Understanding Your Construction Contract

Most owners walk into a contract signing thinking of it as a price agreement. The contractor builds the house for this amount of money, and the contract makes that official. That framing is understandable, but it misses what the contract actually does. This guide explains what construction contract documents contain, how they are structured, and what owners should understand before signing.

Last updated: March 2026

1. What a Construction Contract Actually Is

Most owners walk into a contract signing thinking of it as a price agreement. The contractor builds the house for this amount of money, and the contract makes that official. That framing is understandable, but it misses what the contract actually does.

A construction contract is the document that governs every interaction between the owner and the contractor for the next 12 to 24 months. It defines how changes are requested and priced. It establishes who has authority to make decisions and when. It determines how disputes are resolved, how payments are processed, what happens if the schedule slips, and what happens if either party wants to walk away. The price is one provision among dozens, and on a complex residential project, it is rarely the provision that matters most during construction.

The Agreement is the deal-specific document. It identifies the parties, describes the scope of work by reference to the construction documents (the drawings and specifications prepared by the architect), establishes the contract sum or guaranteed maximum price, sets the schedule, defines payment terms, and addresses insurance requirements. Think of the Agreement as the terms of this particular project.

The General Conditions are the operational rules that govern how the contract works in practice. How are change orders initiated and priced? What is the architect's authority during construction? What constitutes substantial completion? How are disputes resolved? What are the conditions for withholding payment? The General Conditions apply the same framework across projects, which is why they are published as a separate standardized document rather than being rewritten from scratch for each contract.

Together, the Agreement and the General Conditions form what is called the prime contract, which is the contract between the owner and the general contractor or construction manager. This is distinguished from subcontracts (the agreements between the general contractor and the individual trade contractors who perform the work) and the owner-architect agreement (the separate contract between the owner and the architect for design and construction administration services). The prime contract is the document the owner signs. It is the one that defines the owner's rights, obligations, and financial exposure.

2. The AIA Contract Family

The American Institute of Architects has published standardized construction contract documents since 1888. These are not government forms. They are consensus documents developed over more than a century of industry practice, revised periodically by committees that include architects, contractors, owners, attorneys, and insurance professionals. Their purpose is to allocate risk, define responsibilities, and establish procedures in a way that reflects how construction projects actually work.

AIA documents are the industry standard for residential construction contracts on custom home projects throughout Los Angeles and nationally. Architects are trained on them. Attorneys are familiar with them. Lenders accept them. Courts have interpreted their provisions extensively, which means there is a body of case law that provides clarity on what the language actually means when disputes arise. This interpretive history is one of the practical advantages of using standardized documents rather than custom-drafted contracts.

There are several AIA document families relevant to residential construction. The most commonly used on custom home projects in the $3M to $15M range across the greater Westside, Pacific Palisades, Bel Air, Malibu, and Beverly Hills are the following:

Owner-Contractor Agreements

A101-2017 (Stipulated Sum). This is the standard lump-sum contract for Design-Bid-Build projects, where the owner and architect complete the design, solicit bids from contractors, and award the project to a contractor at a fixed price. The contract sum is established before construction begins and changes only through formal change orders. A101 is used with A201-2017 General Conditions.

A102-2017 (Cost of the Work Plus Fee with GMP). This agreement is used when payment to the contractor is based on the actual cost of the work plus a fee, subject to a guaranteed maximum price. It provides the owner with cost transparency (the owner sees every invoice and subcontract) while capping the total exposure at the GMP. A102 is also used with A201-2017 General Conditions. For a deeper discussion of how GMP pricing works in practice, including the shared savings mechanism and contingency management, see our guide on budget development and cost control.

A103-2017 (Cost of the Work Plus Fee without GMP). A103 is the cost-plus agreement without a guaranteed maximum price. The owner pays the actual cost of the work plus a fee, but there is no price ceiling. Instead of a GMP, the contractor maintains a Control Estimate that is updated as the project progresses, giving the owner a running projection of total cost. A103 is used when the scope of work is not sufficiently defined to establish a meaningful GMP at the time of contracting. It provides the same cost transparency as A102 (the owner sees every invoice), but the cost risk sits with the owner rather than being capped. A103 is used with A201-2017 General Conditions. It is uncommon on residential projects because most owners want the protection of a price ceiling, but it can be appropriate in situations where the project is moving forward before the design is complete enough to support a GMP.

