UPDATED: February 9, 2020
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For a successful working relationship with a building contractor, choose the right contractor and use a very complete contractor agreement. The clearer the construction agreement, the less likely there will be disputes or disappointment on work done in an unsatisfactory way.
Your contractor will likely give you a written bid for the project. Be aware that if you accept a contractor's bid on a project by signing it, your signature may be interpreted as agreement to the bid as the construction contract. You will want your contract with the contractor to be more complete than the bid, so put your agreements with the contractor in a formal written contract instead of signing the bid. It's ok to sign the bid if there is language that indicates the bid does not constitute a formal construction agreement between the parties.
Parts of the Contractor Agreement
The following provisions are typically found in a contractor agreement:
- Names and street addresses of all parties.
Because contractors have been known to disappear without finishing a job or after doing a defective job, make sure you have more than a PO Box and check to be sure addresses and telephone numbers are correct before you sign the agreement.
- Specifications and scope of work.
This section should be very specific, and outline what is to be done, what products are to be used by brand name or model number, colors, grades of material, and any other relevant information. You need to include a provision about cleanup after the project, such as removal of debris and dumpsters. This section should also include a list of steps to be taken and how the work is to be done if there are alternative ways of doing the project. For example, how is the flashing to be fixed around a chimney in a roofing project?
- Price or how price is to be determined.
The price should be clearly broken down and easy to understand. Be wary of costs that are not determined until the end of the project. It would be better to get a final price up front, but if you can't, at least be sure you know exactly how costs will be calculated.
- Approximate timelines.
You can never be certain how long a project will take, so an approximation should do, such as from May 15, 2013 to September 15, 2013. Use dates instead of periods of time, like "4 months". The term "4 months" could be interpreted to mean 4 months of work spread over a 12-month period.
- Payment schedule.
You should never pay a large percentage of construction costs in advance. Some states have limits on advance payment. In California, you can only be required to pay $1,000 or 10% of the contract, whichever is less. Check your state's licensing agency to find out the rules in your state. Additional payments should be made as the work progresses, but payment schedules should be tied to work performance and not to dates. A payment should be made when a certain step in the project is completed. Don't make the final payment (usually around 10%) until after you've completely inspected the work and after completion of any required inspections by building officials. Also, don't pay before the contractor has proved that he paid all the subcontractors and suppliers who could put a mechanic's lien on your property.
- Contractor will arrange for permits.
The contractor should obtain any permits that are required and should check to see if there are zoning problems with your project. You can be fined or required to remove improvements if these requirements aren't met, so this is an important provision.
- Guaranties and warranties by the contractor.
The contractor should give you a written warranty that the contracting company will be responsible for the failure of a subcontractor to perform adequately and an additional warranty on the workmanship and materials used by the contractor for a specified period of time.
The agreement should require the contractor to provide worker's compensation insurance and liability insurance. These are to protect the workers on the job and to protect your property from damage. If the contractor doesn't have worker's compensation insurance, you might be sued if a worker is injured. Check to be sure the contractor really has the insurance.
This section should also include any bonds agreed on between you and the contractor.
- Provision for additional work.
Sometimes unforseen additional work is needed, such as work to repair termite damage. An agreement for additional work is often called a change order. Specify that additional work can be done only upon written agreement of the parties, so that you can make sure the specifications for additional work are as carefully drafted as in your original agreement.
This clause usually sets out the amount of notice either party must give to cancel a contract.
- Conflict resolution.
This section can require the parties to resolve differences outside of litigation, such as by requiring arbitration of the dispute. You can also provide for liquidated damages, or an agreed upon amount that one party will pay if he fails to fulfill some part of the contract.
Be leary of construction agreements on printed forms. The contract may give the contractor more control than you want or have provisions without agreement. Be particularly careful about blank spaces. Cross out blank spaces so they can't be filled in later.
Consulting an Attorney
If you have any questions or anticipate any legal problems with your project, it will be worth the money to consult a qualified construction attorney and get advice on your project.