Construction Fundamentals

Construction projects transform designs into built structures through organized phases involving multiple parties, contractual relationships, and regulatory oversight. While specific requirements vary by jurisdiction and project type, core concepts—project phases, delivery methods, contract types, permitting processes, change management, safety requirements, and payment mechanics—apply broadly. Understanding these fundamentals enables meaningful assistance with construction-related tasks regardless of location or project scale.

Project Phases

Construction projects follow predictable phases from initial concept through final completion, though terminology and exact boundaries vary by delivery method and jurisdiction.

Pre-design establishes project scope, budget, schedule, and constraints. Stakeholders define requirements, identify constraints (budget, site, regulatory), and develop preliminary feasibility. This phase determines whether the project proceeds and establishes baseline expectations that guide all subsequent work.

Design transforms requirements into construction documents. Conceptual design establishes overall form and function. Schematic design defines relationships between spaces and systems. Design development selects specific materials, systems, and details. Construction documents (CDs) provide detailed drawings and specifications that contractors use to build. The design phase may involve multiple consultants (structural, mechanical, electrical, civil, landscape) whose work must coordinate.

Pre-construction includes bidding, negotiation, and mobilization. In design-bid-build delivery, contractors submit competitive bids. In design-build, the contractor/designer team negotiates terms. Contracts are finalized, permits obtained, site preparation begins, and contractors mobilize crews and equipment. Subcontractors are selected and bonded.

Construction is the physical building phase. Site work prepares the land (excavation, utilities, grading). Foundations transfer loads to soil. Structural frame (steel, concrete, masonry, wood) creates the building skeleton. Building enclosure (walls, roof, windows) protects interior spaces. Systems installation (mechanical, electrical, plumbing, fire protection) provides services. Interior finishes complete spaces. Each trade must sequence work so earlier trades don't interfere with later ones.

Closeout finalizes the project. Inspections verify code compliance. Punch lists identify incomplete or defective work. Testing and commissioning verify systems function correctly. Contractors submit as-built drawings, warranties, and operations manuals. Final payments are processed. Ownership transfers. This phase often takes longer than anticipated because closeout work competes with new projects for contractor attention.

Delivery Methods

The delivery method determines when contractors enter the process, how risk is allocated, and how design and construction phases overlap.

Design-bid-build (DBB) is the traditional method: owner contracts separately with designer and contractor. Designer completes full design before bidding. Owner awards construction contract to low bidder. Advantages: clear separation of design and construction, competitive pricing through bidding, familiar process. Disadvantages: no contractor input during design, potential adversarial relationships, longer overall timeline, design errors discovered during construction.

Design-build (DB) combines design and construction in a single contract. Owner contracts with one entity responsible for both design and construction. Advantages: single point of responsibility, faster delivery, contractor input during design reduces construction issues, potential cost savings through innovation. Disadvantages: owner has less control over design, harder to compare proposals, limited design review, conflicts of interest between design and construction.

Construction Management (CM) adds a construction manager to advise the owner. CM-at-risk guarantees maximum price and performs construction management services. CM-agent provides advice but doesn't guarantee price. Advantages: early contractor involvement, construction expertise during design, potential cost and schedule benefits. Disadvantages: additional fees, more complex relationships, still separate contracts for design and construction.

Integrated Project Delivery (IPD) is collaborative method where owner, designer, and contractor share risk and reward through joint contract. Parties work collaboratively from early stages. Advantages: aligned incentives, innovation, early problem-solving. Disadvantages: requires trust and collaboration, complex contracts, less common.

Contract Types

Contract types allocate risk differently between owner and contractor, affecting pricing and project outcomes.

Lump sum (fixed price) sets total price at contract signing. Contractor bears cost overrun risk. Owner pays fixed amount regardless of actual costs. Advantages for owner: predictable cost, contractor incentives to control costs. Disadvantages for owner: higher initial price to cover risk, change orders costly. Advantages for contractor: potential profit if costs are lower than estimated. Disadvantages for contractor: cost overruns reduce profit.

