15 Jun Management of Contracts for Home Construction
Construction work runs on contracts, and when the project is a significant home improvement contract or a contract for new construction, the agreement will be in writing with a lot of fine print. For a homeowner without legal experience, the legalese can be confusing and intimidating, which makes it tempting to gloss over the details and get on with the project. Since the contractor writes the contract, some terms will inevitably favor them, so it’s essential to ensure that certain critical aspects of the agreement provide clarity and protection to the homeowner. Given the amount of the investment for a residential home construction project, if you have concerns about any term, it may be worth consulting with an experienced attorney to address the issue. Here are some provisions that should be clear about expectations and fair to the homeowner.
Scope of Work
From the level of workmanship in the preparation to the final punch list, the scope of work in a home improvement contract needs to be specific and clear. Rather than a general description of the work, it is better to spell out precisely what is being paid for in detail. For example, designs can be written on the back of a napkin or drafted and stamped by an architect, so it’s important to set out expectations. Some contractors rush to start the project by including “allowances” for some items or a “TBD” placeholder. This leaves a significant ambiguity in the contract that can lead to expensive additional costs or being forced to pick lower quality items because of the budget. Review the scope carefully to ensure there are a minimum of potential surprises.
In all projects, but particularly in a home renovation contract, the scope also needs to consider the possibility that some new issue will be discovered during the work (e.g., damage behind the walls that only becomes apparent during demolition). The contract should have a provision for a “change order” that specifies that the scope of the work will not change, nor will the contractor do any work beyond the scope without a written and signed agreement to change the scope. If possible, try to include a statement that the contractor will not be paid for any additional work that they undertake without written authorization will not be compensated.
Residential construction project management rarely provides for continuous work. For example, a concrete foundation needs to be allowed to cure before building on it. This means that contractors often have multiple jobs scheduled simultaneously, and without specific provisions in the construction contract, your project may sit idle for days and months. Timing provisions in a contract can help keep the project on track. They can include a bonus for prompt completion (or a penalty for late completion) to incentivize the contractor to maintain momentum.
One of the challenges in construction is that it costs the contractor labor and materials to complete the work, but the homeowner wants to pay for completed work, not advance sums in the hope that it will be done. While most contracts provide for a downpayment before starting work on a home construction project, be careful not to agree to pay too much upfront. Instead, try to negotiate payment upon completion of certain milestones (specific items or percentages) and consider working with a professional inspector to sign off that the milestone has been reached. Another protective provision, which is more common in commercial construction, is a holdback of a percentage called a “retainage” at each phase of payment, which will only be paid upon the total completion of the contract.
It’s rare that a home renovation contract or other residential construction agreement proceeds without a hitch. The contract should have some provisions for what to do in the event of a dispute. While these terms vary, and their benefits depend on the parties’ preferences, it is essential to be aware of whether there is mandatory mediation or arbitration, attorney’s fees, limitation of liability, or other terms that could impact recovery in the event of a dispute.
Building a new home or making major changes to an existing residence can be exciting and terrifying at the same time. The contractor brings the benefit of experience and expertise, but the construction contract puts them on the other side of the negotiating table. It is worth working with professionals in law and construction to make sure that the agreement is fair for both sides. Biller and Associates offers services including construction draw inspection and project management, that can benefit a homeowner in the process. Contact us to discuss your needs today.