Four Contract Basics Every GC Should Get Right

You just landed the job. The owner said yes, the numbers work, and you’re ready to get crews on site. It’s exciting, maybe the highlight of your month. But before anyone swings a hammer, there’s a stack of paperwork waiting for you.

That paperwork, the contract, can either protect your business or sink it. I've seen contractors lose six figures, or end up in years of litigation, because of one bad clause buried on page 12 of a contract they signed without reading carefully. Last month, a GC called me after discovering his "standard" contract had a clause that made him responsible for foundation design that required $180,000 in remedial work when the architect's calculations were wrong. That mistake cost him eight months of legal battles on top of the financial hit.

One of the most important things you can do as a contractor is get your paperwork right. This isn't about mistrust - it's about creating clarity so everyone knows exactly what to expect. Just like good fences make good neighbors, good contracts prevent disputes before they start.

Disclaimer: This isn't legal advice. Every state has different laws, and every project has unique risks. When in doubt, consult a construction attorney.

In this two-part series, we'll cover seven clauses every GC should pay attention to. Today, let's start with the four basics you need to get right on every job.

1. Pricing Method (How the Job Is Set Up)

What to check for: Every contract prices the job one of three ways. The method determines who takes on the risk when surprises happen.

Lump sum: You give one fixed price for the whole job. Simple for the owner, but you eat any overruns.

Example: You bid $500,000 for a renovation. You find asbestos behind the walls. Unless your contract allows for unforeseen conditions, you're paying for removal.

Cost-plus: Owner pays actual costs plus your fee (say, 15%). Protects you from surprises, but you'll need airtight recordkeeping to track and justify every expense.

Unit pricing: You charge per unit (per square foot of flooring, per yard of concrete, per fixture installed). Flexible if the scope grows, but risky if quantities are wrong.

Example: You bid $100 per square foot for flooring, assuming 10,000 sq ft. If it's actually 11,000, who pays that extra $100,000 depends on the contract. If your "takeoff is binding" (meaning your quantity estimate becomes the contract quantity regardless of actual field conditions), you eat the difference. If it's based on actual installed quantities, the owner pays.

Your takeaway: Know exactly which method your contract uses — and which risks land on your shoulders. Build in protections for surprises.

2. Scope & Exclusions (What's In, What's Out)

What to check for: Even with the right pricing method, vague scope is the #1 source of disputes. Be clear about what you're doing, what you're not doing, and how allowances work.

Exclusions: Don't just say "paint walls." Spell it out: "Includes painting drywall surfaces. Excludes staining wood trim, refinishing cabinets, and any exterior surfaces." The clearer your exclusions, the fewer "I thought that was included" conversations you'll have. (It’s helpful to build a catalog of this more detailed “scoping statement” over the years so you can pull them out as needed.)

Allowances: If you set a $5,000 allowance for light fixtures, explain what that means: "$5,000 covers standard builder-grade fixtures. If the owner chooses higher-end, they pay the difference." This doesn't limit their choices — it sets expectations about cost.

Why it matters across pricing methods:

Lump sum: Vague scope = you eat the cost.

Cost-plus: Cost-plus: Owner pays actual costs plus your fee (say, 15%). Protects you from surprises, but you'll need airtight recordkeeping to track and justify every expense.

Unit pricing: If the contract isn't clear what's included in each unit, you'll fight over it. (Does $200 per door include hardware and paint?)

Your takeaway: Spell out inclusions, exclusions, and allowances in black and white. Clarity up front protects your profit later.

3. Payment Terms & Schedule (When You Get Paid)

What to check for: Payment is your lifeline. Contracts should spell out when you get paid, how much is held back, and what happens if the owner doesn't pay.

Progress payments: You bill as work gets done (e.g., 30% of drywall hung = 30% payment). Smoothest for cash flow.

Milestone payments: You only get paid at checkpoints (e.g., "50% due after rough-in inspections"). Problem: you may be 90% done but waiting on one inspection to get paid.

Monthly billing: You invoice monthly regardless of percent complete. Predictable, but can spark disputes if the owner questions progress.

Application deadlines: Watch for clauses that require payment applications by a certain date each month — miss the deadline and you wait another 30 days to get paid.

Retainage: Owners often hold back 5–10% of each payment until the end. On long projects, this piles up fast. Push for caps (e.g., no more than $25,000 total retained) or early release once your portion of the work is substantially complete.

The big trap: Subs especially need to watch for clauses that tie your payment to the owner's payment.

Pay-when-paid: Your payment is delayed until the GC gets paid by the owner.

Pay-if-paid: You don't get paid at all unless the owner pays the GC.

Either way, you're taking on the risk of the owner's financial problems. Push for standard payment terms that aren't tied to what happens between the GC and owner - you want to get paid based on completing your work, not on someone else's ability to pay.

Your takeaway: Align payments with actual work completed. Cap retainage so it doesn't strangle your cash flow. And never accept "pay-if-paid" if you're a sub — it makes the owner's problems your problems.

4. Change Orders (How Extras Get Handled)

What to check for: Every job changes. Contracts should say exactly how extra work gets approved, priced, and scheduled.

Approval: No verbal approvals. Require a written signature — even a signed email — before you start.

Pricing: Decide upfront how you'll price changes: time-and-materials plus markup (typically 15-20% to cover overhead and profit), unit pricing, or negotiated lump sum.

Documentation: Whatever method you choose, document everything. Take photos before the change, during, and after. It's your proof of what the extra work actually entailed.

Schedule: Changes don't just cost money, they push schedules. Contracts should say: "Approved change orders that affect the schedule will result in time extensions."

How it goes wrong: The owner asks for "just a small change" and you do it without paperwork. Months later you're chasing $15,000 while the owner claims it was in the original scope.

Your takeaway: No signature, no work. Price changes before you do them, and make sure they come with schedule adjustments.

Get These Right First

Contracts aren't about trust, they're about clarity. Get these four basics right, and you'll avoid most of the disputes that cost GCs money.

These contract basics also connect directly to your insurance program. The team at Dragonfly Insurance specializes in helping contractors understand where their coverage ends and contract risk begins. Reach out anytime: we’re here to help.

Next week we'll cover the "watchouts" delays, termination, lien rights, and insurance, the clauses that don't show up on every job but can cost you everything when they do.

-Published by Dragonfly Insurance