Building inspectors can uncover problems that should be addressed in remodeling and also monitor compliance with building codes during construction.
Provisions of a Good Remodeling Contract
No matter how small or large your remodeling project, and no matter how much you like and trust the contractor who submits the winning bid, it’s important to develop a legally binding contract and have it signed before work begins or money changes hands.
Many experienced contractors provide contracts well-formed standard contracts, but you may consider developing your own contract based forms developed by the American Institute of Architects (AIA) or other sources, which are readily available online. Whichever route you choose, the contract should be written in plain language that you can understand. It should describe the work to be performed in as much detail as possible and clearly define the responsibilities of all parties as well as all financial terms.
What a Remodeling Contract Covers
A typical contract should include but is not necessarily limited to the following items and agreements:
- Names and addresses of all parties
- Phone, fax, email contacts and procedures
- Date of the contract
- Complete descriptive narrative of the work to be completed
- Statement of concerning removal of construction debris
- Assignment of responsibilities for obtaining permits and all required permissions
- Assignment of responsibility for obtaining insurance certificates
- Start and completion date of construction
- Description of the property, including the street address
- Total monetary amount of the contract
- Payment schedule
- Plans, drawings, blueprints, sketches
- Specifications for assemblies, products, fixtures, fittings and appliances to be installed
- Substitution policy
- Allowances including for labor and material
- Change order procedures and pricing
- Exclusions to the contract
- Authorized delay conditions
- Penalties or fines for non-compliance and non-performance
- Provisions for access to the construction site
- Owner, lender and third-party inspection procedures
- Methodology for resolving potential disputes
- Arbitration clause
- Warranties and service policies
- Any documents required by state or local laws
- Signatures and dates of all parties on every page of every document with original copies for all signing parties
- Witness to all signatures
Remodeling contracts may require additional points and/or special language relevant to the particular job.
Contract Provisions Regarding Payments
Pay special attention to the payment schedule. While it is fair and customary to make an initial payment on signing, negotiate to pay as little upfront as possible. Provide for substantial payments to be made on completion of specific phases of work. You best bet for maintaining control of the project in terms of quality and timely completion is to set up a payment schedule that enables you to assert financial leverage throughout. Structure the terms so that you are never required to pay for more of the project than has been completed and avoid scenarios in which the contractor can walk away and break even rather than finishing the project. It is customary to for the owner to hold back as much as 10 percent of the total payment until he or she has received releases from all suppliers and subcontractors--this to make sure there are no liens on your property resulting from the general contractor’s failure to pay his bills.
Write a Change Order Policy
Besides making sure that the contract spells out the work to be performed as clearly as possible, be sure to write an agreement regarding change orders—that is, work that deviates from the original contract description but is found to be necessary. The spirit of such an agreement should be that both you as the owner and the contractor must agree that the work is required, and that the amount of additional payments pursuant to change orders must be agreed to before the work proceeds.
Likewise, if certain work anticipated in the original contract turns out not to be necessary, make sure the contract provides for rebates. You may wish to incentivize the contractor to find less costly solutions and report work or materials itemized in the bid that turn out not to be needed with a contract clause that offers to split the cost difference between the contractor and owner.
Maintain Financial Leverage Throughout the Project
Make sure the contract provides that you will not make the final payment until items on the punch list—a summary of final tasks made toward the end of construction—have been completed to your satisfaction. If you pay a contractor his or her profit before the work is completely finished, there will be no incentive to attend to the last details.
Remodeling contracts should be reviewed by an attorney. If you’re borrowing money for the project, it should be approved by the lender, as well. And if a local homeowner’s association has interest or influence on the project by way of covenants, the board may wish to review the contract.
