What Every Business Owner Should Know Before Signing a Construction Contract

What Every Business Owner Should Know Before Signing a Construction Contract

In commercial construction, contracts don’t just define scope — they define risk.
A signature without full understanding can expose a business to cost escalation, timeline loss, and legal liability.
The contract is not paperwork. It’s the framework that determines how the project — and every dollar in it — will perform.

1. The Lowest Bid Is Rarely the Lowest Cost

Choosing the lowest bidder may appear strategic, but contracts are built on assumptions.
A low number often hides exclusions, provisional allowances, or unrealistic timelines that shift cost downstream.

Clarify scope, not price.
A contract built on incomplete drawings or ambiguous deliverables guarantees change orders later — each one chipping away at the initial “savings.”

2. Know the Contract Type

Understanding how your project will be managed starts with knowing your contract structure.
Each model allocates risk differently:

• Fixed Price (Stipulated Sum): predictable but rigid — risk shifts to the contractor.
• Cost Plus: flexible but requires disciplined oversight.
• Design-Build: integrated, faster, but demands trust in a single point of accountability.
• Construction Management: collaborative, transparent, ideal for complex or phased work.

A commercial project’s success depends on aligning the contract type with the project’s complexity and tolerance for risk.

3. Verify Insurance and Bonding

Every contractor should provide valid proof of insurance — including general liability, builder’s risk, and WSIB coverage.
Bonding ensures performance and payment security.
If a contractor fails to meet obligations, bonding protects the owner’s investment and ensures project completion.

Verification isn’t about trust. It’s due diligence.

4. Review Payment Terms and Holdbacks

In Canada, statutory holdback requirements protect against lien claims — typically 10% of progress payments.
Owners must ensure payment schedules align with verified progress, not calendar dates.
Clear payment terms maintain leverage, control cash flow, and prevent disputes.

A project should only pay for performance.

5. Change Orders and Communication

Change orders are inevitable.
How they’re managed determines whether they’re disruptive or controlled.
Contracts should clearly define how changes are initiated, priced, and approved, preventing verbal agreements or scope drift.

Every adjustment — no matter how small — must be documented.
If it’s not written, it doesn’t exist.

6. Dispute Resolution and Termination Rights

Even well-run projects encounter conflict.
Before signing, confirm the dispute resolution process — mediation, arbitration, or litigation — and understand termination clauses for cause or convenience.

In a delay or default scenario, this defines whether you regain control or lose it.
Legal protection is built, not assumed.

The Westgate Koenig Standard

At Westgate, contracts are instruments of control — not negotiation.
We operate with clarity, structure, and documentation that protect our clients’ capital and timeline integrity.
Because in construction, risk doesn’t disappear. It only transfers.
Our job is to ensure it never transfers to you.