Cost-plus reimburses contractor's actual costs plus fee (percentage or fixed amount). Owner bears cost overrun risk. Contractor reimbursed for materials, labor, equipment, subcontractors, overhead, and profit margin. Advantages for owner: flexibility for changes, contractor has incentive to provide quality work. Disadvantages for owner: no guaranteed maximum, requires cost monitoring. Advantages for contractor: reduces cost risk. Disadvantages for contractor: profit margin may be lower than lump sum.

Guaranteed Maximum Price (GMP) sets a ceiling on owner's cost. Contractor reimbursed for costs up to GMP, shares savings beyond that (typically 50-50 split). If costs exceed GMP, contractor absorbs overrun (unless changes increase scope). Advantages for owner: cost ceiling, shared savings, contractor incentive to control costs. Disadvantages for owner: may pay more than competitive lump sum. Advantages for contractor: fee structure incentivizes cost control. Disadvantages for contractor: absorbs overruns beyond GMP.

Unit price contracts set prices per unit of work (per cubic yard of concrete, per linear foot of pipe). Owner pays based on quantities actually installed. Advantages: fair pricing for uncertain quantities, suitable for repetitive work. Disadvantages: requires accurate quantity tracking, owner bears quantity risk.

Permitting and Approvals

Regulatory approvals are typically required before and during construction. Requirements vary significantly by jurisdiction, project type, and scale.

Building permits authorize construction work. Applications require construction documents, site plans, structural calculations, and code compliance demonstrations. Plans are reviewed by building department for code compliance (structural, fire, accessibility, energy, mechanical, electrical). Approval may take weeks to months depending on jurisdiction and project complexity. Work must not begin until permit issued. Inspections at various stages (foundation, framing, rough-in, final) verify compliance.

Zoning approvals ensure projects comply with land use regulations. Zoning codes define permitted uses, setbacks, height limits, density, parking requirements. Variances may be needed if project doesn't meet code. Conditional use permits required for certain uses. Process involves planning department review, public hearings, and approval by planning commission or city council. Can take months and involve appeals.

Environmental approvals may be required for projects affecting wetlands, water quality, or endangered species. Federal, state, and local agencies may have jurisdiction. Environmental impact assessments analyze project effects. Mitigation may be required. Process can add months to timeline.

Utility approvals coordinate connections to municipal services (water, sewer, electric, gas, telecommunications). Each utility provider has requirements, fees, and timelines. Coordination ensures utilities are available when needed.

Change Orders

Changes are inevitable in construction. Change orders modify the original contract scope, price, or schedule.

Change order process typically requires: written change request, owner approval, contractor pricing, negotiation, signed change order, work performance. The contract specifies how changes are priced—some contracts require contractor to document costs; others use predetermined rates; still others negotiate each change.

Change order pricing may be based on: actual costs plus markup, unit prices from contract, negotiated lump sum, time and materials with markup, or cost analysis with overhead and profit. Disputes often arise over what work is "extra" versus included in original scope, and whether pricing is fair.

Scope creep occurs when changes accumulate through informal direction or undocumented work. Proper change order process protects both parties—owner knows costs upfront, contractor gets paid for extra work.

Change order delays often extend project schedule. The contract typically addresses schedule impacts from changes. Owner may need to compensate contractor for delay costs (extended general conditions, financing costs, opportunity costs).

Safety Requirements

Construction is dangerous work. Safety regulations protect workers, the public, and property.

OSHA (Occupational Safety and Health Administration) in the US sets safety standards covering fall protection, scaffolding, excavation, electrical, confined spaces, personal protective equipment, and many other hazards. Compliance is mandatory, violations carry penalties, and accidents trigger investigations. Contractors must provide safe working conditions, training, and protective equipment.

Fall protection is critical—falls are leading cause of construction fatalities. Standards require fall protection systems (guardrails, safety nets, personal fall arrest) when working at heights above threshold (typically 6 feet). Requirements vary by jurisdiction and work type.

