A Solid Contract Is the Foundation of Any Significant Home Renovation or Construction Project

Unless you are a master carpenter with a lot of time on his or her hands, the construction of a new home or major home renovation or construction project you’ve been contemplating will require the talents and services of a general contractor. Whether your project will yield your dream home or become a nightmare for you depends on two fundamental factors: the skills, experience, resources, and the integrity of the contractor and the construction contract that defines your mutual roles, rights, responsibilities, and expectations.

Just as shoddy construction can lead to disappointment and a host of undesired consequences, so can a poorly written contract with a general contractor. This document is the foundation of the entire project. It will specify what you want, what needs your approval, and what happens when circumstances or needs change. It can minimize misunderstandings and disputes, provide mechanisms for resolving conflicts, and protect you from unwarranted claims.  It is important to pay attention to this document.

Unfortunately, too many homeowners gloss over this document without considering its implications. Some homeowners will sign anything put in front of them. While you should always seek the advice of experienced counsel before executing any construction contract, here are some of the significant issues that any such agreement should clearly address.

Clearly Defined Scope of Work

Exactly what are you hiring the contractor to do?  For example, simply stating, “Add new 2nd-floor bathroom,” leaves a lot to the imagination. How large will the bathroom be?  Will it have a tub or shower or both? How many sinks? What kind of fixtures and flooring will it have? Your contract must outline the specific details of the project, including the scope of work to be performed, the materials to be used, and any relevant specifications. Be SPECIFIC and clarify the EXACT brand, type, and model number for the toilet, sinks, vanity, mirrors, faucets, etc.  The more specific, the better.  For example, Kohler has dozens of choices for bathroom faucets at very different price points.  You will not get what you want unless you specify exactly what you want in the contract.

Timeline and Milestones

Your project may be the only game in town for you, but it likely isn’t for the contractor. Be sure your contract includes realistic and firm but flexible timelines to keep your renovation on track. Without a clear timeline, key project milestones, and specified consequences for failing to complete goals on time, your project could stagnate for weeks or months while your contractor attends to other engagements that include such terms. The contract should include start and completion dates, as well as milestones for key phases of the project. This helps maintain accountability and ensures both parties are aligned regarding the project schedule.  You might even include penalties in the contract if the contractor fails to timely complete the project.

Payment Terms

The contract should clearly outline payment terms, including the total project cost, payment schedule, and method of payment. Payments may be made on a regular (usually monthly) basis or can be tied to project milestones or the completion of specific tasks. Additionally, the contract should specify how change orders or additional work will be handled and billed.

Allowances

In a construction contract, an allowance is an amount included for required materials or services, the details (including final cost) of which have yet to be determined when the contract is signed. Allowances provide flexibility in selecting items such as flooring, finishes, plumbing fixtures, or lighting. The owner should make sure to minimize the number of allowance items for the project and make sure the allowance amounts built into the contract are reasonable.

Change Orders and Amendments

Rare is a construction project that doesn’t involve changes after signing a contract or starting work. Almost every owner will want something different or added after the contract is signed.  Trust me. The contract should specify how change orders will be handled, including the process for requesting and approving changes, documenting adjustments to the scope of work, and any associated cost implications.  No extra work should ever be completed without a written change order.

Legal Compliance, Permits, and Indemnification

Both parties should agree to comply with all applicable laws, regulations, and building codes throughout the duration of the project. The contract should address who is responsible for obtaining necessary permits and complying with local building codes and regulations. Additionally, the contract should include indemnification clauses to protect each party from liability arising from the other party’s actions or negligence.

Insurance and Liability

The contract should contain a representation (that the owner should verify) that the general contractor is bonded and insured and carries adequate coverage, including general liability insurance and workers’ compensation insurance. The contract should specify the extent of coverage and outline each party’s responsibilities in the event of accidents, injuries, or property damage.

Subcontractors, Suppliers, and Mechanics’ Liens

If the general contractor plans to use subcontractors or hire suppliers for certain aspects of the project, the contract should stipulate how these arrangements will be managed and how subs and suppliers will be paid. The document should clarify the general contractor’s responsibilities versus subcontractors’ and address the filing and removal of any construction or mechanics’ liens on the property.

Termination Clause

It is critical to include a termination clause in the contract that outlines the circumstances under which either party can terminate the agreement and the rights and remedies for each party in such an event. This protects both parties’ interest if the relationship becomes untenable or the project cannot be completed as planned.

Final Completion and Warranties

The contract should address cleanup and restoration requirements once the project is complete. This includes removing debris, cleaning the work area, and ensuring all aspects of the project meet the homeowner’s satisfaction. Additionally, provisions for a final inspection should be included to confirm that the work meets the agreed-upon standards.  And finally, the contract should include warranty provisions that outline the contractor’s obligations to repair defective work for a specified period after the project is complete.

Conclusion

Embarking on a home construction journey is a big deal. It deserves thoughtfulness, thoroughness, and seriousness.  While there is no substitute for selecting the right contractor who does good work and who is fair and honest, your contract is critical to making sure your project is successful.