Let’s Give AI Another Chance at Drafting Construction Contracts

Last January, I asked “Can AI Draft Your Next Contract?”. My conclusion: Artificial Intelligence (such as Microsoft Copilot) is a blunt tool for writing residential construction contracts. That got a hostile response from some AI advocates. Their point: If your AI query is broad and general, expect your AI response to be the same. To get a detailed, accurate response, frame your query in detailed, precise language.

OK. I tried that. My revised query:

Generate a home improvement construction contract between a licensed California contractor and a California home owner. The contract must comply with all applicable California and federal law and regulations and survive close scrutiny by specialized legal counsel. The contract must be detailed and enforceable. Include all notices, warnings and disclosures required by state and federal laws and regulations. Scope of work is detailed in the plans and construction estimate dated April 2, 2025. Initial payment is the maximum allowed by California law. Contract price is $189,765 including an allowance of $20,000 for 7 kitchen appliances. Include a payment schedule that complies with California law. The start date is July 12, 2025. Estimated completion date is November 22, 2025. The contractor has both commercial liability and workers comp insurance. Written change orders will be required for unanticipated conditions. Settlement of disputes will be by arbitration. The contractor will take out and pay for the building permit.

I included in the query the site address, names and contact numbers for both the owner and the contractor.

The Result Was Marginal Improvement.

• A payment schedule (back loaded).
• Start date and estimated completion date.
• Change orders have to be in writing (but omitted the sample form required by CA law).
• Disputes require arbitration (but AAA is the only arbitrator allowed).
• A statement that all required notices and disclosures are included (but the contract didn’t include any).

A bare recital that “all required notices and disclosures are included” is pathetic. It’s clearly not the same as giving those notices and making those disclosures. The Contractors State License Board would probably consider this AI contract a bad joke. Many flaws noted in my January blog post remain in the revised contract:

• A statement in 12-point bold type: "You are entitled to a completely filled in copy. . . 
• California’s mechanics’ lien warning.
• A statement on release of lien in exchange for payment.
• Information about the Contractors State License Board.
• A statement on performance and payment bonds.
• California’s checklist for homeowners.
• Receipt acknowledging delivery of California’s 3-day right to cancel.    California’s 3-day Notice of Cancellation.
• The statement: "Any Notice of Cancellation can be sent to this address."
• The Federal right of rescission (Reg Z) notice.

22 states (AR, CA, CT, DC, FL, HI, IL, IN, LA, ME, MD, MA, NV, NJ, NY, OH, OR, PA, TN, VA, WV, WI) require specific notices and disclosures in residential construction contracts. Is it expecting too much of AI to lay out those notices and disclosures when required by law? Apparently so – even though the law is readily available to every large language (AI) tool willing to take a look. In my opinion, mistakes like these disqualify Copilot as a drafting tool for residential contracts. If you’re serious about drafting legal and enforceable agreements for any job in your state, have a look at Construction Contract Writer. The trial version is free.

Reasons to Estimate the Completion Date

Nearly every project owner has two questions:

1. What’s it going to cost?
2. When can you be done? 

Your answer to the cost question should include a question. See my blog post about cost estimates.  Your answer to the completion question has to be different. I’ll explain.

Seventeen states (AZ, CA, DC, HI, IL, IN, MA, ME, MD, NV, NY, PA, TN, VA, VT, WI, WV) require an estimated completion date in home improvement contracts. That’s reason enough to specify a date. But even if you don’t work in any of those seventeen states, there’s another good reason to put a completion date in your contract. It’s called the parole evidence rule. If that’s Greek to you, keep reading.

A Minnesota case decided last week makes my point.

Matt Schindele agreed to have Build 218 remodel his rental unit in Bemidji, MN: counter tops, sink, cabinets and appliances in the kitchen, a tub and vanity; siding, drywall, windows, plumbing and electrical work. The contract price was $130,915. The contract didn’t mention a completion date. A date is not required in Minnesota home improvement contracts. But Schindele claimed an oral agreement. Work should be finished by June 2022.

The job ran longer than expected. And Schindele wasn’t happy with the work. Schindele filed suit for defects in the job and claimed late completion. Slow completion delayed sale of the property. That reduced the sale price. 

The trial court dismissed Schindele’s complaint. He got nothing for either defects in the job or late completion. Schindele appealed.

The appellate court reversed the trial court’s decision. Schindele will get another chance to prove damages for late completion. The court’s reasoning hung on the parole evidence rule.

When a contract covers some issue, courts exclude any evidence that would vary, contradict or alter the written agreement. When a written agreement is incomplete or ambiguous, parole evidence is admissible in court to explain what the parties intended. Because Build 218’s contract didn’t specify any completion date, Schindele will get another chance to fill in his understanding. That’s any contractor’s worst nightmare: An owner explaining what a contractor promised (orally) and failed to deliver.

The Answer is Simple

Include an estimated completion date in your contracts. Some contractors don’t like that. Too many things could go wrong! Of course. We all understand that. Specify an estimated completion date and then append a list of contingencies. No state prohibits that. Construction Contract Writer makes it easy:

Any of the following shall constitute excusable delay for which the contract time shall be extended: Labor dispute, limits to site access, act or neglect of a public authority, shortage of labor, materials or equipment, scheduling conflicts, neglect of the owner or designer, unanticipated site conditions, delayed payment of invoices, casualty loss, epidemic or unusually adverse weather.

Add to that list any way you want. But you’re getting the idea. Drop a date in your contract. Then add a paragraph of contingencies. The only limit is your ingenuity.

Statute of Limitations: A Contractor’s Friend

How long should a contractor be liable for construction mistakes? A year? Two years? Ten years? Imagine being sued over a job completed 20 years ago. Memories fade. Witnesses die or disappear. Evidence gets lost. The property would have been out of your control for many years. Anything could have happened.

