What Should a Good Construction Contract Include?

1) The “who, what, where” basics (boring, essential, non-negotiable)

If your contract is missing basic identification details, that’s a problem. It should clearly state:

• Legal names of the owner(s) and the contractor/builder (not just a nickname or brand)
• Project address and legal description (especially for rural properties)
• Contract date and a start framework (more on timing later)
• Point of contact on both sides (who approves changes, who makes decisions)

This sounds obvious—until you’re six months in and someone says, “I thought your spouse was approving selections,” and your kitchen turns into a committee meeting.

2) Scope of work: the contract should describe what is actually being built

Scope is the heart of the agreement. A “good” contract doesn’t rely on assumptions—it spells things out. Ideally, scope includes:

If you want to avoid the classic “But I thought that was included…” conversation, read this first and use it as your comparison checklist: What’s typically included vs. excluded in the builder’s estimate.

3) Contract price structure: fixed price, cost-plus, or hybrid

A contract should clearly state what pricing model you’re using, because each one behaves differently:

Type	What it means	What must be in the contract
Fixed price	One price for a defined scope	Very clear scope, allowances, change order pricing method
Cost-plus	Actual costs + fee (percentage or fixed fee)	What counts as “cost,” fee structure, reporting, approvals, caps (if any)
Hybrid	Some fixed, some cost-plus (common in custom work)	Which parts are fixed vs variable, and how allowances/changes are handled

A good contract also addresses taxes (HST), and whether the price is stated “plus HST” or “HST included.” Clarity here prevents ugly surprises.

4) Allowances and selections: where budgets go to get sneaky

Allowances are placeholders—useful, but dangerous if they’re vague. A contract should include an allowance schedule that spells out:

• Each allowance item (kitchen, flooring, lighting, plumbing fixtures, tile, etc.)
• Dollar value for each allowance
• What it covers (supply only? supply + install? does it include delivery? does it include trim pieces?)
• What happens when you go over or under (and whether fees/markups apply)

5) Change orders: the contract needs a clean “how changes happen” system

Every custom project changes. The question is whether changes are controlled or chaotic. Your contract should require that changes are:

• Written (not a hallway conversation)
• Priced before work proceeds (or clearly identified as time-and-material if pricing must follow)
• Approved by the person who can legally commit the owner (and by the contractor)
• Schedule-adjusted if the change affects lead times or sequencing

If you do nothing else, do this: no change gets built until it’s signed. It’s amazing how much friendship and sanity that one rule preserves.

6) Payment terms: deposits, progress draws, and what “complete” means

Your payment schedule should match real milestones. A strong contract includes:

• Deposit rules (if any): how much, when, and what it covers
• Progress draws tied to milestones (not vague calendar dates)
• Definition of “substantial performance” and what triggers it (especially for final-stage payments)
• Holdback treatment (how it’s calculated, when it’s released, and under what conditions)
• Late payment terms (interest, suspension rights, and notice requirements)

7) Schedule and delays: define the “truth” about timelines

A good contract doesn’t promise a magical finish date with no context. It explains how timelines work. Look for clauses covering:

• Start conditions (permit issued, financing ready, deposit paid, selections underway, site accessible)
• Owner responsibilities (selection deadlines, approvals, access, timely decisions)
• Delays outside the builder’s control (weather, supply chain, inspections, utility connections)
• What happens if delays occur (schedule extensions, cost impacts, storage fees for delivered materials, etc.)

This is also where a good contract explains communication cadence: weekly updates, meeting schedule, and how decisions are documented.

8) Permits and inspections: who pulls permits and who coordinates sign-offs?

If your contract is fuzzy on permits, it’s not finished. It should state:

• Who applies for the building permit (owner, builder, designer)
• Who provides drawings and revisions
• Who schedules inspections and remedies deficiencies
• What happens if inspectors require changes (scope, cost, timing)

If you’re not sure how Ontario’s permit process should look, keep this handy: How to Get a Building Permit in Ontario.

9) Insurance, WSIB, and site safety: the “adulting” section

A good contract identifies who is responsible for what coverage and risk. Typically, you’ll see:

• General liability insurance carried by the contractor (and proof available on request)
• Builder’s risk / course of construction coverage (who provides it and what it covers)
• WSIB and safety compliance responsibilities (especially if owners plan to “help” on-site)
• Site security (fencing, lock-up, material storage, owner access rules)

This section matters because when something goes sideways, everyone suddenly becomes a lawyer—so it’s better to be clear while everyone is still friendly.

10) Warranties and deficiency process: define how issues get handled

Even with great work, deficiencies happen: a scratched door, a sticky latch, a settlement crack, a missing bead of caulk. A good contract includes:

• Deficiency list process (walkthrough timing, how lists are submitted, and expected correction timing)
• Manufacturer warranties (appliances, windows, roofing, HVAC)
• Builder workmanship warranty (what’s covered and for how long)

For many new homes in Ontario, warranty coverage is also part of the bigger picture. Tarion provides homeowner-facing warranty overviews that are worth reading before you sign anything: What is the new home warranty?.

11) Disputes, termination, and “what if things go bad?” (plan it while you still like each other)

Nobody wants to imagine conflict. But a good contract includes a clear off-ramp and a dispute plan so small issues don’t become disasters:

• Dispute escalation steps (meeting → written notice → mediation/arbitration/lawyer, depending on contract)
• Termination rights (for cause vs for convenience, notice requirements, payment for work performed)
• Suspension of work rules (non-payment, unsafe site conditions, owner delays)
• Document control (what records are shared and how approvals are tracked)

12) The clauses that prevent the biggest “surprise bills”

If you’re scanning a contract, these are the sections that usually decide whether the project stays calm or becomes a monthly mystery:

And if you want the “legal-meets-real-life” piece of the puzzle, liens and payment disputes are one of the reasons contracts need clear payment terms. Here’s the homeowner guide: How to Register a Construction Lien in Ontario.

FAQ: Construction contracts in plain English