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Contracts & Legal

Contract

In Plain English

A legally binding agreement between an owner and contractor defining the work, price, and rules of the project.

Definition

A contract is a legally binding agreement between two or more parties that creates enforceable obligations. In construction, contracts define the scope of work, price, schedule, and rights and responsibilities of the owner and contractor. A valid contract requires offer, acceptance, consideration, and mutual assent.

Why It Matters in Bidding

The contract is the legal instrument that converts a winning bid into binding obligations, fixing the scope, price, schedule, and risk allocation that the estimate was built around. In procurement, the contract type (lump sum, unit price, cost-plus, or GMP) directly shapes how bidders price risk and contingency. Disputes over scope, payment, and delays are almost always resolved by reading the contract and its incorporated documents.

Example

After the general contractor's lump-sum bid was accepted, both parties executed an AIA A101 contract that fixed the price, attached the drawings and specifications as contract documents, and set the project completion date.

Related Terms

Contract DocumentsContract SumConditions of the ContractSubcontract

Frequently Asked Questions

A valid contract requires an offer, acceptance, consideration, and mutual assent on essential terms. In construction the parties must also have capacity and a lawful purpose, and many jurisdictions require certain agreements to be in writing. A signed bid acceptance plus the incorporated drawings and specifications typically forms the binding agreement between owner and contractor.
Common types include lump-sum (fixed price), unit-price (paid per measured quantity), cost-plus (actual cost plus fee), and guaranteed maximum price. Each shifts cost risk differently: lump-sum puts overrun risk on the contractor, while cost-plus keeps it with the owner. The contract type determines how bidders structure pricing and contingency.
A bid is the contractor's priced offer to perform the work; it becomes a contract only when the owner accepts it and the parties execute an agreement. The contract incorporates additional terms, conditions, drawings, and specifications that govern performance, payment, and dispute resolution beyond the price figure stated in the bid itself.

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