A133-2019 (CM at Risk with GMP). This is the agreement used when the owner engages a construction manager as constructor (CMR, or CM at Risk) to provide both preconstruction advisory services and construction services. A133 is structured in two phases. During preconstruction, the CM works alongside the architect and owner to evaluate constructability, develop the budget, and identify scope risks before the design is complete. When the design reaches sufficient completion, the CM proposes a guaranteed maximum price. If the owner accepts the GMP, the CM proceeds with construction and assumes financial responsibility for delivering the project within that price. A133-2019 is coordinated for use with A201-2017 General Conditions. For background on what CMAR is and why this delivery method is used on complex residential projects, those guides cover the topic in depth.

A134-2019 (CM at Risk without GMP). A134 is the counterpart to A133 for projects where the construction manager provides the same two-phase structure (preconstruction advisory services followed by construction) but without a guaranteed maximum price. Like A103, A134 uses a Control Estimate rather than a GMP to track projected costs. The CM is still engaged early, still provides preconstruction services, and still transitions to constructor, but the owner does not have the protection of a price cap. A134 is rarely used on residential projects for the same reason as A103: most owners want a cost ceiling. It is coordinated for use with A201-2017 General Conditions.

A141-2014 (Design-Build). This agreement is used when a single entity provides both design and construction services. The owner contracts with one firm that is responsible for the entire project. Design-Build can simplify the contractual structure, but it also changes the owner's oversight position because the architect works for the design-builder rather than independently for the owner. For residential projects, AIA also publishes A145-2015, a version specifically written for one- or two-family residential projects.

The General Conditions

A201-2017 (General Conditions of the Contract for Construction). This is the companion document to the A-series agreements listed above. A201 is incorporated by reference into A101, A102, and A133. It establishes the rights, responsibilities, and relationships among the owner, contractor, and architect. It runs over 30 pages in its standard form and covers everything from change order procedures to dispute resolution to termination provisions. We will walk through its key provisions in detail in Section 4 below.

The Owner-Architect Agreement

B101-2017 (Standard Form of Agreement Between Owner and Architect). This is the contract between the owner and the architect for design and construction administration services. It defines the architect's scope, compensation, and obligations across all five phases of a project. While the owner does not sign B101 with the contractor, the architect's role during construction is defined in both B101 and A201, and understanding how those documents interact is important for any owner managing a custom home project. We cover B101 in Section 6 below.

Short-Form and Residential Alternatives

A105-2017 is a short-form owner-contractor agreement for residential or small commercial projects. It is a stand-alone document that includes its own general conditions, eliminating the need for a separate A201. A105 is limited to stipulated-sum (fixed-price) projects and is appropriate for projects of limited scope and duration.

A110-2021 is a newer document written specifically for custom residential projects. Like A105, it is a stand-alone agreement with its own internal general conditions. Unlike A105, it can accommodate either a stipulated sum or cost-plus-fee arrangement, with or without a GMP. A110 was developed with input from residential architects and contractors to address the specific characteristics of custom home projects, including prompts for state-specific residential requirements such as California's home improvement contract provisions.

A104-2017 is an abbreviated form that falls between A105 and the full A101 in complexity. It can accommodate stipulated sum or cost-plus payment methods and is intended for projects that need more structure than A105 provides but less than A101 requires.

Current Edition Summary

Choosing which agreement to use depends on the delivery method for the project. The delivery method determines the contractual relationship between the owner, contractor, and architect, which in turn determines which AIA documents apply. Our guide on CM at Risk vs. advisor compares the major delivery methods and how each one allocates cost risk, schedule risk, and oversight responsibility.

3. The Owner-Contractor Agreement: What Each Document Covers

The Agreement document itself is typically 15 to 25 pages depending on which form is used. It establishes the deal-specific terms for the project. While each document has a different structure, they all address the same core topics.

