How to read an ADU construction contract

Identify the documents that form the deal

Ask for a list of the documents included in the agreement, with their dates or revision numbers. That may include plans, specifications, the proposal, allowances, exclusions and written clarifications. Save the actual versions, not just a link that can later change.

If a drawing shows an item but the proposal excludes it, ask for a written resolution. Find out which document controls if two conflict. Do not assume a conversation with the salesperson automatically overrides the signed terms.

Understand the price arrangement

Under cost-plus, ask whether fees apply to subcontractor invoices, materials, credits and changes in the same way. Under lump sum, focus on the work and adjustment terms rather than assuming you are entitled to see every internal cost. For either arrangement, ask what happens if the budget is exceeded.

Write down the boundaries of the service

Confirm who handles design, permit applications, fees, utility coordination, inspections, site cleanup and final records. If a task belongs to you, ask what information or timing the Contractor needs from you.

For items you purchase, define more than the word “supply.” Who checks the specification, receives delivery, installs the item and handles a defect? For an allowance, identify the actual amount, the covered costs and the adjustment process. Read what an ADU bid should say about allowances.

Read payments as carefully as the total

A payment schedule should be understandable without guessing what “rough” or “finish” means in that contract. Ask how the completed work is described, what evidence accompanies an invoice and how previous payments appear in the balance.

For agreements covered by California home improvement law, CSLB states a deposit limit of $1,000 or 10% of the price, whichever is less, with a specified blanket performance and payment bond exception. Confirm the legal classification of your ADU agreement and applicable rules; do not assume that every ADU, new-construction or design contract falls under the same provision. CSLB: Contracts and binding agreements

If a lender is involved, compare the lender’s draw process with the contract schedule before signing. An approval by your lender and an amount owed under your construction agreement are separate questions.

Understand how work and dates can change

Find out who may authorize a change and how the written record shows the added or removed work, price and schedule effect. A price marked “to be determined” should prompt a conversation about how it will be calculated and approved.

Ask what the schedule assumes about permit issuance, utility work, product choices and access. If a date changes, what notice will you receive? What happens if you pause the job, the Contractor stops work or either party ends the agreement? These provisions matter even if you expect a simple project.

CSLB’s contract guidance calls for written changes in covered home improvement agreements. Have a qualified attorney resolve questions about the actual agreement rather than relying on a verbal assurance. CSLB: Contracts and binding agreements

Define the finish before the work begins

Ask what the final payment conditions include: remaining work, final records, allowance settlement and any applicable releases. A target completion date does not explain those handover requirements.

Keep cancellation, dispute resolution, termination and warranty terms visible when reviewing the agreement. This guide identifies questions, not a ready-to-sign contract or a determination of your legal rights. If you do not understand a term, resolve it before signing, ideally with qualified legal advice.

Questions about this topic

Related ADU reading

Back to the ADU project overview