Texas Construction Contracts Before Work Begins

By Hank FasthoffJuly 5, 2026

A construction contract sets the price, defines the work, and assigns the financial consequences of delay, design changes, defective work, injury claims, and early termination. Those terms often appear across the agreement, general conditions, supplementary conditions, drawings, specifications, addenda, exhibits, and documents incorporated by reference.

Your review should begin before mobilization. Starting work can weaken your negotiating position even when the parties continue negotiating, and an unsigned proposal rarely answers which terms govern if the project documents conflict.

The Contract Documents Define the Work

Your scope should identify the drawings, specifications, addenda, alternates, allowances, and owner furnished information that form the basis of the price. Revision dates identify the documents included in that scope because an undated reference can leave the parties disputing whether a later issue was part of the original work.

Exclusions can provide as much clarity as the affirmative scope. If the price excludes temporary power, testing, permits, design services, demolition, hazardous materials, or work by others, the contract should say so. An order of precedence should also resolve conflicts among the agreement, general conditions, specifications, drawings, and approved changes.

A subcontract requires the same review of incorporated documents. A broad flow down clause can bind a subcontractor to scheduling, notice, insurance, dispute, and warranty terms in the prime contract even when the subcontract never repeats them. The subcontract should identify the incorporated documents and make them available before execution.

Price and Payment Terms Control Cash Flow

The contract should connect the pricing model to the defined scope. A stipulated sum places estimate risk on the contractor for the agreed work. Cost plus pricing requires a definition of reimbursable cost, excluded cost, fee, audit rights, and any guaranteed maximum price. Unit pricing requires measurement rules, estimated quantities, and a process for materially different quantities.

Texas law supplies payment rules for private projects. Under Texas Property Code § 28.002, an owner generally must pay an allowed written request for properly performed work or qualifying materials by the 35th day after receipt, less an amount that the statute permits the owner to withhold. A contractor or subcontractor generally must pass the proper share downstream by the seventh day after receiving payment.

The contract should state the pay application deadline, required supporting records, review process, retainage, conditions for final payment, and treatment of disputed amounts. Section 28.003 permits limited withholding for a good faith dispute, so an objection to one line item doesn't automatically justify withholding the entire application.

A subcontract also requires a careful reading of any contingent payment language. A timing clause and a clause transferring the risk of owner nonpayment can produce different results under Texas law. The wording should identify the intended risk rather than rely on a label such as pay when paid or pay if paid.

Defined Authority for Changes

Changed drawings, concealed conditions, acceleration, sequencing directives, and added work can affect both price and time. Your contract should identify who may authorize a change, what records support the adjustment, when notice is due, and whether the contractor must proceed before the parties agree on compensation.

Texas added a limited protection for unsigned changes in 2023. Under Texas Property Code § 28.0091, a contractor or subcontractor on a covered private project may elect not to proceed with additional owner directed work when no written, fully executed change order exists and the aggregate actual or anticipated value of that unsigned additional work exceeds 10% of the original contract or subcontract amount. The statute protects that election from associated damages and applies to contracts entered on or after September 1, 2023. House Bill 3485 added a parallel rule for covered public projects.

That statute doesn't eliminate the need for a workable change process. The 10% threshold and other statutory conditions limit its reach. A contract should address emergency work, construction change directives, pricing methods, markups, schedule adjustments, and the treatment of disputed changes before the cumulative threshold becomes relevant.

Notice provisions require particular attention. A contract may make written notice a condition to additional compensation or time. Daily reports, emails, cost records, updated schedules, and written reservations can preserve the facts, but they satisfy the contract only when they meet its content, recipient, method, and timing requirements.

Schedule Terms Allocate Delay Risk

The schedule section should define commencement, substantial completion, final completion, milestones, and the events that permit an extension. It should also distinguish contractor delay from owner delay, design changes, concealed conditions, labor disruption, adverse weather, material shortages, and other excusable events.

A time extension can provide an incomplete remedy when the delay also increases supervision, equipment, labor, storage, or escalation costs. Your contract should say whether an excusable delay supports time alone or both time and money. Any no damages for delay clause requires review beside its exceptions, notice requirements, and treatment of acceleration.

Liquidated damages require more than a daily rate. In Atrium Medical Center, LP v. Houston Red C LLC, 595 S.W.3d 188 (Tex. 2020), the Supreme Court of Texas applied the two formation requirements from Phillips v. Phillips. The harm must be difficult to estimate when the parties contract, and the amount must be a reasonable forecast of just compensation. Atrium also requires a comparison at breach and permits the breaching party to show an unbridgeable discrepancy between actual and liquidated damages.

The clause should connect the daily amount to the delay being priced. It should also address concurrent delay, extensions, milestones, caps, and whether liquidated damages provide the agreed remedy for the same delay loss. A subcontractor needs to know whether prime contract damages pass through only to the extent its work caused critical delay.

