Although it may be obvious to have a construction contract when undertaking a remodeling project, I find that many people don’t know exactly what should be in it. This can lead to unnecessary challenges during their remodeling project. Read on to learn how we handle construction contracts and why we think our way saves everyone’s bacon.
For the State of Indiana, it is required to have the following content included in your construction contract:
- The name of the homeowner and address of the home
- The name, address, and telephone number of the contractor
- The date the contract was presented to the homeowner
- A reasonable description of the work
- Approximate start and end dates for the work
- A statement of contingencies that may alter the completion date
- The contract price
This is a good place to start a construction contract, but here are four other things that I feel are very important to put into writing before you sign your construction contract.
- Scope of work
- Payment schedule
- Change orders
Scope of Work
Having a “reasonable” description of the work is good, but I strongly recommend that your contract either include or reference as part of the construction contract a comprehensive Scope of Work. I have written about the importance of a solid scope of work in a previous post, so check it out if you haven’t. Your construction contract should address any legal issues should they arise, but your Scope of Work will address exactly what you agreed that your Remodeling Contractor will be providing you. Leaving this out of the contact or as part of the documents can be a big mistake!
Next, is the payment schedule that outlines how and when you will pay your Remodeling Contractor. Here are a number of options to consider.
- Scheduled draws – On a scheduled draw plan, you would pay your contractor a set amount on a set schedule. For example, you might pay every other week or once a month, depending on the length of the project. Scheduled draws are good for knowing what you will owe and when you will owe it. A challenge with scheduled draws is that enough work may not be complete to warrant a draw payment. You need to make sure that your project stays on schedule or your contractor could easily over draw on payments before the project is completed.
- Percentage of Completion draws – Another way to make payments is a percentage of completion draws. Payments are made based on the percent of work that has been completed. For example, if the project is 40% complete the contractor would submit for a payment that is equal to 40% of the contract value. A challenge with this payment approach is determining what the percentage completion actually is. You may feel like the job is 30% done and the contractor may consider it 50% done.
- Milestone completion – This is my preferred method of a payment schedule. At the beginning of the project, you and your contractor agree to pay certain amounts based on the work completed or about to begin. For example, at the completion foundation work your contractor would submit for an agreed amount based on the contract. These types of milestones are much more black and white and leave less room for misunderstanding.
Change Orders are another area of the construction contract that are vitally important. All parties involved need to understand what might constitute a change order, how are they documented and approved. It is critically important also to know how and when change orders are paid for. Without addressing this in the construction contract leaves too much room for misunderstanding.
Finally, I recommend documenting the warranty agreement. What is your remodeling contractor warranting and for how long? A single document can’t cover ever potential warranty issue, but generally how things will be addressed should be documented in case something unforeseen should happen after your project is completed. And knowing that your contractor is standing behind his work can give you the peace of mind to move forward with your project.
Hopefully this has given you a basic understanding of typical construction contracts and the approach that we choose to take at Corinthian. If you’re looking to work with a conscientious, creative remodeling contractor give us a call!