What Every Agreement Covers

• Identification of the parties. The owner, the contractor (or construction manager), and the architect are all identified. The architect is identified because A201 assigns specific authority and obligations to the architect during construction, even though the architect is not a party to the owner-contractor agreement.
• The scope of work. The Agreement defines the work by reference to the Contract Documents, which include the drawings, specifications, addenda, and any other documents identified in the Agreement. The contract does not describe the work in prose. It points to the construction documents prepared by the architect and says: this is the work. This is why the completeness of the construction documents matters so much to the contract. If the drawings and specifications are ambiguous, incomplete, or contradictory, the contract does not resolve those ambiguities. They become change orders. The feasibility report and preconstruction process exist in part to identify these issues before they become contractual problems.
• Payment terms. How and when the contractor gets paid: the schedule of values, the pay application process, the architect's review and certification, retainage provisions, and conditions for final payment.
• The schedule. The contract date of commencement, the substantial completion date, and any interim milestones. For a discussion of what drives construction timelines in Los Angeles specifically, including permitting delays and inspection sequencing, see our construction timeline guide.
• Insurance requirements. The types and amounts of insurance the contractor must carry. On the A133-2019, insurance and bond requirements have been moved to a separate Exhibit B that forms part of the agreement.

A101: Stipulated Sum

Under A101, the owner and contractor agree on a fixed price before construction begins. The contract sum is the total amount the owner will pay for the work, and it changes only through formal change orders approved by the owner and priced according to the procedures in A201.

The contract sum is typically supported by a schedule of values, which breaks the total into line items corresponding to different portions of the work (foundations, framing, mechanical, electrical, and so on). Each month, the contractor submits a pay application showing the percentage of completion for each line item, the architect reviews and certifies the application, and the owner pays accordingly.

Retainage under A101 is the percentage of each payment that the owner withholds until the work is substantially complete. Standard retainage is typically 5% to 10%. The retainage serves as a financial incentive for the contractor to complete the work and resolve punch list items. Under California law, the retention rate on private works projects is limited to 5% of the contract price (Civil Code Section 8814).

A102: Cost of the Work Plus Fee with GMP

A102 introduces transparency and a cost ceiling. Instead of a fixed price, the contractor is paid the actual cost of the work plus a fee (the contractor's compensation for overhead and profit). The total payment is subject to a guaranteed maximum price (GMP), which caps the owner's financial exposure.

The critical section of A102 is the definition of cost of the work. This definition determines what the owner pays for. It typically includes: labor costs (wages and benefits for the contractor's field and office personnel assigned to the project), subcontract costs, material and equipment costs, and other costs directly related to the project such as permits, testing, and temporary facilities. It excludes the contractor's home office overhead, which is covered by the fee.

A102 also typically includes a shared savings provision. If the actual cost of the work plus the fee comes in below the GMP, the savings are split between the owner and the contractor according to an agreed ratio. Common splits on residential projects range from 50/50 to 75/25 in favor of the owner, though this is negotiable. The shared savings mechanism gives the contractor a financial incentive to manage costs efficiently without sacrificing quality.

A103: Cost of the Work Plus Fee without GMP

A103 uses the same cost-plus-fee payment structure as A102 - the owner pays the actual cost of the work plus a contractor's fee - but without a guaranteed maximum price. There is no cap on the owner's financial exposure.

Instead of a GMP, A103 relies on a Control Estimate. The Control Estimate is the contractor's projection of the total cost of the work, updated periodically as the project progresses. It serves as a budgeting tool and a benchmark for tracking actual costs against projections, but it is not a contractual price commitment. If actual costs exceed the Control Estimate, the owner pays the difference. The contractor has no obligation to absorb overruns.

The definition of cost of the work in A103 is nearly identical to A102. The owner sees all costs, has audit rights, and the contractor's fee is defined separately from reimbursable expenses. The transparency mechanisms are the same. What is different is the risk allocation: the owner carries the cost risk that, under A102 or A133, would be capped by the GMP.

A103 is uncommon on residential projects. Most owners in the $3M to $15M range want the cost protection that a GMP provides. Where A103 is occasionally used is on projects that need to begin construction before the design is developed enough to support a meaningful GMP - for example, emergency stabilization work on a hillside property or early-phase site work on a project with a compressed schedule. In practice, many projects that start under A103-like arrangements eventually transition to a GMP structure once the scope is sufficiently defined.

A133: CM at Risk with GMP

A133 is structured in two phases, which distinguishes it from A101 and A102.

Phase 1: Preconstruction. The construction manager is engaged before the design is complete to provide preconstruction services: constructability review, cost estimating, schedule analysis, trade contractor prequalification, and value engineering. The CM works alongside the architect to help the owner understand the cost and schedule implications of design decisions as they are being made, rather than after the fact. This phase is governed by a separate compensation structure (typically a fixed fee or hourly basis).

