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Construction contracts are agreements between parties, typically involving an exchange of money for services, like building a house. The simplest form of a contract can be a verbal agreement, which is legally binding but difficult to prove if disputes arise. Therefore, it is crucial to document all agreements in writing. The speaker shares a personal lesson learned in their first six months of business, where a lack of a written contract led to a loss of approximately $3,000, emphasizing the importance of formalizing contracts to avoid financial setbacks.