Essentials in a Construction Contract and Common Red Flags to Watch Out For

A construction project—whether it's building a home, renovating a property, or constructing a commercial space—should always start with a solid and transparent construction contract.

But what should that contract include? And what are the warning signs that something might go wrong?

Let’s break it down.

🏗️ What is a Construction Contract?

A construction contract is a legally binding agreement between a client (property owner) and a contractor that outlines the scope, cost, schedule, materials, responsibilities, and legal obligations of both parties during a construction project.

✅ Essentials in Every Construction Contract

Here are the must-have elements in a well-written construction contract:

1. Project Scope and Description

Clearly defines the work to be done, including materials, specifications, finishes, and design references.

2. Timeline and Milestones

Includes:

• Project start and end dates

• Key milestones (e.g., excavation, structural works, finishes)

• Penalties for delays (liquidated damages)

3. Payment Terms and Schedule

Outlines:

• Total contract amount

• Down payment and progress billing schedule

• Mode of payment (cash, check, bank transfer)

• Retention money (typically 5–10%)

4. Plans and Technical Specifications

Attaches the approved plans, architectural and engineering drawings, and bill of quantities (BOQ).

5. Change Orders

Defines how changes in scope, design, or materials are proposed, approved, and priced.

6. Warranties

Includes structural and workmanship warranties (commonly 1 year for minor works, 15 years for structural integrity).

7. Permits and Approvals

Clarifies who secures the permits (usually the owner, but the contractor may assist).

8. Termination Clause

Outlines conditions for termination of the contract by either party and the consequences of early termination.

9. Dispute Resolution

States the process for handling disputes—mediation, arbitration, or court.

10. Liabilities and Insurance

Details contractor liabilities, site safety protocols, and who bears the risk for damages or accidents.

🚩 Common Red Flags in Construction Contracts

Here are warning signs that a contract may be risky, incomplete, or biased:

⚠️ 1. No Detailed Scope or Plan

Vague descriptions like “build a 2-story house” without specifics can lead to disputes over expectations.

⚠️ 2. Lump Sum Only, No Breakdown

Avoid contracts that state only the total price without a breakdown of labor, materials, and timeline.

⚠️ 3. No Timeline or Milestones

This allows contractors to delay the project without accountability.

⚠️ 4. No Retention Clause

Without a holdback amount, you lose leverage in case of poor workmanship or defects.

⚠️ 5. One-Sided Termination Rights

If only one party (usually the contractor) can cancel the contract without cause, it’s unfair and risky.

⚠️ 6. No Dispute Resolution Clause

Without this, disagreements may escalate to costly legal battles.

⚠️ 7. Verbal Agreements Only

Always demand a written contract—never rely on “usapan lang.”

⚠️ 8. No Permits Mentioned

If the contractor does not clarify who secures the building permits, delays and penalties may occur.

⚠️ 9. No Warranty Clause

Lack of warranty = no assurance for defects and rework.

🧱 Final Thoughts

A construction contract isn’t just a formality—it’s your blueprint for protection. Whether you’re a homeowner or a contractor, having a clear, fair, and complete agreement avoids costly mistakes and keeps everyone accountable.

At Wallpro, we offer contract drafting, review, and project supervision to ensure your project runs smoothly—from groundbreaking to turnover.

📞 Need help reviewing a contract or creating one for your project? Contact us today for a free consultation.

Essentials in a Construction Contract and Common Red Flags to Watch Out For