In Plain English
Quick Answer
A legally binding agreement between an owner and contractor defining the work, price, and rules of the project.
Definition
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.
Context
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
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.
See Also
Related Terms
FAQ
Questions Contractors Ask
What makes a construction contract legally binding?
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.
What are the main types of construction contracts used in bidding?
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.
How is a contract different from the bid?
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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