Builder Contracts 101
Your contract with your builder is one of the most important documents in your recovery - it’s your protection against your budget ballooning, your contractor skipping out with your funds, and surprise charges for things you thought were included.
Here’s how to find the right fit - and avoid common traps.
This guide was built in partnership with the AIA.
It was fact-checked by licensed professionals and building experts.
Consult a builder or architect for specifics to your situation.
What a Builder Contract
Actually Does
A builder contract is a legally binding agreement between you (the homeowner) and your general contractor.
It outlines:
The scope of work (what’s being built or repaired)
The cost and payment schedule
The project timeline
Warranties, insurance, and dispute procedures
It’s meant to protect both sides, but remember, builders write contracts to protect themselves first. Your job is to make sure it also protects you.
3 Most Common
Contract Types
Fixed Price (Lump Sum):
You agree to one total price for the full project.
“This should include the materials, labor, overhead, profit, permits, and everything involved to deliver your home.”
-Jodie Mendelson, Project Manager, AIA
“Cost-Plus”
You pay the actual cost of materials and labor, plus a fee or percentage which covers the overhead and profit for the contractor’s services.
Time and Materials (T&M)
You pay hourly rates + materials. (This is not appropriate for a ground-up build.)
Which one you want:
For fire rebuilds, most owners prefer a Fixed Price or Cost-Plus with a cap so the budget can’t balloon without approval/
The “Extras”
That Sneak In
Contractors sometimes include clauses that shift risk to you. Look out for:
“Allowance” items
Vague line items that can balloon (e.g., “flooring allowance $10/sf” when actual is $15/sf).
“Substitution rights”
Lets the builder swap materials or subs without approval.
No “liquidated damages” clause
Means no penalty for running late.
“It is rare to have a liquidated damages clause for a residential project, so it’s important to track your contractor’s schedule performance closely throughout the project.”
- Jodie Mendelson, Project Manager, AIA
If you don’t understand a clause, ask your architect, owner’s rep, or construction attorney before you sign.
1.
How to protect yourself
Use a reputable contract
Builders may have their own contracts, which you can have a lawyer review, but it’s preferable to use an AIA contract. AIA contracts are the industry gold standard and protect both owner and builder by clearly defining scope, responsibilities, and dispute processes.
For Custom Builds → AIA A110 (full scope)
For Fixed Price contracts → AIA A201–2017
For Smaller Fixed-Price Projects → AIA A105–2017
AIA contracts are heavily discounted for fire survivors and might be the highest return on fifty bucks you’ve ever gotten. To access the discount for the A105 or the A110, enter code SOCALBUILD at checkout.
TIP:
Even if your builder uses their own contract, compare it to these AIA versions to see what’s missing.
2.
Make sure it’s dead clear
Builders often write vague scopes to leave room for change orders later. Make sure your contract spells out exactly what’s included.
If you’re doing a traditional build that can look like:
Grading, site prep, and foundation
Framing, roofing, and exterior finishes
All MEP systems (mechanical, electrical, plumbing)
Interior finishes - flooring, cabinetry, tile, etc.
Utility connections and trenching
Landscaping and driveways (if included)
Pro Tip:
Attach your architectural plans, engineering drawings, and finish schedule to the contract as exhibits. If it’s not attached or explicitly listed in the contract, it’s not enforceable.
3.
Set Payment Rules That Keep You Safe
Your contract should tie payments to progress milestones, not calendar dates. Release payments as milestones are reached. If your funds are being held in escrow, this may be automatic/mandatory anyway!
“If the funding for the work is being released by a bank and/or mortgage company, stipulate in the contract that the contractor must cooperate with all of their disbursement requirements.”
-Jodie Mendelson, Project Manager, AIA
Never pay a hefty amount before work starts. California law only allows an initial deposit of up to 10% or $1,000 (whichever is less).
TIP:
Keep retainage (5–10%) until final sign-off.
Examples of safe payment triggers:
Contract signed = ≤10% deposit
Foundation complete & inspected = 15% Release
Framing & roof complete = 20% Release
Rough-ins (MEP) approved = 20% Release
Drywall, finishes, paint = 25% Release
Final walkthrough & punch list complete = 10% Release
Final inspection & certificate of occupancy = 5% (Retainage Release)
4.
