What You Should Know
We’ve all heard the expression “get it in writing!”
That old adage never rang more true than when having construction work done.
A legal and binding contract should be the centerpiece of any agreement where money is paid in exchange for goods or services.
Important note: The information in this article is not legal advice, just general descriptions. If you have legal questions, consult an attorney.
What’s in a Construction Contract Agreement?
What the contract contains will be determined by the home or property owner and the contractor.
As a general rule, an agreement can contain the following points and many more depending on the complexity of the project.
- The names and addresses of the parties drawing up the contract
- The builder’s state license board number showing they are legitimate
- A detailed description of the work to be done
- Start and finish dates
- Total cost and payment schedule
- The contractor’s length of warranty guaranteeing his work
A written contract protects all parties by outlining in detail the responsibilities of each signing participant.
The importance of having such a contract can’t be overstated.
A handshake may be good enough for some smaller, home construction jobs. But to be safe you should still have a contract.
For larger commercial projects, a handshake and a promise just isn’t enough to cover it. In this article we want to focus on the homeowner and the importance of protecting their investment with a contract.
Written vs Oral Contracts
An oral contract (a verbal agreement) can be a legal and binding one but harder to prove in court should it come to that.
The problem is that people remember things differently, especially as time goes by. These can be honest mistakes or simple disagreements but then again, some people are just dishonest. With no written contract, it’s your word against theirs.
In many states verbal agreements are legal agreements. For example, if you hire a company/worker to do a job on your okay and they begin work, the law considers that a legal agreement and binding for each party though no contract was written out and signed. It’s like a “good faith” agreement.
A written contract does what an oral contract doesn’t. It spells out in very specific terms the arrangement and understanding of the work to be done as well as the requirements and responsibilities of each participant, in writing.
Do Contracts Vary From State to State?
Indeed they do.
Often you find in the small print words to the effect of “this contract shall be governed in accordance with the laws and regulations of the state of …. Rules of law and especially contract laws vary from state to state and even from location to location within that same state.”
With so many legal variables it is imperative you know which state is governing your contract. To that end, we’ve compiled a list of state-by-state resources (where we could find them) to make it easy for you to find relevant information for your specific location.
Related Article: How to Choose the Right Contractor
The Channeling Function
If you have a large construction project that is going to cost a pretty penny to complete, you definitely want a written contract (or several) to avoid any legal disputes that could cost you money.
If it’s in the contract, it’s difficult to argue otherwise. Should an issue arise, the documents are there to support one side or the other.
The value of a written contract is that it lays out the guidelines in clearly defined terms of what procedures are to be followed, specifically, what work is to be done, materials used and the total costs.
It also outlines the responsibilities of both parties. This is also known as the channeling function. In the event you should end up in court, terms agreed to in writing will make the resolution of any legal dispute that much faster.
The 4 Classifications of Contracts
Essentially, there are four models of construction contracts that can be drawn up:
Lump Sum or Fixed Price – This one is pretty much self-explanatory. You agree with the builder what is to be done for a fixed or set amount of money. Some contracts include clauses that provide monetary adjustments or fines if the contractor runs over the time allotment.
Unit Pricing Contracts – Often reserved for Federal work but not always, these type contracts let the owner know the standard price per unit being built will be without any mark-up for the construction of specific units the project may require.
Time & Material – With this contract the homeowner gets the price up-front with a GMP (guaranteed maximum price) cost figure from the builder for his time and cost of materials. An hourly wage is the usual pay scale here.
Costs-Plus – Similar to the Time & Material contract, this one covers materials and labor costs as well as the contractor. The plus factor is built-in in the event that omissions were made by the homeowner resulting in added costs to the builder. It actually protects the contractor from unforeseen additional monetary outlay in time and materials should the homeowner alter the original plan of construction once underway.
In essence, construction contracts are created for the mutual benefit and protection of all parties involved.
3 Things Contracts Do
- Explain explicitly what work is to be done and at what cost.
- Include other aspects of the work such as what materials will be used, who will be doing the work and oft’ times, a general time frame for completion.
- Protect the homeowner/builder should a disagreement arise during construction. Resolution is always quicker when everything is spelled out, including the payment schedule.
For the homeowner, contracts don’t have to be complicated, just complete. Go over your plans and ideas with your builder/remodeler and get his professional opinion.
He may see ways to cut costs or offer his own perspective of what needs to be done. He may even offer a better way to do what you want done that you hadn’t envisioned. Once you see eye to eye on the project, put it down on paper and sign it.
We hope you found the information contained in this article helpful and has afforded you a keener insight into why you get it in writing. And while contracts can vary greatly in their content, the basic code of behavior is solid.
Bottom line; the clearer the plan is laid out, the smoother the project will go. Murphy’s Law not withstanding.
Remember, a written contract outlining the details might be all that keeps you from getting hammered along with your project.