It used to be that you could seal a business deal with a handshake. Well, OK, maybe that wasn't such a good idea. But we now live in a society that settles virtually every misunderstanding with a lawsuit.
With that in mind, everyone involved in a new construction or a remodeling job have to protect themselves legally. These days funding budgets are considerable and everyone is trying to squeeze the nickle.
Basics of the Builder/Owner Contract
The bid is usually accepted before the construction contract is hammered out. Although the primary points of the signed bid are the bundled costs and the scope of the work outlined, the contract itself delves into the actual details of the project.
Almost all reputable contractors have a basic boilerplate set of forms that they base their work on, but as the homeowner, you have the responsibility to ensure topics are spelled out in detail.
That being said its always important for the homeowner to have a lawyer review it in detail. Lets address some of the standard items that should be included. Keep in mind that the exact and precise details will depend on where the home is located and who does the work, but the following are the essentials.
The Description of Work to be Performed
This section must go the level of detail that the scope of your job demands. For instance, theres a dramatic difference between fixing drywall holes and matching orange peel texture compared to the job of a kitchen remodel.
Also, the manufacturers of the building materials should be spelled out in this section. For example, if you pay for energy efficient replacement windows and pay for them, then that is exactly what you should get, rather than contractor-grade ones.
You must monitor it as well. When I bought my home, I hired a painter to paint the interior. The bid and contract specified Behr but I caught him using some inferior paint. I stopped the job immediately. Not only did he have to buy the right material, he had to start over and eat the cost of the cheap stuff. Sad but true.
Construction Funding and the Schedule of Payments
This language needs to specify all relevant information identifying the lender providing the money, be it the owner, a banking institution, or another financial establishment. The absolute minimum is the company (or individual) name, physical address, and point of contact. This protects the contractor.
The payment schedule is critical, especially for smaller operators. In the building trades, these payments are draws. Theyre basically money paid for the percentage of work completed. Remember how I stopped the paint job? Stepping around the contract allowed me to stop draws as well. This is why this section is so important.
In most situations, a draw depends on city building inspectors signing off on your building permits. Of course, this wont apply to all trades, but it almost always does for electrical and plumbing work.
HVAC jobs that involve refrigerant charging or recovery may not require permits or inspections but do require licenses. Structural framing may require pulling a permit.
Verify Bonding, Contractors Liability Insurance, and Workers Compensation
These are the types of insurance that should be identified during the bid selection process, but it is essential that the homeowner gets it down in writing here. Be sure it spells out the financial amount of coverage and the company providing the insurance to the contractor.
This is key to protect the homeowner from workers injury claims as well as mechanics liens. Either of these legal actions could take their toll in thousands of dollars.
Finally, Set Out the Terms and Conditions
This part of the contract is where the legal verbiage takes off the gloves. It is typically a numbered or bulleted list and it spells out the legalistic details of all the sections covered so far.
Additionally, it might mention the procedures to follow should any legal action transpire, what occurs if either party goes bankrupt, and any other details not covered already. If caution is taken while nogotiating and drawing up the contract, both the builder and homeowner should have a rewarding remodeling experience.