With the growth of the economy, more people now have enough discretionary income at their disposal to start a long-awaited remodel to their home or to build a new house designed to their personal tastes.
If you fall into either category and are ready to begin construction, your contractor of choice will require you to sign a contract describing the relationship and enumerating his and your responsibilities. Before signing the contract and committing yourself to this expensive endeavor, however, take the time to carefully review and understand the contract. Certain provisions of the contract, if not understood or followed, can lead to expensive legal problems.
The principal provision in your contract is the section that identifies the work the contractor is to perform. This “scope of work” section will generally refer to the design plans and specifications created by your design team, and it should include the details, materials, labor and project schedule. The scope of work directs the contractor to follow the design plans to give you the remodel or new home you desire, and it should describe that work in comprehensive fashion. If the work is not described, no matter how large or small, the contractor is under no obligation to perform it.
The contract should also precisely state the price you will be charged for the project. Construction contracts generally come in two categories: a “fixed priced” contract where the price is set (subject to change by agreement) and a “cost plus” contract, meaning the contractor charges you for the costs of the labor and materials plus an overhead fee based on a percentage of the cost of labor and materials. Irrespective of the type of contract, be sure you know what the price includes. You may be surprised after carefully reading the contract that the price does not include taxes, permits, fees, and bonds. Unless agreed otherwise, you will be required to pay these expenses in addition to the cost charged by your contractor to complete the job.
During construction, a change to the project may be desired. For example, you may wish to add additional windows when the design plans do not initially include this work. Ensure the contract outlines clear steps how changes to the project are communicated and incorporated, including the individual who is authorized to make changes.
To prevent any misunderstanding between you and the contractor, a separate document clearly describing the change should be signed. In the industry this is known as a change order and is designed to prevent a later issue where a change is executed without your knowledge or permission. Without a properly executed change order, confusion can arise, changes may be made without authorization, the price of the project may not be what you expected, and, in the end, you may have a costly dilemma on your hands.
Also, look for clauses that limit the contractor’s liability. The contract presented to you may not include a provision that allows you to recover losses that, while not directly related to the contractor’s breach, are proximately related to it. Suppose the contractor doesn’t finish the job on time and consequently you incur additional financing costs on your construction loan. This probably was not foreseeable by your contractor, and he may escape any obligation to reimburse you unless the contract includes language the permits these “consequential damages.” You may also want to include a clause that permits you to withhold payment for nonconforming work and delays. This allows you to hold on to payment without breaching the contract until such time that the contractor corrects the work, or the problem is resolved.
The list of contract provisions above is only a small sampling that tend to be contested in construction disputes. There are others that could limit the contractor’s liability or expand yours. It is important you read and fully understand the contract because courts will typically treat the written agreement as the best expression of what you and the contractor agreed to, not what was verbally said before or after the contract was signed. If you do not understand a particular clause or wish to have the contract revised to accommodate more favorable terms, seek legal advice. It could save you a great deal of time and money in the end.
Aaron Harris is an attorney in the Wenatchee office of Ogden, Murphy, Wallace, PLLC, practicing in areas of real estate, business and litigation.