Phase 2: Construction. When the design reaches a point where a meaningful GMP can be established (often at the end of design development or during construction documents), the CM prepares a GMP Proposal. This proposal becomes the Guaranteed Maximum Price Amendment (Exhibit A), which the owner may accept, reject, or negotiate. Once the GMP Amendment is executed, the CM assumes financial responsibility for delivering the project at or below the guaranteed maximum price and the project transitions to a cost-plus-fee structure with the same mechanics as A102.

The two-phase structure means the owner has the benefit of the CM's cost and constructability input during design (when decisions have the greatest impact on cost) and the protection of a price cap during construction. Our guide on why CMAR is used on complex projects explains the operational advantages of this structure, and the budget development and cost control guide explains how the GMP is developed and managed throughout construction.

A134: CM at Risk without GMP

A134 follows the same two-phase structure as A133 - preconstruction advisory services followed by construction - but without a guaranteed maximum price. The CM provides the same preconstruction services (cost estimating, constructability review, scheduling, trade contractor prequalification), but when the project transitions to the construction phase, the owner pays the actual cost of the work plus a fee with no price cap.

Like A103, A134 uses a Control Estimate rather than a GMP Amendment to track projected costs. The Control Estimate is revised as the project progresses, and the owner monitors actual costs against it, but the contractor has no contractual obligation to absorb overruns above that estimate.

A134 is rarely used on residential projects. The primary advantage of the CMAR delivery method for most owners is the combination of early preconstruction involvement and the eventual cost certainty of a GMP. Removing the GMP eliminates one of the principal reasons owners choose CMAR in the first place. Where A134 may appear is on fast-tracked projects where the owner and CM need to begin construction before the design is far enough along to support a GMP, but the owner still wants the CM's preconstruction input during design. In many of these cases, the parties may start under A134-like terms and amend to include a GMP once the scope is defined.

Key Differences at a Glance

4. A201 General Conditions: The Rulebook

A201-2017 is the document most owners never read and the one that governs the most consequential decisions during construction. It runs over 30 pages and is organized into 15 articles. It is not exciting reading, but it is the operational manual for the project, and understanding its key provisions prevents surprises.

The following is not a clause-by-clause review. It is a summary of the provisions that come up most frequently on residential projects, written from the perspective of what an owner should understand about how the contract works in practice.

The Architect's Authority (Article 4)

A201 assigns the architect a specific role during construction that goes beyond what most owners expect. Under Article 4, the architect is the Initial Decision Maker for claims and disputes between the owner and contractor. The architect reviews and certifies pay applications. The architect evaluates proposed change orders. The architect determines whether the work conforms to the contract documents. The architect determines the dates of substantial completion and final completion.

This is the independent oversight mechanism built into the AIA contract structure. The architect is not working for the contractor. The architect has a separate contract with the owner (B101) and is charged with administering the construction contract impartially. For a more detailed discussion of what the architect's role looks like in practice during construction, see our guide on the architect's role.

Changes in the Work (Article 7)

Change orders are the single most common source of friction on residential projects, and Article 7 establishes the framework for how they work.

A Change Order is a written instrument signed by the owner, contractor, and architect, stating their agreement upon a change in the work, the contract sum, or the contract time, or any combination of these. All three parties must agree.

A Construction Change Directive is a written order prepared by the architect and signed by the owner and architect, directing a change in the work before the owner and contractor have agreed on the cost or schedule impact. The directive allows work to proceed while the pricing is negotiated. The contractor is obligated to perform the work directed by a Construction Change Directive, and the cost is determined subsequently based on a method established in A201 (typically the contractor's actual cost plus an agreed markup).

Payment (Article 9)

Article 9 governs how the contractor gets paid. The process works like this: the contractor submits a monthly Application for Payment based on the schedule of values. The architect reviews the application, verifies progress, and issues a Certificate for Payment to the owner. The owner then pays the certified amount within the period specified in the Agreement (typically 30 days).

The architect's certification is not a guarantee that the work is defect-free. It is a statement that, to the best of the architect's knowledge and based on the architect's observations, the work has progressed to the point indicated and the quality is in general accordance with the contract documents.

Retainage is addressed in Article 9. The standard A201 permits retainage to be reduced after the work reaches 50% completion if the architect certifies that the contractor's performance is satisfactory. In California, as noted above, retention on private works is limited to 5% of the contract price.

