Protecting Your Investment by Spotting Problem Clauses Before You Sign

A construction contract is more than just a price quote and a handshake on paper. It is the blueprint for your entire project, defining responsibilities, timelines, payments, and, crucially, what happens when things go wrong. Signing a poorly written or predatory contract can turn your dream project into a financial and emotional nightmare. While it's essential to have a lawyer review any major contract, every homeowner should know how to spot the most common and dangerous red flags. Before you put pen to paper, scrutinize your contract for these warning signs that signal it’s time to walk away or demand changes.

1. Vague or Incomplete Scope of Work

   This is the biggest and most common red flag. The scope of work should be an incredibly detailed, itemized description of every single task, material, and product to be used.

• Red Flag: Phrases like "includes all necessary labor and materials," "standard installation," or "builder-grade fixtures" without specific brands, models, sizes, and quantities.
• Why It's Bad: This vagueness gives the contractor room to use the cheapest possible materials and claim extras for things you assumed were included. It leads to change orders, disputes, and budget overruns.
• Green Flag: A detailed exhibit or list specifying everything, e.g., "15 rolls of XXX brand felt paper," "Install 50 sq. ft. of YYY brand quartz countertop in 'Carrara White,'" and "Paint walls with two coats of ZZZ brand paint in Eggshell finish."

2. Lack of a Payment Schedule

   A reputable contractor will never ask for full payment upfront.

• Red Flag: A demand for a large down payment (more than 10-15%) or full payment before any work begins.
• Why It's Bad: This removes all leverage you have to ensure the work is completed to standard. It's a sign of poor cash flow or, worse, a potential scam.
• Green Flag: A clear, milestone-based payment schedule tied to the completion of specific, verifiable work phases (e.g., 10% upon signing, 25% after foundation pour, 30% after framing inspection passed, etc.), with a significant portion (10-15%) held until final punch list completion.

3. No Permit Responsibility Clause

   Permits are a non-negotiable part of most structural, electrical, and plumbing work.

• Red Flag: The contract is silent on permits or states that the homeowner is responsible for pulling them.
• Why It's Bad: The contractor is the expert and should know what permits are required and how to get them. Making you responsible is a way to avoid liability for unpermitted or non-code-compliant work.
• Green Flag: A clause explicitly stating that the contractor will secure all necessary permits and schedule all required inspections.

4. An Unclear or One-Sided Change Order Process

   Changes are inevitable, but how they are handled is critical.

• Red Flag: No defined process for change orders, or a clause stating that any change gives the contractor the right to increase the overall price and timeline at their discretion.
• Why It's Bad: This opens the door for price gouging. You need a formal, written process for authorizing changes, with agreed-upon pricing before the work begins.
• Green Flag: A section that mandates all change orders must be in writing, signed by both parties, and include a fixed price and adjusted timeline for the additional work.

5. Overly Broad Lien Waivers

   Contractors and subcontractors can place a lien on your home if they aren't paid.

• Red Flag: The contract asks you to sign a "blanket" or "unconditional" lien waiver upfront or upon each payment.
• Why It's Bad: Signing an unconditional waiver upon payment means you’re stating they have been paid in full for all work and materials to date, even if they haven't. If they don't pay their suppliers, those suppliers can still lien your house, and you've given up your protection.
• Green Flag: You should sign a "conditional" lien waiver upon payment, which only becomes effective once the contractor's check clears the bank.

6. Lack of Warranty Information

   A contractor should stand behind their work.

• Red Flag: No mention of a warranty on workmanship, or a vague promise that isn't in writing.
• Why It's Bad: If something fails in six months, you have no recourse.
• Green Flag: A clear, written warranty that specifies what is covered (labor and materials), for how long (e.g., 1 year on workmanship, manufacturer warranty on materials), and how to make a claim.

Your contract is your primary form of protection. If you see any of these red flags, do not ignore them. A trustworthy contractor will have a fair, thorough, and transparent contract because it protects both of you. Insist on clarity, and never be afraid to ask questions or seek legal counsel. It’s the best investment you can make before the first hammer swings.