Indemnity and Insurance Require Coordinated Language

Texas Insurance Code § 151.102 generally voids a construction contract provision to the extent it requires indemnity or defense for a claim caused by the negligence, fault, statutory or regulatory breach, or contract breach of the indemnitee. The same rule applies to claims caused by its agent or employee or by a third party under its control or supervision. Section 151.104 applies a related limit to certain additional insured requirements. The chapter contains an employee injury exception and other statutory exclusions, so the agreement has to be tested against the entire statute rather than reduced to a rule that only comparative indemnity is enforceable.

The indemnity clause should identify the covered claims, causal standard, defense procedure, settlement authority, and treatment of concurrent fault. Its insurance provisions should then match the lawful risk allocation. An additional insured endorsement, certificate, and contractual promise serve different functions, and the policy language determines whether coverage exists when a claim is asserted.

Insurance requirements should identify the policy type, limits, duration, endorsements, completed operations period, and evidence required before work begins. The Texas Department of Insurance explains that most private employers may choose whether to provide workers compensation coverage, but a construction contract can require it. Builder's risk, commercial general liability, auto liability, professional liability, pollution coverage, and excess insurance should appear only when the project and responsible party justify them.

Warranty and Correction Duties Are Different

Warranty language should define the promised standard, covered work, exclusions, notice, inspection rights, and correction procedure. It should also address whether repaired or replaced work receives a new correction period and whether subcontractor or manufacturer warranties transfer to the owner.

The common one year correction period in AIA forms isn't a one year limit on the contractor's warranty. The AIA's supplementary conditions guide states that the correction period in A201 § 12.2.2 shouldn't be construed as limiting the warranty under § 3.5.1. A contract that uses both concepts should preserve their separate functions.

Texas Civil Practice and Remedies Code § 16.009 generally imposes a 10 year repose period on specified claims arising from construction or repair of an improvement to real property. The statute contains different treatment for certain governmental claims, residential claims, written warranty extensions, and other circumstances. Repose also differs from the limitations period that may begin when a claim accrues, so neither the correction period nor the repose period supplies a complete deadline analysis by itself.

Termination Provisions Set the Exit Price

Termination for cause should identify the breach, notice, cure period, right to supplement labor, right to take over subcontracts or materials, completion cost accounting, and final payment procedure. A wrongful termination for cause can become a termination without cause or a breach, depending on the agreement and governing law.

Termination for convenience requires its own compensation formula. AIA A201 § 14.4.3 provides for payment for properly executed work, costs caused by termination, including subcontract termination costs, and any termination fee stated in the agreement. The AIA supplementary conditions guide explains that the termination fee is negotiated and can address lost business opportunity, overhead, and profit on unperformed work. The contract should state the chosen formula rather than assume profit on unperformed work follows automatically.

Subcontracts should address what happens when the owner terminates the prime contract or the contractor loses the project. Payment for completed work, committed materials, restocking charges, demobilization, closeout, and any termination fee should be stated separately.

The Dispute Clause Has to Fit the Project

Construction disputes often involve the owner, contractor, designer, subcontractors, suppliers, insurers, and sureties. A dispute clause should address governing law, forum, venue, mediation, arbitration rules, discovery, consolidation, joinder, emergency relief, and attorney fees with that structure in view.

The Texas Business Court isn't a general construction court. It may hear a construction dispute only when the statutory jurisdictional requirements are satisfied. In Cadence McShane Construction Co. v. Ryan BB Blockhouse Creek, LLC, 2025 Tex. Bus. 43, the court held that construction related third party claims arose from a qualified transaction exceeding the statutory amount in controversy. The decision illustrates the jurisdictional inquiry rather than a universal forum option.

Your forum provisions should also align across the prime contract, subcontracts, design agreements, and guaranties. Conflicting clauses can divide one project dispute among courts and arbitration panels before anyone reaches the merits.

Lien Waivers Follow Statutory Forms

Texas Property Code § 53.281 through § 53.287 govern waivers and releases of lien and payment bond claims. A waiver is enforceable only when it satisfies the statutory requirements, including substantial compliance with a prescribed form. A conditional release also requires evidence of payment.

The form should match the payment. A conditional progress waiver differs from a conditional final waiver, and an unconditional waiver states that it is effective even if the claimant has not received payment. An unconditional waiver should follow receipt of good and sufficient funds because its effect doesn't depend on a later payment failure.

The Completed Contract File

Your executed file should contain the signed agreement and every incorporated document, including the final drawings, specifications, addenda, insurance exhibit, schedule, and approved clarifications. It should also identify which document controls when provisions conflict.

A coordinated review follows each recurring risk across the entire contract. Scope connects to price and changes. Schedule connects to extensions and liquidated damages. Indemnity connects to insurance. Warranty connects to correction and claim deadlines. Termination connects to final payment and control of the work. That reading shows the financial result before work begins.