The owner may withhold payment for several specific reasons listed in A201, including defective work not remedied, claims filed or likely to be filed by third parties, damage to the owner or another contractor, failure to carry out the work in accordance with the contract documents, or reasonable evidence that the work will not be completed within the contract time. Withholding payment is a significant contractual action and requires justification under these enumerated grounds.

Substantial Completion and Final Completion (Article 9)

Substantial Completion is the point at which the work is sufficiently complete that the owner can occupy or use the project for its intended purpose. The architect determines the date of substantial completion and issues a Certificate of Substantial Completion, which establishes the owner's responsibilities for insurance, maintenance, and utilities from that date forward. A punch list of items still to be completed or corrected is prepared at this time. Substantial completion also typically triggers the start of warranty periods.

Final Completion occurs when all punch list items have been resolved, all closeout documents have been submitted (warranties, as-built drawings, operations manuals, final lien waivers), and the architect certifies that the contractor has fulfilled all obligations under the contract. Final payment, including release of retainage, is due upon final completion.

Dispute Resolution (Article 15)

A201 establishes a multi-step dispute resolution process. Claims are first directed to the architect as Initial Decision Maker. If the claim is not resolved, the parties proceed to mediation as a condition precedent to arbitration or litigation. After mediation, the standard A201 provides the parties with a choice between binding arbitration and litigation in court.

The choice between arbitration and litigation is made in the Agreement document, not in A201. Both options have tradeoffs. Arbitration is typically faster and private but offers limited grounds for appeal. Litigation provides more procedural protections and a right of appeal but is slower and public. This is a decision that owners should discuss with their attorney before signing.

Termination (Article 14)

A201 provides for two types of termination.

Termination by the owner for cause (Section 14.2) permits the owner to terminate the contractor if the contractor persistently fails to carry out the work in accordance with the contract documents, persistently disregards applicable laws or regulations, or is otherwise in substantial breach. The owner must give written notice and an opportunity to cure before terminating for cause.

Termination by the owner for convenience (Section 14.4) permits the owner to terminate the contract at any time for the owner's convenience, even if the contractor has done nothing wrong. Upon termination for convenience, the contractor is entitled to payment for work properly completed, costs incurred by reason of the termination, and the contractor's fee on work completed. Termination for convenience is a significant provision because it establishes the owner's exit rights, but it comes with financial obligations.

5. What "General Conditions" Means as a Cost Category

This section addresses a source of confusion that comes up on almost every project. The term "general conditions" refers to both the contract document (A201, discussed above) and a cost category on the project budget. The two are unrelated, and the overlap in terminology creates unnecessary confusion.

General conditions as a cost category are the non-trade-specific costs of running a construction project. These are the expenses that are not attributable to a specific trade (like framing, plumbing, or electrical) but are necessary to manage and support the work. On a typical complex residential project in Los Angeles, general conditions include:

• Site supervision (superintendent, project manager on site)
• Project management and coordination
• Temporary power and utilities
• Temporary facilities (portable toilets, dumpsters, construction fencing, temporary storage)
• Safety equipment and compliance
• Site clean-up and debris removal
• Equipment rental (cranes, hoists, scaffolding)
• Temporary protection of finished work
• Project photography and documentation
• Scheduling and logistics management

How general conditions costs appear in the contract depends on the delivery method. Under a lump-sum contract (A101), general conditions are embedded in the contractor's bid and are not visible to the owner as a separate line item. The owner pays one number and does not see how it is allocated. Under a cost-plus contract (A102, A103, or A133), general conditions are typically a defined line item in the budget, billed monthly as actual costs incurred. On a CMAR project with a GMP, general conditions are a specific budget category within the GMP that the construction manager manages against a defined allowance.

Projects in tight urban lots in Brentwood or the Hollywood Hills may also carry higher general conditions costs due to neighbor coordination requirements, traffic management, and limited staging area.

For a complete discussion of how construction costs are structured on residential projects in Los Angeles, including the relationship between hard costs, soft costs, and general conditions, see our guide on construction costs in Los Angeles.

6. The Owner-Architect Agreement (B101)

B101-2017 is the contract between the owner and the architect. It is a separate document from the owner-contractor agreement, but the two are closely connected. The architect is referenced throughout A201 as having specific authority and obligations during construction. B101 defines what the owner is paying the architect to do. A201 defines how the architect functions within the construction contract.

