After all decisions have been made, the design has been completed and the negotiations have taken place, the contractor of choice is usually asked to put together a contract. The contract should be in writing and, at a minimum, should include (1) a summary of work; (2) provisions for permits; (3) estimated start and completion dates;
- provisions and procedures for handling Change Orders; (5) the schedule of payments; (6) a Lien Notice; (7) the Notice of Cancellation and (8) Warranties.
A “summary of work” can take many forms. Some contractors list all work included in the proposal, some have an estimating system that breaks the work into categories to share with the owner, some write a detailed description of all of the elements involved in the project, some refer to the drawings or plans for the details of the project and some use a combination of the above options. The intent is to convey the scope of the work as clearly as possible so all parties understand what the finished project will look like. Some contractors also go out of their way to list the things that are not included in the proposal, further eliminating the possibility of a misunderstanding. I can’t emphasize enough how important it is to review the contract and have a clear understanding of its contents. If something is unclear, take the time to ask the questions and clarify all aspects of the contract.
The provision for the acquisition of permits should include an understanding of who is responsible to pull the necessary permits and call for the required inspections. There are only a handful of small jobs that do not require a permit. Check with the governing bodies to determine the thresholds in your jurisdiction. The person or company pulling the permit is responsible for all of the permitted work. If a contractor is unwilling to provide the permit, it could be an indication they are not licensed or are unwilling to do the work in a manner that will pass code. If you agree to pull the permit, you will be held responsible for all of the work being done to code and you will be responsible for additional costs of anything required by the inspection process.
The starting and completion dates should be a part of every contract. Delays can and do occur, so a statement allowing for reasonable delays is a good idea.
The provision for Change Orders is a necessary clause in every contract. This is an agreement that the contract cannot be modified without the written consent of both parties.
The schedule of payments is an area that often comes into play with unsatisfying relationships. The payment schedule should be tied to performance and risk exposure on the job. A down payment is customary, but should not be more than a small percentage of the total job. There are situations where a large order of custom cabinets or special order of windows (as examples) can affect the amount of the down payment. Any contractor who insists on a large down payment, with no obvious explanation, should be avoided. On the other hand, many contractors are small businesses with the need for cash flow to buy materials and pay wages. In this case, you should set up a schedule that reflects the work done to date. The ideal is to have an even balance between what has been accomplished and what you have paid. The situation to avoid is one where the contractor has collected the bulk of the money and has little or no incentive to complete the project in a timely manner, especially if some things have started to go wrong. There are many fair ways to schedule the payments that satisfy both the owner and the contractor. Some contracts have a “holdback clause.” This allows you to withhold a final payment (usually about 10%) until sometime after the job is completed, allowing you to inspect the work. If there are any problems, this can serve as incentive for the contractor to remedy them.
The contract should outline all pertinent information about guarantees and/or warranties. A professional remodeling contractor guarantees all workmanship for a specific length of time and extends the warranties offered by the material suppliers and the equipment manufacturers. Every state has laws regarding the length of time certain warranties on workmanship are in effect. Do your homework and understand fully the extent to which your project is covered by warranties or guarantees.
The above outline is intended to capture the most essential elements needed. The time it takes to have a sound understanding of what is outlined in a well written proposal is time well spent. No one wants to argue over petty misunderstandings and create an adversarial relationship.
Unacceptable: The Contract and Change Orders are verbal, rather than written. Nothing is documented. Any one of the above elements is missing or dismissed as unimportant. Issues are poorly covered in the document. Statements are vague and confusing.
Good: The contractor produces a proposal that includes all of the above elements. Any blank spaces to put in dates, amounts, or choices are filled in so nothing is left to chance later.
Better: In addition to the above, the contractor has formal, complete and professional contract documents and explains all of them thoroughly, creating a complete understanding of the project and all related elements.
Best: In addition to the above, the contractor has systems and procedures that they follow for every element of the contract process. This attention to detail and thoroughness makes every part of the contract relationship predictable. In the end, all of the contract documents are positioned to eliminate misunderstandings or surprises.