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What Should Your Contracts Include & Why Are Contractor Contracts So Important?

In the construction industry, it is an unfortunately common occurrence that Contractors can find themselves doing more work than they expected, ending up fronting elements of the job that the Sub should not be responsible for or finishing a job and walking away without proper compensation. Though it can be common, it does not have to be. California Contractors like yourself can save themselves from this reality with one simple effort. Having a reliable, well-written California construction contract is the key to having a successful construction business and can save businesses from the confusing and detrimental repercussions of work done without a contract.

Why Are Construction Contracts Important?

Across the board, construction contracts are important because they do the job of managing expectations for the job you are on. There are a lot of contracts out there that are full of confusing legalese and do not really serve the purpose they are supposed to. While you do want your contract to cover your bases and keep you legally protected, there are ways to do this that allow the contract to be easily understood by all parties and set clear expectations for the work, scheduling, pay, and so on.

The Two Types of Contracts

There are two specific kinds of contracts to consider for California Contractors. The first is the contract you give to clients (often for residential contractors), and the second is the contract a client would give you (often for commercial contractors). Residential Contractors are typically the party providing a contract to their clients with terms to be agreed upon and signed off on. In this situation, anything in writing is better than nothing and can protect you. However, you can have a construction attorney draft you a custom contract for a fairly minimal cost. Especially in California, if you are working with a homeowner, there is an extensive list of requirements of what must be in your contract. If you want to get paid on the other side of your work, it is worth the investment to get a proper California Residential Construction Contract created for your company.

What Should Your Residential Contract Include?

In every residential construction contract, you should be aware of some specific pieces and should take care to include verbiage for them in your contract. I will break those down here.

  • Scope of Work– What exactly is the work you are doing? What is not included in that work that a Homeowner might try to include? Ensure your scope states precisely what work you will be doing, and what you will not be doing.
  • Payment Terms– These terms explain how you will be paid and when you will be paid. Ensure that these terms set clear expectations for the payment process you personally desire and intend to follow.
  • Change Orders– It is best practice to put in your contract that, while you are the expert, you cannot always see contributing elements or foresee particular events when bidding your work. In the instance of unforeseen work that must be done, you can submit a Change Order to account for the additional time and costs required to do the work.
  • Schedule– More than anything, who you work for wants to know when you will be done. Set a clear and realistic expectation for your work’s completion with this piece of your contract.

Knowing these terms, and including them in your contract, will allow you to have more secure protections and will also ensure your client has a clear and thorough understanding of your work, schedule, pay expectations, and all other elements of your agreement. This is essential in mitigating conflict!

What to Look Out for in Your Commercial Contract
For commercial construction contracts, you often receive the client’s contract. In this case, the most important thing to know is that you can absolutely negotiate. The first contract your client sends over is like a sticker price for a car. It is expected that you will negotiate your contract, so use that to your advantage and review the contract carefully. Alternatively, you can have a construction attorney do it for you so you know what you are signing and can make an informed decision on how to negotiate your California Commercial Construction Contract.

Some important things to look out for in a commercial construction contract are broken down below.

  • Pay-When-Paid Clause– This term means that the General Contractor does not have to pay the Subcontractor (You) until they have been paid by the Owner. There are many things between the General Contractor and Owner that You as a Sub are not in control over. If something goes awry with their relationship, you could end up responsible for the whole project. This is one of the more dangerous terms to look out for.
  • Default– After you sign a contract, you are required to do everything in that contract. If you fail to do anything within that contract, you are then in default of the contract. For example, if your contract requires Daily Reports and you are not submitting any, you are in default of your contract. This can go one of two ways. Either you are in default, but nobody says anything about it, and you are left to do your work, or you can be in default and receive a notice of default that can eventually lead to termination.
  • Termination– Termination is when you are actually fired. A common misconception with termination is that Contractors only lose what they have yet to be paid. Something to note is that if it costs the General Contractor more to hire someone else to cover your scope of work, you are on the hook for the financial difference between your bid and theirs.

It is integral that you take note of this information to ensure that you are protecting your business with your contract, or otherwise are aware of the potential problem areas in other contracts so you can better avoid them. For help with California construction contract creation, or to have a California construction contract reviewed, consider contacting, The Cromeens Law Firm. Ultimately, anything in writing is better than nothing at all, but if you are going to have a contract, you should do it right on the front end.


About the Author:

Published author, award-winning lawyer, devoted wife and mother to three girls, and Owner and seasoned Managing Partner of The Cromeens Law Firm (TCLF), Karalynn Cromeens is a true jack of all trades. Karalynn is the Co-Founder of Morrell Masonry Supply and Owner of The Subcontractor Institute, an easy-access online educational platform for contractors. In addition to TCLF, and The Subcontractor Institute, she is also the Host of the rapidly growing educational construction podcast, Quit Getting Screwed – making cost-free industry insight available to contractors across the country. In 2021, Karalynn published two Amazon Best-Selling books – Quit Getting Screwed: Understanding and Negotiating the Subcontract and Quit Getting Stiffed: A Texas Contractor’s Guide to Liens & Collections.

In the seventeen years she has practiced construction, real estate, and business law, Karalynn has reviewed and explained thousands of subcontracts. For years, she has tried saving companies that have signed problematic subcontracts and lost out on being paid for their work. Unfortunately, it was too late by the time they came to her; she could do nothing to help. She hated seeing clients lose money—sometimes their entire business—over language they did not understand and laws they did not know about. Watching these situations play out day after day was the driving force behind her two books, The Subcontractor Institute, and the firm’s accessibility efforts. Providing education to contractors on a national level has become Karalynn’s personal mission, and she is always doing what she can to help make it a reality.

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