If they ask for upfront materials funds
Make sure they give you:
Copies of the supplier quotes or purchase orders
Ownership transfer language included in the invoice (ie. That once you pay for it, you own it)
TIP:
Specify in your contract that materials purchased with your money belong to you upon payment. (Bus. & Prof. Code §7159.5).
5.
If You’re Using Discounted Materials
If you’ve sourced materials through PostFire partners, group buys, or your own discounts, make sure your builder agrees to waive or limit their markup on these, otherwise that discount may be useless.
Tip:
Some contractors mark up materials 20-30% for overhead and profit. Locking in your own materials pricing can save you thousands, but only if it’s clear they can’t re-mark it up later.
Sample language:
“Owner may provide materials, finishes, and fixtures at discounted rates. Contractor shall not apply markup on these owner-supplied items, except for a mutually agreed handling fee not to exceed ___%.”
Very important:
If the builder insists on a markup, cap it (5-10% is reasonable).
Require copies of invoices to confirm costs.
Ensure builder warranties cover installation, even for owner-supplied materials.
6.
include These Non-Negotiables
Every contract should have these protections in writing:
Permits: Contractor pulls all required permits and passes inspections. Owner may have to reimburse the builder for the cost of the permits.
Insurance: Proof of liability, workers’ comp, and builder’s risk insurance required.
Change Orders: No work begins without your written, signed approval.
Warranty: 1-year workmanship minimum; material warranties per manufacturer.
Dispute Resolution: Mediation first, arbitration or litigation only if needed.
Timeline: Include start and substantial completion dates with delay clauses.
7.
Insurance & Licensing Are a Hard Line
Your contractor has to hold certain types of insurance, and a bond or they are not safe to hire. If they don’t and anything goes wrong on the jobsite, you can be personally held liable and sued. Similarly, if they do something wrong and don’t have a bond, you have no way to hold them accountable without a lawsuit.
Here’s what they need to have:
General liability insurance
Protects you from mistakes the contractor might make
Workers’ Comp insurance
Protects you if anything happens to anyone working on the job site
Bond
Gives you recourse if something goes wrong or the contractor disappears, etc.
Before signing, confirm your contractor:
Holds an active California General Contractor (B) license
Has general liability insurance (covers property damage)
Carries workers’ comp insurance (protects you from injury liability)
Is bonded with the California State License Board
Check them here: www.cslb.ca.gov
TIP:
The name on the contract and the person signing the contract must exactly match the name on their license.
8.
Red Flags to Watch For
Requests for large upfront payments
“We’ll start before signing paperwork”
No written change order process
Asking you to pull the permit (that’s their job)
Missing insurance or expired license
Pressure to sign fast
If you see any of these, slow down - it’s cheaper to pause than to fix later.
Expert Tip:
If you see “Allowance” items, ask for documentation showing realistic numbers. Tile, cabinetry, and lighting are often where builders hide price creep.
9.
Before You Sign
Have your architect, owner’s rep, or construction attorney review it.
Confirm the contract matches your plans and scope.
Make sure all exclusions are clearly listed - what’s not included often matters most. The cost of items excluded from the contract likely needs to be carried in the owner’s overall project budget.
Verify that every document (plans, specs, addenda) is referenced by name in the contract.
Ask for digital copies of everything (PDF)
10.
After You Sign
Schedule a kickoff meeting to review:
Who’s the day-to-day site contact
Communication expectations (weekly updates are best)
Timeline and first inspection targets
Safety and site access rules
Then: Set calendar reminders for payment milestones, inspections, and permit sign-offs.
Keep everything
organized
Store these documents together:
Signed contract
Proof of insurance and license
Approved plans and specifications
Change orders
Payment receipts
Inspection reports and warranties
Having a clean paper trail protects you if there’s ever a dispute.
The bottom line
Your builder contract is your insurance policy against mistakes, markup, and miscommunication. Ask questions, get everything in writing, and never sign a document you don’t fully understand.
If something feels off, pause. Reputable builders expect clients to double-check - the ones who don’t are the ones you should walk away from.