The Five Phases of Architectural Services

B101 organizes the architect's basic services into five phases:

Schematic Design (SD). The architect develops the initial design concept based on the owner's program and project requirements. SD produces preliminary floor plans, elevations, and enough design development to establish the character and scope of the project.

Design Development (DD). The architect refines the schematic design into more detailed drawings that fix and describe the size, character, and quality of the project. DD typically includes preliminary structural, mechanical, and electrical coordination with the architect's engineering consultants. At the end of DD, the project should be sufficiently defined that a meaningful cost estimate can be prepared. On a CMAR project, this is often when the GMP proposal is developed.

Construction Documents (CD). The architect prepares the detailed drawings and specifications that will be used for permitting and construction. These are the contract documents referenced in the Agreement. The completeness and accuracy of the construction documents directly affects the number of change orders during construction, the permitting timeline, and the contractor's ability to build the project as designed. For a discussion of how the permitting process relates to the construction documents, that guide covers the topic.

Procurement (Bidding/Negotiation). The architect assists the owner in obtaining bids or negotiated proposals from contractors. On a CMAR project, this phase overlaps with the preconstruction process because the construction manager is already engaged.

Construction Administration (CA). This is the phase that runs concurrently with construction and is the most relevant to the owner-contractor relationship. During CA, the architect visits the site at intervals appropriate to the stage of construction, reviews and certifies pay applications, evaluates change order proposals, reviews submittals (shop drawings, product data, samples), and determines the dates of substantial and final completion.

What CA Is and What It Is Not

Understanding the scope of construction administration is important because many owners assume the architect's involvement during construction is more extensive than it actually is.

What the architect does provide is periodic independent evaluation of whether the work conforms to the construction documents. The architect reviews submittals to confirm that the products and systems proposed by the contractor are consistent with the design intent. The architect reviews pay applications to verify that progress warrants the payment requested. The architect evaluates proposed changes to determine whether they are within the scope of the original contract or constitute additional work.

This distinction between periodic oversight and continuous supervision is significant. Owners who assume that their architect is "watching the job" every day may be surprised to learn that the contract does not require that level of presence. For owners who want more intensive oversight than CA provides, our guide on CM at Risk vs. advisor explains the differences between a CM at Risk and an owner's representative arrangement and how each model affects the owner's day-to-day involvement.

7. What Owners Should Pay Attention to Before Signing

This section is not legal advice. It is a set of practical observations from a construction professional who has worked under these agreements on dozens of projects in the Los Angeles residential market. Every owner should have their attorney review the contract before execution. What follows is a guide to the provisions that tend to have the most operational impact once construction is underway.

Payment Terms and Retainage

Understand how and when the contractor gets paid. Review the pay application schedule (typically monthly), the architect's certification process, the timeline for owner payment after certification (typically 30 days), and the retainage provisions. Under California law, retention is limited to 5% of the contract price on private works, and the prime contractor must pay each subcontractor's retention within 10 days of receiving it from the owner (Civil Code Section 8814).

The Change Order Process

Understand who has authority to authorize changes and what the pricing mechanism is.

Dispute Resolution

Know whether the contract calls for arbitration or litigation and understand the implications of each. This is a decision that is often left as a blank or a check-box in the Agreement and defaults to a particular option if not addressed. It is worth discussing with your attorney.

Insurance Requirements

The contract specifies the types and amounts of insurance the contractor must carry, including commercial general liability, workers' compensation, automobile liability, and potentially builder's risk and umbrella coverage. On complex residential projects, the insurance requirements should be coordinated with the project's risk profile. A hillside project in Pacific Palisades may require different coverage than a flat-lot project in Brentwood.

Termination Provisions

Read the termination provisions in both directions. Understand what grounds exist for termination for cause, what the notice and cure requirements are, and what the financial consequences of termination for convenience are. Termination for convenience in particular is a provision that owners sometimes overlook. It establishes the owner's right to end the contract without cause, but it also defines what the owner must pay the contractor upon termination.

Definition of "Cost of the Work"

On cost-plus and GMP contracts (A102, A103, and A133), the definition of "cost of the work" is the provision that determines what the owner pays for. Review what is included (labor, subcontracts, materials, equipment, temporary facilities) and what is excluded (home office overhead, which is covered by the fee). If the contract includes specific categories of reimbursable expenses or non-reimbursable expenses, make sure you understand where the lines are drawn.

