When it comes to construction projects—whether you're building a new office, renovating a retail space, or constructing a dream home—a well-drafted construction contract is crucial. This contract is your roadmap, your shield, and your compass throughout the project. Yet, many owners sign on the dotted line without scrutinizing the fine print or having an attorney advise them.

Here are five red flags you should watch out for in any construction agreement:

1. Vague Scope of Work

The scope of work is the foundation of the entire agreement. If it's not clearly defined, disputes are almost inevitable.

Red Flag: Generic or ambiguous language like “builder shall complete the project as agreed” or “as needed.”

Why It Matters: Vague terms make it hard to hold the contractor accountable. They may argue that certain tasks or materials weren't part of the deal, resulting in unexpected change orders or subpar work.

Best Practice: Insist on a detailed description of the work, including specific materials and finishes and stating the costs of those finishes, dimensions, and any exclusions. Attaching the architectural plans, engineering specs, or a list of deliverables as exhibits is very important to make sure the Contractor is on the hook for building per the plans.

2. No Clear Payment Structure and No Retainage

Money disputes are the #1 reason construction projects derail.

Red Flag: Broad payment terms like “payment due upon completion” or “as work progresses” with no defined milestones.

Why It Matters: Without a clear schedule, you may overpay too early—or worse, pay for work that is never completed.

Best Practice: Require a detailed payment schedule tied to objective milestones (e.g., “50% due upon foundation completion,” “25% upon framing,” etc.). Also, clarify the process for approving change orders and how they affect the budget.  

Holding back between 5-15% of each payment also helps ensure the Contractor is motivated to finish the job.

3. Lack of Deadlines or Completion Dates

Time is money, especially in construction. Delays can cost you in financing, lost business opportunities, or tenant issues.

Red Flag: Contracts with open-ended timelines or generous language like “to be completed within a reasonable time.”

Why It Matters: Without firm deadlines and penalties, you have little leverage if the contractor falls behind.

Best Practice: Insert start and completion dates and include liquidated damages clauses—predetermined penalties for delays not caused by force majeure or change orders.

4. No Warranty or Defective Work Clause

Every reputable contractor should stand behind their work. If there's no warranty language, that's a bad sign.

Red Flag: The absence of a warranty clause—or worse, one that disclaims all warranties.

Why It Matters: If something goes wrong (e.g., cracked foundation, faulty wiring), and there's no warranty, you may be left footing the bill.

Best Practice: Include a minimum one-year workmanship warranty and confirm that manufacturer warranties for installed systems (e.g., HVAC, appliances) will be passed on to you.

5. Dispute Resolution Language That Favors the Contractor

Contracts often include a dispute resolution clause, but these can be skewed.

Red Flag: Arbitration required in the contractor's preferred jurisdiction or clauses that require you to pay all legal fees regardless of outcome.

Why It Matters: You may find yourself fighting an uphill legal battle on foreign turf, or discouraged from enforcing your rights because of unfair fee provisions.

Best Practice: Negotiate neutral dispute resolution provisions, preferably in your home jurisdiction, with fair cost-sharing. Consider mediation as a first step before arbitration or litigation.

Final Thoughts

Construction contracts are often boilerplate—and that's the problem. One-sided agreements favoring the contractor can leave the owner vulnerable to delays, cost overruns, and quality issues.

Don't sign a construction agreement without a thorough review. Better yet, have a business-savvy attorney read it first. Identifying and addressing red flags early can save you tens of thousands later.