adds up to a real bottleneck. Most contractors I know don't have the bandwidth, and they sign anyway.

That's the workflow the LegesGPT Document Review service is built to compress. You upload the prime contract, the general conditions, and the supplementary conditions, and within seconds it flags the high-stakes clauses against the categories above: differing site conditions language, no-damage-for-delay, liquidated damages, indemnification, lien waiver timing, pay-when-paid vs pay-if-paid, termination for convenience, warranty length, attorney's fees direction. It scores the contract overall and breaks risks down clause by clause.

The piece that changes how a busy contractor reviews now is the chat. You can ask the contract questions in plain English. "What happens to the liquidated damages if the owner causes a delay?" "Is the indemnification one-way or mutual?" "Can I lien the property if I'm not paid by day 60?" "How is the schedule float allocated?" The platform answers from the actual document text, cites the specific clause, and lets you ask follow-ups until you're satisfied. For a business owner running a small construction firm, that's the difference between five hours of legal work and twenty minutes of focused review.

A note: AI document review is a force multiplier, not a substitute for a construction lawyer on high-stakes deals. For a public project, a complex GMP with shared savings, or any contract over a few million in value, have a construction attorney sign off. The AI does the first pass and tells you which clauses to escalate. The lawyer does the judgment.

Drafting your own contract from the contractor side

The fastest construction contract to review is the one you wrote, because you already know what's in it.

If you're a GC issuing subcontracts, or an owner running a series of trades, drafting from a clean, contractor-friendly (or owner-friendly, depending on which side you're on) template is the leverage. The AI Document Generator covers the drafting side: subcontracts, change order forms, lien waivers, payment agreements, NDAs, independent contractor agreements, and the other paper that comes up regularly on a job. You answer plain-English questions about the deal and get a jurisdiction-aware draft with the right clauses for your state. Same workflow as the review side, just in the opposite direction.

For a contractor or sub who reviews and issues construction paper every week, doing both sides in one platform is the difference between contracts being a perpetual bottleneck and contracts being a checkbox.

Wrapping up

The expensive disputes in construction don't come from one disastrous clause. They come from two parties signing a contract neither of them really read, and finding out forty days into the project that they don't agree on what they signed. The fix isn't a longer contract. It's a tighter checklist applied to the contract you already have.

Run the categories above on the next contract that lands in your inbox. Push back on the ones that don't pass. Walk away from the ones with multiple red flags. The leverage you have before signing is the only leverage you'll have, and it disappears the moment ink hits the page.

FAQ

What should a construction contract review checklist include? A construction contract review checklist covers scope and drawings, schedule and substantial completion, price and retainage, change orders, differing site conditions, delay and time extensions, liquidated damages, indemnification and insurance, warranties, termination, dispute resolution, lien rights, and payment timing (pay-when-paid vs pay-if-paid). Each category catches a different kind of risk, and the high-stakes construction-specific clauses (differing site conditions, no-damage-for-delay, pay-if-paid) are where the biggest dollar surprises hide.

What's the difference between pay-when-paid and pay-if-paid? Pay-when-paid is a timing provision. The GC pays the sub within a reasonable time after receiving payment from the owner, and most courts hold the sub still gets paid even if the owner doesn't pay. Pay-if-paid makes the owner's payment a condition of the GC's obligation. If the owner doesn't pay, the GC owes nothing. Some states (California, New York, Wisconsin) void or limit pay-if-paid; others (Florida, Texas) enforce it. The clause is the most important one in any subcontract.

What is a differing site conditions clause? A differing site conditions clause gives the contractor the right to time and money if the site reveals conditions that materially differ from what the contract documents indicated (Type I) or are unknown physical conditions of an unusual nature (Type II). Most standard forms include the clause; custom owner-drafted contracts sometimes strip it out entirely. For any project involving demo, excavation, or work around existing systems, the differing site conditions clause is non-negotiable.

What is substantial completion in a construction contract? Substantial completion is the milestone when the project can be used for its intended purpose, even if punch-list items remain. It typically triggers the start of warranties, the release of most retainage, the end of liquidated damages, and the owner's right to occupy. The substantial completion clause should define who declares it, what the criteria are, and what happens if the owner occupies before formal declaration.

Are AIA contracts good for contractors? AIA contracts are widely used and have decades of case law behind them, which makes them predictable. They tend to be moderately owner-favorable in their base forms, but the real terms of any AIA-based deal live in the supplementary conditions and amendments. ConsensusDocs forms are generally more contractor-balanced. Either is a better starting point than a custom owner-drafted contract, which is almost always heavily owner-favorable.

Can I review a construction contract myself, or do I need a lawyer? For straightforward residential or light commercial work under a few hundred thousand dollars, a self-review using a construction-specific checklist (or AI document review) is reasonable. For larger commercial projects, public work, GMP contracts, design-build, or any contract with unusual terms, get a construction attorney involved. The cost of a flat-fee review (typically $1,500 to $5,000) is small relative to the risk on a job worth even $500,000.

What's the most important clause in a construction contract? There isn't one. The most important clauses depend on the role. For a sub, pay-when-paid vs pay-if-paid is usually the single most important clause. For a GC, the differing site conditions, change order, and termination clauses tend to matter most. For an owner, the warranty, indemnification, and schedule provisions matter most. The checklist forces you to look at all of them so you don't focus on the one that doesn't matter for your situation.

What is retainage in a construction contract? Retainage is a percentage (commonly 5-10%) of each progress payment that the owner withholds and pays out at the end of the project. It's the owner's leverage to ensure the contractor finishes punch-list and closeout work. The contract should specify the retainage percentage, the conditions for partial release (often after substantial completion), and the final release timing. Some states cap retainage by statute.

What are the biggest red flags in a construction contract? The biggest red flags are no differing site conditions clause on a project involving demo or excavation, no-damage-for-delay combined with broad owner-caused-delay rights, uncapped liquidated damages with no reciprocal owner obligation, unconditional progress lien waivers, indemnification for the owner's own negligence in a state that may void it, pay-if-paid in a sub where the owner's credit is unknown, and one-way attorney's fees. Two or more of these together is a setup, not a contract.

What's the fastest way to review a construction contract with AI? Upload the prime contract, general conditions, and any supplementary conditions or amendments to an AI document review tool, let it flag the high-stakes construction-specific clauses, then chat with the contract to ask follow-up questions on anything ambiguous. The LegesGPT Document Review service handles this in seconds, identifies the categories above (differing site conditions, delay damages, lien rights, pay-when-paid, termination), and lets you ask plain-English questions against the actual contract text. For high-value or complex projects, still have a construction lawyer do the final review, but the AI pass tells you exactly which clauses to flag for them.