What's a lien waiver and why is it in every construction contract?

A lien waiver is a contractor's acknowledgement that they (and their subs) won't file a mechanic's lien against the property for work already paid. Construction contracts typically require interim lien waivers in exchange for each progress payment and a final lien waiver in exchange for final payment. Banks financing the project will not release funds without lien waivers because unresolved liens cloud the title and can trigger default. Both sides benefit: the owner gets clear title, the contractor gets paid.

How does retainage work in construction contracts?

Retainage is a percentage (typically 5-10%) the owner withholds from each progress payment until substantial completion. The purpose is to hold a financial incentive for the contractor to finish properly — the held amount is released when the architect or owner certifies substantial completion (often defined as the issuance of the certificate of occupancy). State-specific prompt-payment laws constrain how long retainage can be held; some states cap it at 5% or require release after a defined period.

Who pulls permits — contractor or owner?

Usually the contractor, but the contract must state it. The contractor's licensing typically lets them pull permits more easily, and on AIA-style contracts the contractor is expected to. Owner-pulled permits ("owner-builder" permits) shift liability to the owner and can void warranty coverage from many manufacturers. State the permit-puller and who pays the permit fee — usually the contractor pulls and bills the fee through as a pass-through line on invoices.

How long should construction warranty be?

1 year on workmanship is the construction-industry standard — and matches the express warranty in AIA documents. For specific systems (roof, HVAC, electrical), pass-through the manufacturer warranties (often 10-30 years on roofing, 5-10 on systems). State both in the contract: "Contractor warrants workmanship for 1 year from substantial completion; manufacturer warranties apply per the documents attached as Exhibit B." Some states have statutory warranty minimums (10 years on structural in some).

What dispute resolution should construction contracts specify?

Most modern construction contracts use a tiered approach: (1) Direct negotiation between principals first; (2) Mediation through AAA or a named mediator if direct negotiation fails; (3) Binding arbitration or litigation if mediation fails. Arbitration is faster and more confidential but limits appeal rights; courts are slower but allow more discovery. AIA standard contracts default to arbitration; many residential contracts default to courts. State the venue and governing law (the state where the property is located is normal).

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service

Construction Services Agreement

Effective May 17, 2026

Service Provider

Bayside Construction Co.

Client

1. Scope of Work

Residential renovation — bathroom remodel. Full demolition, plumbing/electrical rework, drywall, finishes, and walkthrough.

Deliverables:

•Demolition of existing fixtures
•Plumbing rough-in and finish
•Electrical work to code
•Tile, fixtures, and final walkthrough

2. Compensation

Payment Schedule: Milestone-based payments

Payment Terms: Net 14

Expense Reimbursement: No

Milestone Payments:

Milestone	Amount
On signing (25%)	—
Rough-in complete (25%)	—
Finish work complete (25%)	—
Final walkthrough (25%)	—

3. Termination

Either party may terminate this Agreement upon 14 days' written notice. The Client remains obligated to pay for all work delivered up to the termination date.

4. Lien Waiver

Contractor agrees to provide a signed lien waiver upon receipt of final payment, releasing all rights to file mechanic's liens against the project property.

5. Change Order Process

Any change to scope, materials, or schedule must be documented in a written change order signed by both parties before work commences. Change orders modify the total contract price and timeline accordingly.

6. Insurance & Licensing

Contractor maintains general liability insurance of at least $1,000,000 per occurrence and workers' compensation as required by law. Current contractor's license is in good standing.

7. Permits

Building permits are the responsibility of the Contractor. Permit costs are included in the contract price unless otherwise specified.

Signatures

Service Provider

Bayside Construction Co.

Date: ___________________

Client

Date: ___________________

service

Construction Services Agreement

Effective May 17, 2026

Service Provider

Bayside Construction Co.

Client

1. Scope of Work

Residential renovation — bathroom remodel. Full demolition, plumbing/electrical rework, drywall, finishes, and walkthrough.

Deliverables:

•Demolition of existing fixtures
•Plumbing rough-in and finish
•Electrical work to code
•Tile, fixtures, and final walkthrough

2. Compensation

Payment Schedule: Milestone-based payments

Payment Terms: Net 14

Expense Reimbursement: No

Milestone Payments:

Milestone	Amount
On signing (25%)	—
Rough-in complete (25%)	—
Finish work complete (25%)	—
Final walkthrough (25%)	—

3. Termination

Either party may terminate this Agreement upon 14 days' written notice. The Client remains obligated to pay for all work delivered up to the termination date.

4. Lien Waiver

Contractor agrees to provide a signed lien waiver upon receipt of final payment, releasing all rights to file mechanic's liens against the project property.

5. Change Order Process

Any change to scope, materials, or schedule must be documented in a written change order signed by both parties before work commences. Change orders modify the total contract price and timeline accordingly.

6. Insurance & Licensing

Contractor maintains general liability insurance of at least $1,000,000 per occurrence and workers' compensation as required by law. Current contractor's license is in good standing.

7. Permits

Building permits are the responsibility of the Contractor. Permit costs are included in the contract price unless otherwise specified.

Signatures

Service Provider

Bayside Construction Co.

Date: ___________________

Client

Date: ___________________

Step-by-step

How to write a construction contract

1

Identify the parties and the property

Full legal names of both parties (the contracting LLC, not the dba), the property address where the work happens, and the parcel/lot reference for new builds. Construction contracts get litigated on property identification more often than scope — be specific.

2

Reference the schedule of values, not just a lump sum

Don't contract a flat "$120,000 for the renovation." Reference the schedule of values that breaks the contract price into phases (demo, plumbing, electrical, finishes). The SOV becomes the basis for progress invoicing and dispute resolution if work stops mid-project.

3

Define the change-order process in detail

Specify: written change orders signed by both parties before work proceeds, agreed cost and schedule impact, no verbal authorizations. "All changes must be documented in a written change order signed by both parties before work commences" — that single sentence prevents 80% of construction disputes.

4

Include lien-waiver obligations

Standard clause: contractor provides interim and final lien waivers in exchange for progress and final payments. Owner protects themselves from sub-contractor liens; contractor agrees to the documentation. This is non-negotiable on bank-financed projects.

5

State retainage clearly

Retainage of 5-10% is the construction-industry default. The contract should say: "Owner shall retain [X]% of each progress payment until substantial completion." Then specify release conditions — typically the architect's certificate of substantial completion or final inspection signoff.

6

Add insurance and licensing warranties

Contractor warrants they carry general liability insurance ($1M per occurrence is typical), workers comp as required by state law, and a current contractor's license. The owner has a right to request certificates of insurance. This protects both sides if there's an on-site injury or property damage.

7

Address force majeure (weather, supply chain)

Construction is uniquely exposed to weather delays, material shortages, and labor disputes. A force-majeure clause lets either party extend the schedule (not avoid payment) without penalty for events outside their control. Reasonable definition: events beyond reasonable control of the affected party.

Watch out

Common construction contract mistakes

Lump-sum pricing without a schedule of values. When work stops mid-project, you can't cleanly determine what's paid for vs. owed.

Verbal change orders. The default presumption in litigation is "no contract change occurred" — without a signed CO, you ate the cost or the homeowner sues for unauthorized work.

No lien-waiver clause. Banks won't fund the project; subs file liens on the owner's property; everyone loses.

Skipping retainage on residential. Owners assume it; contractors don't state it; final-payment fights happen.

Force majeure that's too narrow. Weather and supply chain delays are common in construction — broad force-majeure language saves both sides from blame games.