A contingency fee in construction cases is a payment arrangement where your attorney is paid only if you recover money, taking an agreed percentage of that recovery as the fee. If the case produces nothing, you owe no attorney fee. This structure is common in construction disputes because the dollars at stake are large, the litigation is expensive, and few property owners or contractors want to pay by the hour while also dealing with the underlying construction problem. The risk shifts to the lawyer. The details of how that shift actually works are where people get caught off guard.
Don’t Confuse This With a Construction Contingency
A contingency fee and a construction contingency are unrelated. A contingency fee is how your lawyer gets paid. A construction contingency is a budget line, typically 5% to 10% of total project costs, set aside for unforeseen soil conditions, design changes, or material price spikes. One is a legal billing arrangement. The other is a cushion inside a project budget. Using the terms interchangeably with your contractor or attorney will create confusion fast.
When Lawyers Take Construction Cases on Contingency
Construction Defect Claims
Owners who discover faulty workmanship, water intrusion, structural cracking, or code violations often hire counsel on contingency to pursue the responsible contractor, subcontractor, or design professional. These cases are expensive to build. Forensic engineering investigations, destructive testing, and expert reports routinely run into tens of thousands of dollars before a complaint is even filed, which makes a no-fee-unless-you-win arrangement the only realistic option for many homeowners and associations.
Payment Disputes and Mechanic’s Liens
Contractors and subcontractors who haven’t been paid for completed work frequently use contingency representation to collect. The same goes for disputes over change orders, back charges, and retainage. Enforcing a mechanic’s lien is a natural fit because the amount owed is usually well documented and the recovery is reasonably clear once a court rules.
Construction Site Injuries
Workers or bystanders hurt by unsafe conditions, falling objects, or equipment failures almost always retain attorneys on contingency. Construction site injuries often involve several potentially responsible parties, which adds complexity and raises the value of letting a lawyer absorb the financial risk.
Typical Percentages and Room to Negotiate
Contingency fees in construction cases generally run from 25% to 40% of the amount recovered. The most common opening figure is 33% (one-third), which many attorneys quote before any discussion. The percentage often steps up if the case goes further. An agreement might set the fee at 33% if the matter settles before suit, 36% after litigation starts, and 40% if it reaches trial. The lawyer’s investment of time and risk climbs sharply once trial preparation begins, and the fee schedule reflects that.
These numbers are negotiable. A well-documented $2 million defect claim with clear liability looks different to an attorney than a $50,000 dispute with conflicting evidence, and the stronger your case, the more leverage you have to push the percentage down. Ask about the number before you sign. Don’t treat the first figure as final.
What the Written Agreement Must Cover
Under the attorney conduct rules in virtually every state, a contingency fee agreement must be in writing, signed by the client, and must spell out the percentage, how it changes at settlement, trial, or appeal, and how expenses are handled.1American Bar Association. Model Rules of Professional Conduct – Rule 1.5 Fees Three provisions deserve close attention before you sign.
Gross vs. Net Fee Calculation
The agreement should state whether the attorney’s percentage is calculated on the gross recovery, before expenses come out, or the net recovery after expenses are subtracted. The difference is real money. On a $100,000 settlement with $10,000 in expenses and a 33% fee:
- Gross method: the attorney takes 33% of $100,000, which is $33,000, and expenses come out of your share. You receive $57,000.
- Net method: expenses are subtracted first, leaving $90,000, and the attorney takes 33% of that, or $29,700. You receive $60,300.
The gross method is more common in practice. The gap widens as expenses grow, so knowing which method applies matters more than most clients realize.
Who Pays the Expenses
The agreement must tell you whether you owe litigation expenses regardless of outcome. Court filing fees, expert retainers, deposition transcripts, and forensic engineering reports all cost money. Some attorneys advance those costs and absorb them if the case fails. Others advance them but expect reimbursement from you even in a loss. Read this section carefully. “You don’t pay unless you win” sometimes means “you don’t pay the attorney fee unless you win, but you still owe $15,000 in costs.”1American Bar Association. Model Rules of Professional Conduct – Rule 1.5 Fees
What Happens If the Relationship Ends Early
The agreement should address what happens if you fire your attorney or the attorney withdraws before resolution. In most jurisdictions, if you terminate without cause, the attorney can seek a reasonable fee for the work already performed on a quantum meruit basis, measured by the value of services up to discharge and not necessarily capped by the contingency percentage. If the attorney was fired for cause, they generally have no right to collect a fee. Any clause that locks you into paying the full percentage regardless of when or why the relationship ends deserves scrutiny.
What “No Recovery, No Fee” Actually Means
If your case produces no recovery, you owe no attorney fee. That is the core promise of the arrangement. But “no fee” is not always “no cost.” Many agreements still require you to reimburse litigation expenses whether or not you win. Filing fees are modest. Expert witnesses in construction cases run into the thousands, and forensic investigations can run higher. Ask your attorney for a realistic estimate of total expenses and who carries them if the case fails before you commit to filing.
Where Contingency Fees Are Not Allowed
Expert Witnesses
Expert witnesses in construction litigation are paid hourly or by flat fee. The common law rule in most jurisdictions, reflected in the ABA’s ethical rules, prohibits paying an expert a contingent fee because tying compensation to the outcome undermines the expert’s credibility as an objective witness.2American Bar Association. Model Rules of Professional Conduct – Rule 3.4 Fairness to Opposing Party and Counsel – Comment Expert testimony on defects, code compliance, and repair costs is nearly always essential in construction cases, and those fees land in the expense bucket discussed above.
Securing Government Contracts
Federal acquisition rules treat contingency fee arrangements for obtaining government contracts as contrary to public policy. The Federal Acquisition Regulation requires contractors to warrant that no one was paid a contingent fee to secure the contract, with narrow exceptions for the contractor’s own employees and established sales agencies.3Acquisition.GOV. FAR 52.203-5 Covenant Against Contingent Fees Violating the warranty can lead the government to cancel the contract, recover the full fee, or pursue debarment.4Acquisition.GOV. FAR Subpart 3.4 – Contingent Fees This restriction applies to consultants and brokers hired to help land public work, not to attorneys you hire after a dispute arises.
Taxes on a Contingency Recovery
The IRS generally taxes you on the full settlement amount, not just the portion left after your attorney’s fee. Under the Supreme Court’s decision in Commissioner v. Banks, a plaintiff in a contingency fee case must report income equal to the entire recovery, even if a third of it went straight to the lawyer and never touched the plaintiff’s account.
Before 2018, the attorney’s fee could at least be claimed as a miscellaneous itemized deduction. The Tax Cuts and Jobs Act suspended that deduction from 2018 through 2025, and the One Big Beautiful Bill Act signed in 2025 made the elimination permanent.5Thomson Reuters. What OBBB Means for Your Clients’ Itemized Deductions An above-the-line deduction for legal fees still exists, but it applies only to claims involving employment discrimination, whistleblower protections, and certain civil rights violations.6Office of the Law Revision Counsel. 26 USC 62 – Adjusted Gross Income Defined A typical construction defect or payment dispute does not qualify.
The practical result: settle a construction defect claim for $300,000, and if your attorney takes $100,000, you may owe income tax on the full $300,000 even though you keep $200,000. Talk to a tax professional before you accept a settlement, not after. The tax bill can shrink the real recovery considerably.