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November 18, 2025
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A well-drafted construction contract is one of the most effective tools in a contractor’s risk management toolbox. A clear, detailed agreement defines the scope of work, payment terms, schedule expectations, and how project risks are allocated. It provides all parties with greater certainty about what has been promised and what is expected. Yet even the best-drafted contract does not always mean what it says. Statutory and common law rules can override or reshape contract terms in ways that catch even seasoned professionals off guard. Understanding how these modifiers affect payment timing, retainage, and risk helps manage exposure.

Consider a typical construction contract negotiation. The parties sign an agreement that clearly sets out the deal. You walk away confident that the contract protects you.

As the project proceeds, you come to learn that the contract does not provide all the protection you thought it did. Provisions that seemed ironclad suddenly give way to unexpected exposure. Issues you believed were settled in negotiation are back on the table, and leverage shifts in ways you did not anticipate. How does this happen?

Construction contracts are interpreted and applied within a broader framework of statutory and common law rules that can supersede or modify the express terms. In some cases, the other party may have a better grasp of these external “contract modifiers” and use that knowledge to their advantage. Understanding how these laws interact with your contract allows you to assess risk more accurately at the outset and avoid costly surprises down the road.

The following examples show how contract modifiers can quietly alter your rights and obligations, changing outcomes that the written agreement alone would not predict.

Internal inconsistencies and order of precedence

Even a well-drafted agreement can contradict itself. Construction contracts are often made up of multiple documents with overlapping terms. This layered structure can easily create conflicts between documents. Most contracts address this by including an “order of precedence” clause that establishes which document controls if terms conflict. If the contract is internally inconsistent, a favorable term may be superseded by a less favorable inconsistent term.

Interpretation of internal ambiguity

Courts interpret contracts based on the parties’ intent, drawn from the contract’s language. Still, during negotiation, parties sometimes use vague or flexible language to bridge a disagreement and keep the deal moving. That flexibility can come at a cost. If a provision is later found to be ambiguous—meaning it can reasonably be read in more than one way—outside evidence such as prior negotiations, trade practices, and the parties’ course of performance may be used to interpret it. In short, what seemed like a clever compromise in negotiation can later become a costly source of dispute.

Exculpatory clauses and conduct of the parties

Exculpatory clauses are contract provisions that limit or eliminate a party’s liability for certain losses—common examples include no-damage-for-delay clauses, site condition disclaimers, and caps on damages. These clauses are enforceable but cannot shield a party from bad faith or willful misconduct. Courts have refused to enforce such clauses where a contractor or owner obstructs performance, withholds approvals or access, unreasonably alters scope or sequencing, or otherwise acts in bad faith in administering the contract. Even the strongest liability waiver provides no protection when a party’s conduct prevents the other from performing.

Waiver

A waiver occurs when a party intentionally gives up a known contractual right, either expressly or by conduct inconsistent with enforcing that right. For example, a party may waive a claim deadline by consistently accepting late performance without objection. To establish an express waiver, the language must be clear and intentional; an implied waiver requires proof that the party knew of the right and chose to forgo it.

Even clauses meant to prevent informal changes, like no-oral modification provisions, can themselves be waived through conduct showing an intent to disregard them. Proving such a waiver requires clear, convincing evidence—a high bar—but it shows that even the strongest contractual protections can be undermined by the parties’ actions during performance.

Release

A release is a contractual provision or agreement in which a party gives up the right to enforce certain obligations or pursue claims—essentially a legal act of relinquishment or forgiveness. Releases frequently appear in payment applications, change orders, and settlement agreements, often as standard or boilerplate language. Contractors should review every project document carefully to ensure that no claims or entitlements are surrendered—explicitly or by implication—without full understanding and intent. Even routine project paperwork can contain release language that, if overlooked, may result in the unintended loss of valuable rights.

Pay-when-paid clauses

A pay-when-paid clause is a timing mechanism that ties a subcontractor’s payment to the contractor’s receipt of payment from the owner. Pennsylvania courts distinguish these provisions from pay-if-paid clauses, which clearly and unambiguously make the owner’s payment a condition precedent to the subcontractor’s right to payment. While a strict reading of a pay-when-paid clause might suggest that a subcontractor bears the risk of the owner’s nonpayment, Pennsylvania law says otherwise. Unless the contract unmistakably shifts that risk through express, condition-precedent language, a pay-when-paid clause merely delays payment for a reasonable period—it does not eliminate the contractor’s ultimate obligation to pay. In other words, even if the owner never pays, the subcontractor must still be paid after a reasonable time has passed.

Statutory contract modifiers

Construction contracts operate within the framework of the laws of the state where the project is located. Many jurisdictions impose statutory requirements that supplement—or even override—contract terms.

In Pennsylvania, two key statutes shape private construction contracts: the Contractor and Subcontractor Payment Act (CASPA) and the Mechanics’ Lien Law, both of which establish non-waivable rights and obligations affecting payment, timing, and security for work performed.

CASPA establishes certain payment rights and protections that cannot be waived. Even if a contract states otherwise, clauses that attempt to limit or eliminate these rights are void and unenforceable as against public policy. CASPA mandates prompt payment within specific timeframes, imposes interest at 1% per month on late payments, adds an additional 1% monthly penalty for wrongful withholding, and allows the prevailing party to recover attorney fees. It also requires written notice within 14 days when payment is withheld for cause. In short, contract language that delays, restricts, or eliminates these statutory rights—such as “pay-if-paid” conditions, no-interest clauses, or blanket waivers—will not withstand legal scrutiny.

The Pennsylvania Mechanics’ Lien Law likewise limits the effectiveness of advance lien waivers, even when they appear clearly in a signed construction contract. Many contracts—especially those drafted by owners or upstream contractors—include language stating that a contractor or subcontractor “waives all lien rights” upon signing. However, the lien law expressly overrides such provisions, declaring any waiver made before furnishing labor or materials to be void as against public policy, unless a payment bond that meets statutory requirements has been issued, regardless of the express terms of the contract.

Other states apply similar protections. In Maryland, for example, the Retainage Law caps the amount of retainage that can be withheld and prohibits higher-tier contractors from retaining a greater percentage from lower-tier subcontractors than is being withheld from them. Any clause that imposes more onerous retainage terms on subcontractors than those applied to the contractor is invalid. Additional restrictions apply when a contractor has furnished 100% payment and performance security, further limiting the amount of retainage that may be withheld.

In Ohio, the Fairness in Construction Contracting Act renders specific contract provisions void as against public policy. The act invalidates clauses that waive a party’s rights under payment or performance bonds, “no-damage-for-delay” provisions when delays result from the owner’s acts or omissions, and terms that make acceptance of final payment a waiver of unresolved claims. It also voids clauses requiring disputes on Ohio projects to be governed by another state’s law or litigated in another jurisdiction. In short, the statute ensures that Ohio construction contracts uphold principles of timely payment, equitable dispute resolution, and fair allocation of risk.

The key takeaways

The examples discussed here are not exhaustive—statutory and common law modifiers vary widely by state. It is not enough to simply negotiate the language you want; you must also understand how that language will function under the laws governing the project.

Clear drafting remains essential, but every construction contract operates within a broader legal framework that can alter, supplement, or even override what is written on the page. Recognizing how statutes and court decisions interact helps identify risks, protect payment rights, and maintain leverage.

This article was published in the November/December issue of BreakingGround Magazine. Read full publication here.