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Do I need a contract for my construction project?

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The short answer is yes! Whether you’re embarking on a simple project or a built-from-the-ground-up mansion, a properly executed contract will help. Contracts are essential because they can set clear expectations and responsibilities.


In its simplest form, a contract is an agreement—an offer by one party and an acceptance by the other—for the exchange of something of value, such as goods, services or money. A contract can be an estimate from a contractor that you accept, or a 200-page document expertly crafted by an attorney.


Let’s talk about that “simple project.” Say you’re having the exterior of your home painted. For something this small, you can use the painting contractor’s estimate as a contract by requiring that he or she specify, in writing, the details of the project. Consider the following:

  • Document what brand of paint is to be used. You may be thinking Sherwin Williams Duration, and the contractor is thinking a big-box brand.
  • Specify the time frame of the project as well as any restrictions on working hours. Note to painter: Please don’t show up at 7 a.m.!
  • If you live in a community with an association or historic preservation board, you might have to provide a rendering for board approval. Spell out that responsibility and/or cost in the contract.
  • The contract should require proof of general liability and workers compensation insurance before the job begins.
  • If it’s important to you, use the agreement to restrict the contractor from subcontracting out any part of the project. After all, you did your due diligence on the contractor when you selected him or her, not on someone else.
  • If the project entails changing hardware, you should specify whether you’re supplying it or if you expect the contractor to purchase it.

Using the contract to set expectations and responsibilities will help keep your project on time and within budget, ensuring a positive outcome.


This is where our firm comes into play. As risk-management and insurance professionals, we assist our clients when they enter into complex contracts. We help them navigate the various insurance programs the contractor has available to purchase for the project. These may include project-specific general liability policies, risk-retention group policies or contractor-controlled insurance programs, also known as “wrap-ups.”

We’ll explain the limitations to and benefits of each approach. Contractors that use risk-retention groups, for instance, often have large self-insured retention limits (SIR). This means that insurance carriers have no duty to defend the homeowner client until the SIR has been met. This can be problematic when the homeowner is relying on a defense via the additional insured endorsement. Wrap-ups, on the other hand, can provide a comprehensive, well-managed approach to risk, but they may be cost prohibitive depending on the size of the project.

There’s more, because crafting the construction contract is only the first step. It’s also important to establish that contract conditions in these areas have been met before the project begins. After all, the contract often includes great specificity as to requirements, such as the edition date of a policy form. If those details are overlooked, the risk-transfer mechanisms may not be in place at the time of a loss.


A properly executed contract will help your project run smoothly—whether you’re building your dream house or just painting it. Even more important, a properly executed contract will protect your assets. And that, of course, should be your priority

Insurance services provided through NFP Property & Casualty Insurance, Inc., a subsidiary of NFP Corp. Doing business in California as NFP Property & Casualty Insurance Services, Inc. (Calif. License # 0F15715).

Risk & Insurance

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