Construction Law

What should be covered in a construction contract?

Demystifying the most common sections found in a construction contract, so as to help ensure that work on your home goes as planned.

If you are considering hiring a contractor to perform work on your home, you should definitely plan to create a written contract. Such contracts are standard in the construction industry. Not only do they protect both you and the contractor if something goes wrong or a dispute arises, but they also clarify expectations and responsibilities at the outset of the relationship so as to avoid disputes. Put differently, a contract forces you and your contractor to discuss details of issues that you might otherwise gloss over; for example, timeliness of performance, method of payment, and remedies for breach.

There are a number of important topics that your contract should address. Here are seven key issues to consider:

1.Description of Work (sometimes called “scope”): The contract should describe, in some degree of detail, the work that you are hiring your contractor to perform. If you are hiring a contractor to perform a kitchen renovation, the contract should be specific with regard to the work and materials you expect. You might list “Installation of stove,” “installation of white triangular marble tiles,” or “upgrades of sink piping.” The idea is to clarify the expectations, as much as possible, about what the general phrase “kitchen renovation” means.

2. Time for Performance: Among the most frequent complaints about home contractors is the time of performance. Homeowners frequently feel that their contractors are taking far longer than they anticipated. Your contract is an opportunity to lay out basic expectations. For example, you can include specific benchmarks: “Tiling to be completed by April 30, 2018” or “Old stucco to be removed by March 1, 2018.” This creates clarity. You can also include an overall deadline, and indicate that “time is of the essence” (a legal phrase that would demonstrate to a court that the contractor had notice that timely completion of the work was a crucial component of your contract).

3. Schedule of Contractor’s Work: Home improvements can be invasive from the perspective of someone trying to live in the home. It is a smart ideas to spell out exactly when your contractor will be expected to be in your home. Weekends? Evenings? Afternoons? Will he be given a key? Clarifying these logistical scheduling issues will save some time down the road.

4. Payment Amount and Schedule: Obviously, the contract must state the amount that you will pay your contractor for the work. But it should also go into more detail: How will you pay, and when will you pay? By check? Wire transfer? It is generally smart to structure payment in installments. This creates an obvious incentive for the contractor to continue working at pace. It is also common to withhold what is known as “retainage” – usually 5-10% from each payment – until after the entire project is complete. Retainage allows you to keep some degree of influence over the contractor, again to ensure that the work is finished as expected.

5. Type of Payment: Generally, home improvement contracts fall into two types: “Fixed costs” or “Time and materials.” Fixed cost contracts are situations in which the contractor’s payment is a single dollar amount. “Time and materials” contracts are contracts where the contractor will charge for the labor and materials (usually hourly pay rates for workers, plus invoices and receipts for materials). In most cases, a lump sum “fixed costs” contract is more favorable to homeowners. But regardless of the type of payment, the type of contract should be clearly identified.

6. Method for Changes to the Scope: Sometimes, a homeowner will have a change of mind about certain aspects of the job along the way. You’ll see those blue tiles you chose installed in your kitchen and realize that you made a horrible mistake. Sometimes, a contractor will not be able to perform in exactly the manner he promised; for example, maybe certain materials he thought were available to him are not, in fact, on the market anymore. Your contract should state the time period within which either of you can make such requests for changes to the scope of work, and the ramifications for payment. Typically, you would pay “time and materials” for any changes unless a new fixed sum were agreed upon.

7. Method for Dispute Resolution: Disputes happen. A dispute resolution clause in your contract can lay out the procedure for how such disputes might be resolved. For example, the clause might provide for mandatory mediation of the dispute (whereby you and your contractor would sit down with a trained mediator to attempt to work out a solution). Alternatively, it might provide for binding arbitration, a process where an arbitrator makes a binding decision about the outcome of your dispute. Such a clause might also simply state that any disputes must be filed in a particular court applying a particular state’s laws. You should select the county court that is most convenient for you.

These are just seven of many potential issues that a construction contract might address. If you are engaging in a particularly large, expensive renovation, it might be worth investing a few hundred dollars for a lawyer with construction law experience to review or draft the document.

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