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Construction contracts are agreements between two parties where typically money is exchanged for services, such as building a house. The simplest form of a contract can be a verbal agreement, which is legally binding, but difficult to prove in case of disputes. It is essential to get everything in writing to avoid complications. The speaker shares a personal experience from their first six months in business, learning the hard way about the importance of written contracts, which cost them about $3,000. This experience emphasized the significance of having clear contractual agreements to prevent financial loss.