7 Contract Clauses Every GC Should Red-Line Before Signing
Construction contract red flags don't announce themselves. They hide in passive voice, buried definitions, and innocuous-sounding boilerplate. By the time you feel the pain — a withheld retainage check, an uncapped liability exposure, a unilateral termination — you're already in a hole. Here are seven clauses that consistently cost GCs money, with the exact language to watch for and what to demand instead.
1. Pay-When-Paid vs. Pay-If-Paid
These two clauses sound identical. They are not. A pay-when-paid clause makes the owner's payment a timing mechanism — you get paid after the owner pays, but you will get paid. A pay-if-paid clause makes the owner's payment a condition precedent. If the owner never pays, you never get paid, and neither do your subs.
That single phrase — "condition precedent" — shifts full owner default risk onto your subs and onto you if you signed the same language upstream. Red-line it to read "timing mechanism only, not a condition precedent." Several states, including California and New York, limit the enforceability of pay-if-paid clauses, but don't rely on that in negotiation.
2. Unilateral Termination for Convenience
Owners love broad termination-for-convenience clauses. A well-drafted one is reasonable. A predatory one caps your recovery at cost-to-date with zero profit on remaining work. On a $4.2M commercial fit-out, that could mean walking away from $380,000 in anticipated margin if the owner terminates at 60% completion.
Push for language that explicitly includes "profit on work performed and a reasonable percentage of profit on work not performed." If the owner won't move on profit recovery, negotiate a minimum termination fee — a flat $50,000 floor is a common and defensible ask on mid-size projects.
3. Uncapped Consequential Damages
Liquidated damages clauses get all the attention, but uncapped consequential damages exposure is worse. Lost revenue, lost financing, lost tenant income — these figures can dwarf your contract value. A $900,000 subcontract on a mixed-use development can carry consequential damage exposure exceeding $3M if a retail anchor misses its opening date.
Mutual Waiver Is Non-Negotiable
Always demand a mutual waiver of consequential damages. If the owner insists on retaining their right to consequential damages against you, you must retain the same right against them — and cap total liability at the contract value.
4. Broad Indemnification Language
Type I indemnification — you indemnify the owner for your own negligence — is standard and acceptable. Type II — you indemnify the owner for their own negligence — is a red flag in any jurisdiction that hasn't already voided it by statute. Type III — you indemnify everyone for everything — is a clause that should never survive negotiation.
Forty-two states have anti-indemnity statutes, but they vary in scope. Don't assume your state's statute covers you. Red-line any indemnification clause that lacks the qualifier "to the extent caused by the indemnifying party's own acts or omissions."
Catch These Clauses Before They Cost You
Trueleveler's Contract Review engine scans your uploaded contract for risk clauses like these and flags them with plain-language explanations in minutes.
5. Ambiguous Scope and Change Order Thresholds
Vague scope language is where disputes are born. Watch for phrases like "all work reasonably inferable from the drawings" — that's a blank check for the owner to deny change orders on items not explicitly excluded. Equally dangerous: change order clauses that require written authorization before proceeding but include a carve-out allowing the owner to direct verbal changes. That carve-out will be used against you.
Require that all changes be documented in writing before work proceeds, and that the change order threshold for owner approval be defined in dollars — not left to "owner's sole discretion."
6. Retainage Release Conditions Tied to Full Project Completion
Standard retainage is 10% held until substantial completion of your scope. The red flag is when retainage release is tied to full project completion — including other contractors' work. If the mechanical sub runs six months over, your retainage on a $1.8M concrete package sits frozen for half a year with no recourse.
Negotiate retainage release tied to your scope's substantial completion, not the project's. Most owners will accept this with a small holdback — typically 2% — pending final closeout documentation.
7. Dispute Resolution Clauses That Favor the Owner
Watch for venue clauses that require disputes to be resolved in the owner's home jurisdiction, mandatory arbitration with arbitrator selection controlled by the owner, and loser-pays fee-shifting provisions. Each of these independently increases your litigation cost and risk. Combined, they make pursuing a legitimate claim economically irrational even when you're right.
What Good Dispute Language Looks Like
Mutual venue selection, a neutral arbitrator appointment process through AAA or JAMS, and each party bearing its own fees unless the claim is found frivolous. That's the baseline. Anything less deserves a red line.
The Bottom Line
Construction contract red flags rarely appear as obvious traps. They're embedded in standard-form language, defined terms, and cross-references that most people skip on first read. The seven clauses above — pay-if-paid, termination for convenience, consequential damages, indemnification, scope ambiguity, retainage conditions, and dispute resolution — account for the majority of GC losses that were entirely preventable at contract execution.
Reading every contract this carefully on every project isn't realistic without a system. Trueleveler's Contract Review engine does the first pass for you, surfacing risk language with clause-level specificity so your attorney or PM can focus on negotiation rather than discovery. The cost of missing one of these clauses on a $2M project will exceed what you'd spend on contract review for the next decade.