The Core Distinction
The bid is an offer. The contract is the deal.
A bid is a price proposal — it is not binding, it can change, and it often omits the terms that determine your real cost. The contract is where the bid number either becomes a fixed price with protections, or quietly becomes an "estimate" with none. Most construction budget disasters are signed into existence on contract day, not discovered later.
The 12-Clause Verification Checklist
Go through these one by one with the actual contract in front of you. Every "red flag" below is drawn from the most common ways homeowners lose money.
The contract must state whether the price is fixed (lump sum) or cost-plus (actual costs + fee). A bid number means nothing until the contract defines what kind of number it is.
Payments should release on completed, inspectable milestones (foundation poured, framing complete, rough-in passed) — never on calendar dates. Deposit should be 10% or less in most states; several states cap it by law.
Every allowance (flooring, cabinets, fixtures, lighting) must be a line item with a dollar figure you have sanity-checked against real products you would actually pick.
Any change must require a written, signed change order with the price agreed BEFORE the work is done, including the markup percentage on changes.
The contract should incorporate the plan set and specifications by reference (plan date and revision number), so "what was bid" is legally defined.
Both dates in the contract, plus what happens on delay: liquidated damages (commonly $100–$500/day after a grace period) or at minimum a defined extension procedure.
Each payment should be exchanged for lien waivers from the GC and the major subs/suppliers for work paid to date. This protects you from paying twice if the GC does not pay their subs.
License number in the contract (verify it on your state board website), plus current certificates for general liability AND workers’ comp, with you as certificate holder.
Minimum: 1 year workmanship, 2 years mechanical systems, plus pass-through of manufacturer warranties. Many states imply a longer structural warranty — the contract should not attempt to waive it.
The contract should assign permit responsibility to the contractor and state whether permit and impact fees are inside or outside the contract price.
Defined conditions and process for either party to terminate (with notice period and payment for work completed), including what happens to materials on site.
A defined path (mediation before litigation is common) and ideally 5–10% retainage held until final punch list completion.
Before the contract — check the number itself
Is the bid price actually fair for your build?
Upload your bid and get a line-by-line comparison against local cost data — which trades are padded, which allowances are lowballed, and what to negotiate.
Before You Sign: The 15-Minute Routine
Verify the license number on your state contractor board website — not on the contractor's paperwork. Call the insurance carrier on the certificate to confirm the policy is active. Read the allowances against real products you would choose (price a cabinet line, a flooring option, a fixture package) — this is where low bids hide. Then compare the total against an independent baseline: a 14-category cost report for your state tells you in minutes whether the number is in the credible range. If two bids differ by more than 15%, the difference is almost always in scope and allowances, not efficiency — see how to compare contractor bids and the builder quote checklist.
If a project has already gone wrong, start here: what to do if your contractor abandoned your project.
Frequently Asked Questions
Is a contractor bid legally binding?
No. A bid is a price proposal — an offer that is not binding on either party until it is incorporated into a signed contract. Contractors can withdraw or revise bids before signing, and the bid number only becomes enforceable when the contract defines it as a fixed price (or as cost-plus with defined terms). Never treat a bid as a commitment; treat the contract as the only document that matters.
What should a construction contract include?
A residential construction contract should include: the pricing structure (fixed price or cost-plus), a milestone-based payment schedule, itemized allowances, a written change-order procedure, the full scope of work incorporating the plans by reference, start and completion dates with delay terms, lien waiver requirements, proof of license and insurance, warranty terms, permit responsibility, a two-way termination clause, and a dispute-resolution path with retainage.
How much deposit should I pay a contractor?
For new home construction, a deposit of 10% or less is standard, and several states legally cap deposits (California caps home-improvement deposits at $1,000 or 10%, whichever is less). The safest structure ties every payment to completed, inspectable milestones so that money never runs significantly ahead of work.
What is a lien waiver and why does it matter?
A lien waiver is a document in which a contractor, subcontractor, or supplier gives up the right to place a mechanic’s lien on your property for work or materials already paid. It matters because subs and suppliers you never hired can lien your home if the general contractor fails to pay them — even though you paid the GC in full. Exchanging each payment for lien waivers is the only reliable protection against paying twice.
How do I know if a contractor bid is too high or too low?
Compare the bid against an independent cost baseline for your build and location, and against at least two other itemized bids. A bid significantly below the others usually hides lowball allowances or missing scope rather than efficiency. A line-by-line review against local cost data — checking each trade category, allowance, and exclusion — is the most reliable way to find where a bid is padded or where it is set up to grow later.
This guide is general information, not legal advice. Construction contract law varies by state — for a large build, having a local construction attorney review the contract (typically $300–$800) is cheap insurance.
Kerem is a construction cost analyst and architectural graduate with a degree from the Illinois Institute of Technology. He has spent over a decade analyzing residential and commercial build costs across all 50 U.S. states, and leads the cost methodology team at Equin Global LLC — the company behind CostToBuildHouse.com.
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