What is A Construction Contract Agreement?

A construction contract agreement is the document that sets a date and specifies which parties are
going to participate in the construction process. Usually the contract agreement is executed
between the Owner of the project and the contractor or supplier that is providing the requested
services and contains several sections of clauses defining the scope, terms and conditions of such
agreement.
Contract Agreements Sections
A contract agreement should have the following sections:
1. Project Description- This section of the contract agreement contains a blurb or extract of
what the project is about. The most important idea or description of the problem being
addressed. It can be a summary of items or just a paragraph defining what needs to be
solved.
2. Contract Price This area will describe the type of contract price been awarded and the
total amount of money being contracted. It will also set possible additions or deductions
to the contract and how they are going to be released. There are many variations and
different schemes on how to negotiate the right pricing structure.
3. Payment Basis- How the money is going to be paid to the contractor. Either on a monthly
basis or whatever payment method is preferred, it should also specify what percentage of
money should be retained on every application for payment. It will also define when the
payment is due, the penalty for late payments, interest being accrued and other applicable
situations related to the payment and invoicing terms.
4. Construction Schedule or Calendar- The total of days or how the project schedule will be
divided. It should describe either calendar days or business days and can be presented
either through a CPM, Gantt Chart, or just a bar chart.
5. Contract Document List A list of all contract documents that form part of the contract
agreement. Drawings, exhibits, specs and supplemental conditions can be part of this list.
6. Construction Scope - Description of all construction activities including some
descriptions of things that will form part of the project. The scope normally can be
measured or quantifiable.
7. Construction Conditions & Responsibilities The section of conditions and
responsibilities is the one that sets responsibilities for the owner and the contractor, and
the extents of who is responsible for providing documents and information. It contains
specific terms for liens, penalties, withholding, arbitration rules and specific instructions
on how to process claims and proceed with disputes.

8. Contract Laws- Governing laws, liens requirements, claims procedures, arbitration

procedures, insurance, substantial completion requirements, final completion, and
liquidated damages. It can also provide procedures on how to terminate or suspend the
work and the agreement with the contractor.
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How to Write a Solid Statement of Work (SOW)?
The Statement of work, sometimes called the scope of work, can do a great construction
contract even better. A well written statement of work must be clear, complete, logical and
concise enough to be understood by the contractor and the construction manager that will be
providing the administrative portion of the contract. The SOW must describe in details the
expected performance of the contractor, converting it into a measuring tool for the construction
manager. The scope of work must be prepared with help from corresponding departments and
professionals that will eventually will take part of the developing and construction process. For
example, a scope work for a drywall contractor, will include, types of interior finishes required,
designs, material needed, prices and budget, the deadline, special requirements, etc.
What Type of Wording do I Need?
A statement of work wording is vital and must be clear to reduce claims, litigation and other
related problems.
A scope of work is the preferred method used in the construction industry to even get
construction financing and will be the base for your construction insurance company when
providing the proper bonding. A nice SOW should avoid arguable or ambiguous phrasing and
must identify the project deliverable and its objectives. Special emphasis should be given to the
statement of work wording to avoid or make impossible two different interpretations of the
same SOW. If an action is mandatory, the statement of work wording will contain the words
shall or must. A contractor that receives the scope of work that is unclear, might refrain from
participating in the bidding process. The statement of work should avoid including cost of
products or services that a contractor may claim they were supposed to furnish or provide.
Statement of Work Basic Components
A statement of work should have the following components:

Project Overview- A brief statement describing the business needs and a short summary
of the project description.

Project Deliverables- This section should include all the expected goals and targets
that must be achieved through the project. It must include all related information that will
help a contractor in understanding the project's requirement.

Project Scope This section of the statement of work should contain, in terms of budget
and technical data, the quantifiable goals set forth under the construction contract, Is an
essential part of the SOW. Statement of work scopes might divide the document in two
parts:

a. Technical considerations - Specific technical or methodologies relevant to the contractor's

performance and how he will be measured against
b. Tasks Specific requests and tasks that are needed to satisfy project objectives, with detailed
milestones and results that should be obtained from these tasks.

Project Schedule- Summarize the project schedule including all related task so the
contractor can deliver on time. This section of the statement of work (sow) should contain
all important delivery dates, time restrictions and the expected project duration.

Project Management- The management section of the SOW must contain a description
of how payments will be issued, change control process, specific contract and legal
requirements, phasing or stages of the project and the project's limitations. It is also the
area on which time management and contract administration will be specified.

How Accurate the Scope of Work Needs to Be?

Follow these guidelines to determine if you are preparing or receiving a complete Scope of Work
(SOW):
If these items form part of your SOW document, then you are off to a good start, if not, you can
be exposed to claims and adverse situations that might affect cost and schedule in your project.

The SOW identifies the contractor's responsibilities.

Provides precisely contract objective and project requirements.

The SOW provides enough details to estimate labor costs.

Includes a contracting method and the payment schedule.

The Statement of Work has only one interpretation.

The SOW explains standards, regulation and special contract requirements.

The Statement of Work presents in a clearly manner all related task, duties and limitations
to obtain expected results according with the project goal.

3. General Conditions
This contract document will define the obligations and rights on how to execute the project.
Overhead costs, what to claim and your rights must be included in this portion of the contract.
4. Special Conditions

This is usually an extension of the contract and to the general conditions. This part must specify
specific conditions and clauses to each particular project or job. Pay special attention to specific
instructions and requirements on how to perform the work.
5. Bill of Quantities
This is formed by the list of diverse trades, and materials included that form part of the
construction. Sometimes this document is not required by the contracting officer.
6. Drawings
All set of drawings that form part of the job to be performed. These drawings are usually the
latest drawings and must be received by the contractor prior to the date of commencement. It
must include all drawings from consultants, and will constitute the entire project being
contracted.