I’ll say it for the second time this week, your home is an investment! A home is one of the most valuable assets a person owns. Yet all too often, despite the high cost of repairs and remodeling, we fail to ensure we have an adequate contract with the contractor hired. The truth is that even with careful research and a thorough vetting process, the contractor you choose to repair or remodel your home may not live up to your expectations. To hold them to your expectations you need to spell them out in a contract. Here is a checklist of items that should be included in any contract:
Parties to the Contract. Both of your names, any company names, addresses, telephone numbers, and any license numbers.
Job description. Write down a very, very detailed description of what the contractor will do and who will be responsible for the different aspects that go into completing that job. This is not a section to summarize the job! If it doesn’t get written down, you most likely will not be able to hold the contractor responsible for getting it done.
Time. Write out the start date and the projected end date. If possible include other dates by which certain aspects of the job are to be completed.
Payment. Payment dates should be based on job completion. You have wide latitude in negotiating the payment terms, but one option is to put 25% down and pay each additional 25% based on the timeline. The final 25% would be paid once the job is done to your satisfaction. Never pay someone the full amount up front, and you should be wary of contractors who want more than 25-30% percent to get started.
Permitting. Define who will be responsible for securing permits and whether that cost is included in the price. Typically, the contractor should do this, and you should be wary of contractors that are not willing to obtain the permits.
Penalties. If the contractor fails to meet a deadline you should spell out what the penalty will be. This might be withholding of the next payment, or it might be a contract reduction. Reasonable delays should be expected, but the contractor should be held to their schedule.
Change Orders. Repairs and remodels rarely go exactly as expected. The job description may need to shrink or expand, a new kind of material might need to be purchased, or unknown damage might be uncovered. This section should outline how a change order (basically a change to the contract) must be accomplished in order to be valid. You should require a change order request to be in writing and to be approved by your signature. If you overlook this, you could face unexpected charges that you did not approve coming up throughout your project.
Outline of Costs and Materials. Attach and incorporate the contractor’s bid into your contract (literally just write that “the contractor’s bid is incorporated into the contract as Exhibit A”). If they did not provide an itemized list of materials, labor, and other job costs ask them to provide that and don’t sign the contract until it is available to attach. If you want to the contractor to use specific brands, make sure you include that in the contract. Also, require that the contractor provide you with receipts.
Licensure, Insurance and Bonding. Determine what standards exist for contractors in your community—do not hire someone who cannot prove they meet those standards. Even if insurance and bonding isn’t required, seek out companies that carry insurance.
Termination. Detail the reasons why you can terminate the contractor or the reasons why the contractor can terminate the contract without penalty. Generally, these will be lack of payment, failure to meet deadlines (without reasonable explanation), no communication, or poor quality of work.
Other Protection. Always seek a lien release that will keep you from being liable if the contractor fails to pay his subcontractors.
Signatures. You both need to sign the contract.
If the contractor you chose won’t agree to these terms than find one that will. Too often people find themselves with a less that satisfactory contractor and no clear path forward. Remember, it is your house and you are paying the contractor to work for you. You are entitled to create the contract you want, not sign the contract they give you!