Without a time limit for making claims, construction contracting would be a very hazardous business. Fortunately, every state limits the time allowed to make claims against a contractor. But that’s just the beginning. Your contract can shorten the time to make claims. More about that later.

Consider the Minnesota Statute

In MN, construction claims for obvious defects are barred two years after substantial completion. For hidden defects, the two years starts from discovery of the defect. Of course, that could be many years after completion. So Minnesota, like other states, also provides a “statute of repose”. In MN, all claims are barred 10 years after completion no matter when discovered. Every state has a similar law. If this seems simple, consider a MN case decided last month.

• February 2020: Morningstar Remodeling contracted to improve a MN home. NB Electric Inc. was the electrical sub.
• July 2020: Work stopped when fire damaged the home. When work resumed, NB Electric was no longer involved.
• April 2021: A new general contractor replaced Morningstar.
• July 2021: Work was completed.
• July 2023: The owner’s insurance carrier filed suit against Morningstar and NB Electric alleging defective construction. That was more than two years after both Morningstar and NB Electric had been terminated.

The trial court dismissed the claim. The insurance carrier had waited too long to bring suit – filed more than. two years after Morningstar and NB Electric were terminated. The insurance carrier appealed, claiming the statute didn’t start running until two years after completion of the whole project, not just the work of Morningstar and NB.

How Would You Decide this Case?

Spoiler alert: Insurance companies usually win in appellate court. 

Here’s the court’s reasoning. Under the Minnesota statute, defect claims accrue at “substantial completion, termination, or abandonment of construction." The term “construction” refers to the entire project, not just to a particular contractor. Work on the full project was completed in July 2021. The insurance carrier filed suit within the two-year limit. If the legislature wanted the statute to run from completion of each contractor, the statutory term would have been “contractor”, not “construction”. Notice what that means.

1. Early contractors (excavators) have a longer risk period than later contractors (roofers).
2. A job running several years can extend the claim period well beyond the statutory two years.
3. An owner could delay completion for several years, resume work years later and then file suit against every contractor who set foot on the job.
4. Courts will have to decide: Was a job delayed, terminated or simply abandoned? It makes a difference. Delay extends the two years. Abandonment doesn’t.
5. Even worse, the term "construction" also appears in the MN statute of repose. Has the court's decision also extended the statute of repose beyond 10 years? 

I believe the appellate court’s decision defeats the purpose of the statute: To bar forever stale claims. The dissent by judge Cleary makes the point. Defining “construction” as the whole project begs the question. Ask an electrical contractor or a plumbing contractor about the job. His or her work is the “construction project". When that part of the job is done, the two-year statute should start running.

If you draft contracts for your jobs, you write the rules. Minnesota courts allow parties to define their own time limit for claims so long as the period is not unreasonably short. Take the hint. Let Construction Contract Writer draft agreements that protect your pocketbook. The trial version is free.

Can AI Draft Your Next Contract?

Artificial Intelligence is changing the way many documents are drafted. You’ve probably seen accounts of legal briefs written with AI. If AI can draft court documents, can AI draft your next construction contract?

No doubt, legal research tools have changed the practice of law. I use CaseText and like it. Digital tools make the full body of law available to anyone with a web connection and a few dollars a month. That’s good. In seconds, anyone can find relevant law or precedent. But is AI a substitute for experience and judgment?

To find out, I ran a test, maybe the most challenging test possible, a California Home improvement contract. Like 36 other states, California requires very specific notices and disclosures in home improvement contracts. Without these notices and disclosures, the contract isn’t legal and risks discipline by the state license board.

My AI tool was Microsoft Copilot. I gave Copilot:

• A job description,
• The construction site,
• Names of the parties,
• Scope of the work,
• Contract price.

I got a written contract back in seconds. For that, I give Copilot an A grade. It’s fast. Another plus: Copilot filled in many contract terms I had not specified:

• A payment schedule,
• Time of completion,
• Changes to the work,
• Permits and inspections,
• Warranties,
• Insurance,
• Termination,
• Governing law.

But Copilot left out nearly all the notices and disclosures required by California law. Worse, some parts of the Copilot contract were simply illegal. Here’s where Copilot blew it:

• The document title has to be "Home Improvement Contract" in boldface type.
• A statement in 12-point bold type: "You are entitled to a completely filled in copy. . .”
• The date when work will begin.
• The down payment can’t exceed $1,000 or 10%, whichever is less.
• California’s mechanics’ lien warning.
• A statement on release of lien in exchange for payment.
• A general statement about commercial general liability insurance.
• Confirmation that the contractor carries (or doesn’t carry) insurance.
• Information about the Contractor's State License Board.
• A statement on performance and payment bonds.
• California’s checklist for homeowners.
• A sample change order form including specs for any change order.
• Receipt acknowledging delivery of the California’s 3-day right to cancel.
• California’s 3-day Notice of Cancellation.
• The statement: "Any Notice of Cancellation can be sent to this address."
• The Federal right of rescission (Reg Z) notice.

For those omissions, I can’t give Copilot a passing grade -- at least for drafting residential contracts. To the discredit of Copilot, all the notices and disclosures Copilot missed are black letter law -- statutes readily available to anyone who cares to look. For example, the initial payment can’t be more than 10% for California home improvement projects. Copilot’s contract specified a 20% down payment. That’s dead wrong. Another mistake: Omitting the 3-day right to rescind required in all 50 states when working on an owner’s home.

Clearly Copilot needs one more disclaimer: “This contract may not comply with law in your state.” There’s a better choice. Construction Contract Writer drafts letter-perfect contracts for any state or type of work. The trial version is free.