The Savings Split

On GMP contracts, the shared savings provision determines how savings below the GMP are divided between the owner and the contractor. This ratio is negotiable and is typically specified in the Agreement. Understand the ratio and how it interacts with the contingency. The contingency is a line item within the GMP that covers unforeseen conditions and scope clarifications. Unused contingency at the end of the project is typically part of the savings that get split.

Allowances

Schedule Provisions

Understand what the contract says about the construction schedule, delay provisions, and any liquidated damages for late completion. On most residential projects, the contract establishes a substantial completion date but does not include liquidated damages. Delays are addressed through requests for time extensions under the change order process. If the contract does include liquidated damages, understand the daily rate and the conditions under which it applies.

8. California-Specific Contract Requirements

AIA contracts are national documents. They provide a solid framework, but California has additional statutory requirements that apply to residential construction contracts regardless of what form is used. Owners and contractors working in Los Angeles need to be aware of these requirements because they supplement and in some cases override the AIA provisions.

CSLB Home Improvement Contract Requirements

California Business and Professions Code Section 7159 establishes detailed requirements for home improvement contracts, which include most residential construction, remodeling, and repair work. The requirements apply to contracts over $500 and include over 90 separate provisions. The key requirements are:

• The contract must be in writing and signed by both parties before work begins
• It must include the contractor's name, business address, and CSLB license number
• It must include a description of the work, approximate start and completion dates, and the total contract price
• It must include specific statutory notices regarding the owner's cancellation rights, lien rights, and payment terms
• The down payment cannot exceed $1,000 or 10% of the contract price, whichever is less

Mechanics Lien Rights

California Civil Code Sections 8000 through 9566 govern mechanics lien rights on construction projects. A mechanics lien is a legal claim against the owner's property that can be filed by any party who has provided labor or materials to the project and has not been paid, including subcontractors and material suppliers who have no direct contract with the owner.

The mechanics lien framework includes several components that affect the owner directly.

Preliminary notices. Subcontractors and suppliers must serve a preliminary 20-day notice within 20 days of first furnishing labor or materials to the project to preserve their lien rights. Owners will receive these notices throughout the project. They are not claims. They are a procedural requirement that preserves the sender's right to file a lien if they are not paid.

Lien Release Waivers

California Civil Code Sections 8132, 8134, 8136, and 8138 establish four statutory forms of lien waiver and release. There are two types (conditional and unconditional) and two stages (progress payment and final payment):

• Conditional waiver: Releases lien rights only when the referenced payment clears
• Unconditional waiver: Releases lien rights immediately upon signing, regardless of whether payment has been received

The "progress" versions apply to individual pay periods. The "final" versions apply to the entirety of the work.

Owners should require these waivers consistently with every payment. AIA contracts include provisions addressing lien waivers, but the specific California statutory forms must be used to ensure compliance.

The California Right to Repair Act

The Right to Repair Act (California Civil Code Sections 895 through 945.5, also known as SB 800) establishes building performance standards and pre-litigation procedures for residential construction defect claims on new construction. The Act applies to new residential construction and covers a broad range of building performance standards, including water intrusion, structural integrity, mechanical systems, and exterior elements.

The Act establishes a pre-litigation process: the homeowner provides written notice of the alleged defect, the builder has the right to inspect and offer to repair, and mediation is available before litigation. The statute of limitations for claims under the Right to Repair Act is generally 10 years from substantial completion.

Retention Under California Law

As noted in several sections above, California Civil Code Section 8814 limits retention on private works of improvement to 5% of the contract price. The prime contractor must pay each subcontractor their share of retention within 10 days of receiving it from the owner. Failure to make timely retention payments can subject the withholding party to a penalty of 2% per month on the amount wrongfully withheld, plus attorney's fees for the prevailing party in a collection action.

9. Frequently Asked Questions

This guide is provided for general informational purposes only and does not constitute legal advice. Construction contracts involve complex legal and financial obligations. Every owner should have their attorney review the contract before execution. The information presented here reflects the author's professional experience with AIA contracts on residential projects in Los Angeles and may not apply to all situations, jurisdictions, or contract forms. Benson Construction Group, Inc. is not a law firm and does not provide legal services.