How to Read Construction Contracts

1. Intro

In her 17 years of legal experience, Karalynn Cromeens has seen too many people sign bad contracts. She explains how understanding contracts can help you level the playing field in the construction industry.

2. Construction Food Chain

Karalynn reviews the “construction food chain” that shows who owes money to whom—workflow, team-member relationships, and payment.

3. Bid vs. Scope of Work

Karalynn shows two ways to submit a bid: propose a flat price or an itemized list. Learn how the bid can differ from the scope of work once projects begin, and why you need to stay up-to-date on the latter.

4. Subcontract Actual Agreement

Karalynn covers the agreement between you and the company you’re contracting for. Learn about the project plan and project manual and why you need a copy of the Prime Contract.

5. How Bonds Work

The bond company is responsible if the general contractor or subcontractor fails to complete their work or pay employees. Learn why bonds are risky and how to negotiate if the owner won’t hire you without one.

6. Personal Guarantees

If you don’t perform the agreed-upon services, you’ll be personally liable. Karalynn explains why this section raises red flags and why you should not sign it.

7. Pay-When-Paid Clause

The Pay-When-Paid clause states you’re paid when your superior is. It’s a risky clause, but exists in nearly half the construction contracts Karalynn reviews. Learn how to navigate it, negotiating for half pay or setting a limit on the number of days you’ll work without pay.

8. Change Orders

Change orders are a frequent occurrence in construction. Learn what’s required for change order submittals and who’s involved in the process.

9. Delay Damages

This section lists the daily charges of project delays, which can range from $500 to $5,000 or more. Karalynn stresses the importance of understanding the relationship between Schedule and Delay Damages, and why a realistic schedule can help you avoid Delay Damages.

10. Prior Work & Field Conditions

Learn how to avoid being held responsible for work that’s already been done, or complicated conditions on the job site—from mud to garbage.

11. Default & Termination

Karalynn explains how to fix incomplete or improper work in case of a default, make termination rights mutual, and remove the termination-for-convenience clause.

12. How to Cover Your Ass (C.Y.A.)

Karalynn explains how to document the quality of your work with daily reports, submittals, and as-builts to make sure you protect your business.

13. Collections

Karalynn explains how payment collections work in relation to liens, which provide secured debt. Learn what a lien is, how to secure a lien process, what makes liens invalid, and how rights vary by state.