Hazard communication requires contractors to identify hazardous materials, provide safety data sheets, train workers, and maintain proper labeling. Workers must understand risks and protective measures.

Site safety programs go beyond compliance. Pre-work safety meetings, daily inspections, incident reporting, emergency response plans, and safety culture affect outcomes. Contractors with strong safety programs have fewer incidents and lower insurance costs.

Payment Mechanics

Payment flows from owner through general contractor to subcontractors and suppliers, with mechanisms protecting parties' interests.

Progress payments occur periodically (typically monthly) based on work completed. Applications for payment document completed work, materials stored on site, change orders, and retainage deductions. Owner or architect reviews applications, approves amounts due, and releases payment. Contractor then pays subcontractors.

Retainage (retention) holds back a percentage (typically 5-10%) of each progress payment until project completion. Retainage protects owner against incomplete work or defects. Owner releases retainage after final completion, punch list completion, and warranty period (typically one year). Retainage ties up contractor cash flow.

Lien waivers confirm payment received and waive right to file mechanic's lien against the property. Contractors and subcontractors typically provide conditional lien waivers with progress payment requests (conditional on receiving payment) and unconditional lien waivers after payment received. These protect owner's title to property.

Mechanic's liens give contractors, subcontractors, and suppliers legal claim against property if unpaid. Laws vary by jurisdiction but generally allow filing lien within specified period after work completion (typically 60-90 days). Lien claims can cloud title and must be resolved before property sale or refinance. Lien laws protect workers and suppliers who improve property.

Payment bonds are guarantees from surety companies that contractors will pay subcontractors and suppliers. Public projects typically require payment bonds. If contractor defaults, surety pays outstanding amounts. Bonds protect owner from liens and subcontractors from nonpayment.

Key Numbers

Typical construction project: 20-30% design phase, 70-80% construction phase by time; but design phase sets stage for everything that follows. Standard retainage: 5-10% held until final completion. Typical change order impact: 5-20% of original contract value through project lifecycle. Common contract payment terms: 30-45 days from invoice to payment. Standard warranty period: 1 year from substantial completion for materials and workmanship.

Common Misconceptions

"The low bid is always best" — low bids may indicate errors, omitted scope, or risky assumptions. Bids should be evaluated on price, qualifications, schedule, and approach. Awarding to unqualified low bidder often costs more in delays and defects.

"Changes should be easy" — changes disrupt workflow, may require design modifications, affect other trades, and extend schedule. Even small changes can have ripple effects. Proper change order process protects all parties.

"The contractor will handle everything" — owners must make timely decisions, approve changes, review payment applications, coordinate with their team, and ensure they have proper authority to approve work. Owner delays are a leading cause of project delays.

"Permits are just paperwork" — permits ensure code compliance, protect safety, verify proper construction, and enable occupancy. Skipping permits risks fines, stop-work orders, inability to occupy, and difficulty selling. Permits protect owners.

"The contract protects the owner" — contracts protect both parties but don't replace good project management, clear communication, and trust. Contract disputes are costly for everyone. Preventing problems through good process is better than resolving them through contract enforcement.

Jurisdiction Matters

Construction regulations vary significantly by jurisdiction. Building codes, permitting processes, lien laws, safety requirements, licensing requirements, and contract law differ by country, state, province, and municipality. Always establish jurisdiction before providing specific guidance.

Safety standards vary—OSHA in the US, different systems elsewhere. Building codes differ—IBC/IRC in the US, different standards internationally. Contract law varies—common law vs civil law jurisdictions have different rules. Lien laws differ substantially by state/province even within countries.

For US-specific details (OSHA requirements, AIA contract standards, US building codes, mechanic's lien laws), a US sub-primer would provide jurisdiction-specific guidance.

Cross-References

Construction contracts are a specific type of contract. For contract formation principles, standard clauses, and negotiation dynamics, see Contracts Primer.

Construction projects often relate to real estate development. For property ownership, financing, and transaction processes, see Residential Real Estate Primer.

Construction projects involve project accounting and job costing. For accounting fundamentals, see Accounting Primer.