Having an airtight, thorough contract that protects all parties is key to a successfully completed building project. By being careful when choosing a contractor and by knowing what to look for in a contract, you will protect your interests as the building’s owner. Often during a construction project, problems can arise. A contract will allow you to resolve disputes, deal with scheduling setbacks, handle change orders, etc. with ease.
You might be deciding between several contractors. If this is the case, each contractor might present you with a bid. This bid should not be treated as the final contract because it will not contain all of the necessary parts. However, you should be careful if you approve the bid with your signature because this might hold you to that final price. Remember to slow down and read each document thoroughly before signing.
After the bid is approved and a contractor is chosen you will want a formally written document that contains the following elements:
This will include the names and street addresses of all parties involved. This will aid you if the contractor decides to leave the job before finishing (unfortunately, it happens) or if you need to track him down after the work is complete. Make sure it’s an actual address, not a P.O. Box. You may also want to drop the deposit off at the physical address so you can make sure everything looks legitimate.
Some states require contractors to be licensed while others do not. If your state requires this, make sure the contractor’s license is included in the formal contract. Sometimes, a written test must be passed in order to secure a license while other times, the contractor just has to write a check. Whether it takes skill to get a license or not, the presence of a license indicates that your contractor is running his business the right way.
Insurance protects both you and the general contractor should anything go awry. Injuries are unfortunately common in dangerous construction zones. If the contractor doesn’t have the proper insurance, you could be held liable. The contract should require the contractor to provide you with proof of worker’s compensation and general liability insurance. Be sure to view the proof of insurance with your own eyes.
Scope of the Project
This is the part of the contract that explains the work that will be done. This will make up the bulk of the contract. The project’s scope should be very specific. It will include what is to be done, and what materials will be used - including their brand names, model numbers, grade of material, and colors. The larger your project, the larger this section. The scope will also include how work is to be done. If an architect or designer created plans for your building or remodeling project, the contract should reference those plans. This section will allow everyone to be on the same page regarding the actual work.
The price will probably be listed as a total as well as an itemized price list. You should be able to see how much you are spending on various aspects of the project such as labor, materials, contractor’s markup, etc. Price can be determined in a variety of ways. You will need to know if the price in the contract is a fixed price, which means that it won’t change if the project takes longer or shorter than expected (unless change orders are made) or if the price is an estimate, meaning it can change based on how long the project takes, cost of materials at the time of purchase, or unexpected problems, for example.
While a timeline can never be set in stone, an approximate timeline will assist the contractor and his team in meeting project milestones. For example, he will have the frame of the building completed by September 15, 2016 and the building will be ready to occupy by December 15th. Be sure to use actual dates rather than vague spans of time (such as “3 months”) so everyone is on the same page. Remember that if you hired the right contractor, he will do everything in his power to complete the project on time. However, remember that delays often happen for reasons outside of anyone’s control.
Your contractor will require that you pay a portion of the final price upfront. Be careful, though. Never pay for the entire project before work begins. An acceptable deposit ranges from 10-15% of the final cost. The remaining payments should be tied to the timeline’s milestones. To use our example above, once the frame of the building is finished you will make a payment. Never let your payment schedule be tied to dates because you could be paying for work that has yet to be completed. Once you are ready to make the final payment, make sure the building is 100% complete and the job site is cleaned to your satisfaction. Have the building inspected and make sure it is up to code. In addition, don’t pay the final balance unless the contractor has fully paid each subcontractor. Otherwise, the subcontractors could place a lien on your property.
Change Order Procedure
Sometimes you will want to make changes to your project part way through. This calls for a change order to be made in writing and signed by both parties. A change order almost always increases the final price. The main contract should specify that change orders can only be made when a new official document is created. Otherwise, you could have to pay for work that you didn’t authorize.
In general, a contract will give a 1 year limited warranty for the work and materials after the project is complete. Should you need to track down the contractor for any reason, you have his physical address and phone number. There should also be a warranty for the work done by subcontractors. If their work is not adequate, the general contractor is responsible for remedying the situation.
Contractor will arrange for permits
Acquiring the right permits and checking zoning requirements is vitally important. The city can fine you or have you remove work that was completed if you are not zoned correctly. An experienced general contractor will have applied and arranged for permits many times so he should have no problem acquiring them for your project. Make sure the contract states that this is his responsibility.
Should any party decide to abandon the project (either the owner of the contractor) there should be a written procedure for doing so. This section will also list the amount of notice that is required to cancel the contract.
This section will explain what needs to happen if conflicts arise or if one party doesn’t hold up their end of the agreement. The contract might explain how problems are fixed outside of going to court. Of course, sometimes you must hire a lawyer if things have gone too far.