What to Look for in a Construction Contract
If you are planning to build a home, or hire someone to remodel your existing home, it is in your best interests to sign a written agreement with the contractor. In the absence of such a contract, it will be difficult to protect your rights in situations where the contractor’s actions are not clearly negligent or careless.
The Provisions You Want to Include in a Construction Contract
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Make certain that the contract includes the following:
- A complete record of the general contractor’s business information, including name, address, phone number, e-mail address and license number
- A thorough description of the project—the contract should identify all work to be done, and should include specifications of materials to be used. It should also confirm that the contractor will obtain the necessary permits.
- The total price and payment schedule for the project—make certain the contract specifies how much has to be paid up front, and when installment payments are due. Include any required inspection approvals.
- Work schedule-Be clear about when the project will start and an approximate end date. Also identify whether work will be done in the evening, on weekends or on holidays.
- Protect yourself against potential liens—If the general contractor or a subcontractor obtains supplies from a vendor, uses them on your project, but then does not pay for them, you could be subject to a mechanic’s or materialman’s lien. If the amount is substantial, the creditor could force the sale of your home. There are ways to avoid this:
- require that the contract secure a “payment bond.”
- make checks payable to the contractor and subcontractor jointly
- require that the general contractor get a release of all liens before you make final payment
- include a retention of funds provision, essentially a set-aside to cover potential liens.
- Warranties—Make certain that all parties—contractors, subcontractors, vendors and suppliers—provide reasonable warranties on materials and labor
- Special instructions—If there’s anything out of the ordinary in the project, put it in writing
Your Right to Cancel a Construction Contract
Under federal law, if you signed the contract in your own home, or at some place other than the general contractor’s place of business, you may cancel the agreement for any reason within three days.
Be careful to note whether the agreement requires binding arbitration. These clauses are standard in most construction clauses. If you sign, you relinquish your right to take your case to court.
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