A contract is a legally binding document that details the expectations and responsibilities of all parties involved in a home improvement project. It clarifies the goals of both homeowner and contractor, and it protects each party’s rights regarding the project. Click here to view sample contracts.
Now Get Started! Your contract should include the items listed below. Scroll down for a thorough overview, or click the links below for a summary of each item. Keep in mind that this is simply a guide – contracts vary significantly by project.
It seems obvious, but make sure that you include in the contract the contractor’s name, physical address, phone number, insurance company and account and license numbers. If there is a dispute, you need to know where the company is located (you can’t serve a subpoena if you don’t have a physical address – a post office box number won’t do!), the company owner, the name of the insurance and bonding carriers and the way by which you can reach all involved parties.
Require a complete description of the work to be done. This includes the overall scope of the work as well as individual aspects of the project; from foundation and framing to all finish work required. The type and quality of all materials should be spelled out, including manufacturers, brand name, quantity, weight, color, style, and size. Be sure allowances for fixtures, floor coverings, etc. are sufficient to provide you with the level of quality you require.
In addition, indicate all equipment, such as scaffolding or cement mixers, which will be used over the course of the project. If you have architectural plans, include them in this section as well. If you decide to change the scope of the work during the job by either adding or subtracting items, you should make sure there is a written change order, with project cost and timing changes signed off on by both the contractor and homeowner.
Clearly define the project’s start date, and secure from your contractor the approximate length of time it will take to complete the project. At the outset, ask that your contractor convey all potential conflicts that might arise due to other projects with which he or she is concurrently involved. You will find that most contractors are reluctant to sign a contract that includes late penalty clauses, but it still may be an item that you care to pursue. Finally, specify the time that workers will arrive and depart each day, and mention the days, if any, that they are not to work.
Schedule of Payments
There are no hard and fast rules as to how a contractor collects his or her fees. Some don’t collect until the work is completed, while others ask for 50% up front. The average is three payments; the first when the bulk of materials are delivered or when a foundation is poured; a second payment when the job is half complete; and 20% when the job is essentially complete. A holdback of 10% is normal until the job has been inspected and the paperwork is complete. There are two customary ways of paying for a large job:
A) Cost plus flat fee: usually there will be draws set up with the homeowner. The contractor uses the draw to pay actual versus estimated costs, and submits all receipts and accounting on a regular basis. Flat fees average 13% to 20% and are usually paid, along with the draws, as the job progresses. This method allows great flexibility to make changes as the job proceeds, but it is more difficult to estimate the final cost.
B) Bid basis: Your contractor estimates the job, and provides a contract with all materials and fees included. You and your contractor agree on a payment schedule, referencing stages of completion in the work.
In both cases above, it is up to you to be certain that each stage is indeed completed before handing over a check. If you’re not familiar enough with electrical or plumbing work, for example, to know if the proper stage has been completed to make the payment, you might consider hiring a consultant to advise you.
Note: If financing is necessary, be certain that a clause is added stating that the contract is void unless and until financing is obtained.
Be sure the contractor states in writing that he/she will submit any building plans needed to the city code compliance department, obtain all necessary permits and arrange for all inspections required. If the work does not pass inspection, the contractor must bear the cost of corrections.
Make sure to do your homework on your contractor’s licensing and insurance. Contractor licensing requirements vary by state. Research these regulations prior to beginning your project, and require that your contractor provide proof of current licensing if relevant.
Mandate in your contract that the contractor provide proof of all required insurance. This should include, but may not be limited to, general liability and worker’s compensation for his or her employees.
In nearly all cases, a contract may be canceled within three days after you’ve signed it – simply send written notice by registered mail and request a signed receipt from your contractor.
In order to prepare for conflicts between homeowner and contractor that cannot be resolved, all contracts should include clauses specifying what forms of arbitration should be conducted and by whom.
Liens & Waivers
It is not unusual for contractors to place a mechanic’s lien on a homeowner’s property at the time of contract signing. This is a legal claim to real property until a debt is paid. If you aren’t comfortable with this, make sure the appropriate language is in the contract forbidding it. Subcontractors may also place liens on a property in the event that the contractor fails to pay them. Make sure that you get waivers signed by all subcontractors as they complete their work. Before making final payments to your contractor, have him or her provide you with a final release and waiver of any mechanic’s liens.
These come in two forms: conditional and unconditional. A contractor will give you a conditional release in exchange for payment in full by personal check. Once the check has been cashed, the release becomes unconditional. An unconditional release can be immediately secured by paying in full with a certified check.
Make sure the written guarantee on both labor and materials is included. This warranty should include the name and address of the party who will honor the guarantee. Also, the contract should stipulate if it is either a “full” or “limited” warranty. An average warranty for labor is for a minimum of one year. Require that you be given all written warranties provided with any appliances, materials or equipment used in the project.
A punch list is a running tally of all outstanding items related to the project that the contractor must address. Include in the contract a clause stating that both the homeowner and the contractor must sign off on all items detailed on the punch list before the project can be deemed complete.
The Brass Tacks
The brass tacks, so to speak, are those little details that can make the difference between a positive experience and a homeowner’s nightmare. While there are innumerable things that you could address, here are some specific issues worth mentioning:
Project Clean Up
- Will workers clean up everything at the end of each day?
- Will clean up require special effort, and at additional cost?
- Which party is responsible for additional cost incurred?
- Who is responsible for removing project-related debris from the site, and what is considered removal?
- Is the curb or alley sufficient?
Equipment on the Property
Will heavy machinery damage pavement, patios, the lawn, etc.?
And don’t forget the smallest of details:
Can workers use your home’s toilets, or will you require portable toilets?
Can workers use your home phones?
And there are plenty of others – think through and address every way in which your life and home could be affected by a major project prior to signing a contract.
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