How to Read a Construction Contract Before You Sign It

A construction contract determines who pays when a pipe bursts behind a wall that wasn’t part of the original scope, who owns the delay when a permit gets held up at the city office, and how much you’ll spend if you want to swap out the kitchen tile after demolition starts. Most homeowners and even some commercial clients skim these documents, sign on the last page, and only read the fine print after a dispute forces them to. Reading the contract properly, before you sign, takes about an hour and can save you thousands of dollars and weeks of frustration.

Start With the Payment Schedule, Not the Price

The total project cost matters less than how that money gets released. A payment schedule tied to completed phases protects you far better than one tied to dates on a calendar. For a $60,000 kitchen and bathroom remodel, a reasonable schedule might look like 10% at signing, 25% after demolition and rough framing, 25% after rough plumbing and electrical pass inspection, 25% after drywall and cabinetry installation, and the final 15% after a walkthrough and punch list are complete.

Be wary of contracts that ask for more than 10-15% as a deposit before any work begins, or that request a large payment tied to a date rather than a milestone. If a contractor asks for 50% upfront on a project with no material custom-order justification, that’s a signal to ask questions before signing anything.

Check the Scope of Work Line by Line

The scope of work section is where vague language causes the most expensive arguments later. “Install new flooring” is not a scope of work. “Install 800 square feet of 3/4-inch engineered hardwood flooring, brand and model as specified in Exhibit A, including removal and disposal of existing carpet and pad” is a scope of work.

Go through this section and confirm it answers these questions:

What specific materials, brands, and models are included, with model numbers where possible?
What is explicitly excluded (for example, permit fees, landscaping repair, or moving furniture)?
Who supplies materials versus labor, and are allowances listed for items not yet selected, like light fixtures or countertops?
Are the square footage, room count, and finish levels stated in numbers rather than general descriptions?

If the contract references “Exhibit A” or “attached specifications” for these details, make sure those attachments actually exist and are included in what you’re signing, not just promised verbally.

Understand How Change Orders Actually Work

Almost every project changes once walls open up or a client decides they want a different faucet. The contract should spell out exactly how those changes get priced and approved, in writing, before the work happens. Look for language that requires a signed change order with a specific dollar amount and timeline adjustment before any additional work begins.

Some contracts include a markup percentage on materials and labor for change orders, commonly between 10% and 20%. That’s standard, but it should be stated as a number, not left open. A contract that says “additional work will be billed at contractor’s discretion” gives the contractor room to charge whatever they want after the walls are already open and you have limited leverage to negotiate.

Also check whether the contract requires your written approval for changes over a certain dollar amount, such as $500. Without that threshold, small changes can add up to thousands of dollars you never explicitly approved.

Read the Timeline, Delay, and Termination Clauses

A start date and an end date are not enough. The contract should specify what happens if the project runs long, and whether either side owes anything as a result. Some contracts include a liquidated damages clause, meaning the contractor pays a set daily amount (for example, $100 per day) if the project runs past the agreed completion date, minus allowances for delays outside their control, like weather, material backorders, or inspection scheduling.

Termination clauses matter just as much. Find the section describing how either party can end the contract, what notice period is required (commonly 7 to 14 days), and how unfinished work and unused deposits get settled. A contract that allows the contractor to walk away without returning any unused deposit money, or that makes it extremely difficult for you to terminate for poor performance, puts you at a disadvantage before the project even starts.

Verify Insurance, Licensing, and Lien Waiver Language

The contract should state the contractor’s license number, and you should independently verify that license through your state’s contractor licensing board website rather than taking the document’s word for it. It should also state the contractor’s general liability insurance coverage amount (commonly $1 million per occurrence for residential work) and confirm you’ll receive a certificate of insurance before work begins, not after.

Check for lien waiver language as well. As you make payments, the contract should require the contractor to provide a signed lien waiver for each payment, confirming subcontractors and suppliers have been paid for that phase. Without this, a subcontractor who wasn’t paid by the general contractor can file a mechanic’s lien against your property even after you’ve paid in full.

Before signing, print the contract and mark up every section with a pen: circle dollar amounts, underline dates, and write a question mark next to any sentence you can’t explain back in plain language to someone else. If you can’t explain a clause simply, ask the contractor to rewrite it or explain it in writing over email so you have a record. A contractor who is confident in their work and their pricing will not object to clarifying terms before you sign. Take the marked-up contract to a construction attorney for a one-time review if the project is over $25,000. Many attorneys will do this for a flat fee of $200 to $500, which is a small cost compared to the price of a dispute mid-project.